Export Procedure and Documentation: Dissertation Project Report On

EXPORT PROCEDURE AND DOCUMENTATION
Dissertation Project Report

On
EXPORT PROCEDURE AND

DOCUMENTATION
In reference to: Trade Link Export

Submitted By
Pulkit Agarwal
A1823209002
BBA+MBA – IB Class of 2013
Under the Supervision of
Mr. ALKA MAURYA

Professor
Department of International Business
In Partial Fulfillment of the Requirements for the Degree of
Bachelors of Business Administration + Master of Business Administration –
International Business
At
AMITY INTERNATIONAL BUSINESS SCHOOL
AMITY UNIVERSITY UTTAR PRADESH
SECTOR 125, NOIDA - 201303, UTTAR PRADESH, INDIA
2013
1
A PROJECT REPORT
ON
EXPORT PROCEDUREAND
DOCUMENTATION
Submitted by: PULKIT AGARWAL
A report made at
TRADE LINK EXPORTS

Certified by:
Prof. ALKA MAURYA

(Faculty Guide)
DATE OF SUBMISSION: 02/12/2013
2
CERTIFICATE OF ORIGIN
This is to certify that Ms./Mr.___________________, a student of Post

Graduate Degree in _____________________, Amity International Business
School, Noida has worked in the ____________________, under the able
guidance and supervision of Mr./Ms._________________________,
designation______________, in ___________________________.
The period for which he/ she was on training was for ______weeks, starting
from ___________to _____________. This dissertation report has the
requisite standard for the partial fulfillment the Post Graduate Degree in
International Business. To the best of our knowledge no part of this report
has been reproduced from any other report and the contents are based on
original research.
Date: -
Faculty guide.
3
STUDENT’S DECLRATION
I hereby declare that the Project Report conducted at
Trade Link Exports
Under the guidance of
Mr. ALKA MAURYA

Submitted in partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION-IB
(INTEGRATED)
TO
AMITY UNIVERSITY, UTTAR PRADESH
Is my original work and the same has not been submitted for the award of any other degree/
diploma/ fellowship or other similar titles or prizes.
Place: Moradabad PULKIT AGARWAL
4
ACKNOWLEDGEMENTS
First and foremost I am grateful to Mr. Atul Chauhan, Chairman, Amity university
Limited for giving me an opportunity to work in this prestigious organisation.
I would like to express my deepest gratitude and sincere thanks to Mr. Mukesh Gupta
Managing Director of Trade Link Exports, Moradabad, who is my mentor for project
guide for his continuous guidance and valuable suggestions, support, and constant
encouragement at every step of the project.
I humbly thank my faculty project guide, Prof. ALKA MAURYA who provided his
valued guidance that helped me to work on this project comprehensively which enabled
me to hone my skills. He always guided me in the right direction and always encouraged
me to add more value to the project.
I am deeply indebted to all the faculty members of my institute for their valuable
contribution during the academic session.
Last but not the least, I would like to thank everyone I was associated with, whose names
have remained unmentioned here, but who have contributed by giving me a sharp and
gratifying imminent approach and insight during the course of my project.
PULKIT AGARWAL
INDEX
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SERIAL CONTENT PAGE

NUMBER NUMBE
R
1 INTRODUCTION 8
2 HOW TO SET UP AN EXPORT ORGANISATION 10
3 HOW ONE BEGINS TO DO EXPORT 14
4 EXPORT SALES & CONTRACT TERMS & 17
CONDITIONS
5 TERMS OF SHIPMENT – INCOTERMS. 19
6 PROCESSING AN EXPORT ORDER 26
7 FINANCIAL RISK INVOLVED IN FOREIGN 28
TRADE
8 EXPORT DOCUMENTS 29
9 QUALITY CONTROL & PRE-SHIPMENT 52
INSPECTION
10 SHIPPING ANG CUSTOMS FORMALITIES 55
11 METHODS OF RECEIVING PAYMENTS 60
AGAINST EXPORTS
12 THE LETTER OF CREDIT 63
13 PREPARATION AND SUBMISSION OF 72
DOCUMENTS FOR BANK NEGOTIATIONOR
PURCHASE
14 ECGC 77
15 References 88
6
Documents
SERIAL CONTENT PAGE

NUMBER NUMBER
1 IEC NO FORM 13
2 EXPORT ORDER 27
3 COMMERCIAL INVOICE 30
4 INSPECTION CERTIFICATE 32
5 CERTIFICATE OF ORIGIN 35
6 BILL OF LADING 37
7 PERFORMA INVOICE 40
8 LETTER TO BANK FOR NEGOTITATION 44
9 INSURANCE 51
10 THE LETTER OF CREDIT 64
11 SWIFT COPY 72
12 ECGC 78
7
INTRODUCTION
India has a mission to capture 2% of the global share of trade by 2012, up

from the present level of less than 1%. Export is one of the lucrative business activities in
India. The government also provides various promotional schemes to the exporters for
earning valuable foreign exchange for the country and for meeting their requirements for
importing modern technology and essential inputs. Besides, the income from export
business is also exempted to the specified extent under the Income Tax Act, 1961, Refund
of Central Excise and Custom Duty on export is also made under the Duty Drawback
Scheme of the Government. There is no Sales Tax on products meant for exports.
TWO CLASSES OF EXPORTS:
Physical Exports: If the goods physically go out of the country or services

are rendered outside the country then it is called as physical export. Deemed Exports:
Where the goods do not go out of the country physically they can be termed as deemed
exports. This will be subject to certain conditions as prescribed by the DGFT. Under
Deemed Exports, the goods may be supplied to the manufacturer exporter who ultimately
export a finished product of which this supply forms a part and ultimately go out of the
country. E.g. Supply of fabrics to the garment exporter who exports the garments made
out of the said fabric.
The government may announce from time to time the types of supplies
that may be considered as deemed export. The Foreign Trade Policy gives the list of
supplies considered under the Deemed Export Category. The policies and procedures are
different for Physical Exports and Deemed Exports as also the benefits available. In a
nutshell, Deemed Exports do not enjoy all the benefits that are available under Physical
Export. The Foreign Trade defines exports as taking out of India any goods by land, sea,
air. Although the act does not term them as “Physical Exports”, we have to put phrase to
8
distinguish it from “Deemed Exports” which is sales in India but considered as exports
for limited purpose.
TYPES OF EXPORTERS:
Exporters can be basically classified into two groups
 Manufacturer Exporter: As the exporter has the facility to manufacturer the

product he intends to export and hence he exports the products manufactured by
him.
 Merchant Exporter: An exporter who does not have the facility to manufacture
an item. But, he procures the same from other manufacturers or from the market
and exports the same.
An exporter can be both a manufacturer exporter as well as a merchant

exporter, he can export product manufactured by him and he can export items bought
from the market.
Once it is decided to export, it is mandatory on your part to follow certain

procedures, rules and regulations as prescribed by various regulatory authorities such as
DGFT, RBI, and Customs. These procedures, rules and regulations are laid down in the
Exim Policy 2004-09, Exchange Control Manual, Customs Act etc. Accordingly Export
documents are required to be prepared keeping in view of the requirement of the foreign
buyers and our regulatory authorities.
HOW TO SET UP AN EXPORT ORGANISATION
9
The proper selection of organization depends upon
 Ability to raise finance.

 Capacity to bear the risk.
 Desire to exercise control over the business.
 Nature of regulatory framework applicable to anyone
If the size of the business is small, it would be advantageous to form a sole

proprietary business organization. It can be set up easily without much expenses and legal
formalities. It is subjected to only few governmental regulations. However, the biggest
disadvantage of sole proprietorship business is limited ability to raise funds, which
restricts the growth. Besides the owner has unlimited personal liabilities. In order to
avoid this disadvantage, it is advisable to form a partnership firm.
The partnership firm can also be set up with ease and economy. Business
can take benefit of the varied experiences and expertise of the partners. The liability of
the partners though joint and several, is practically distributed amongst the various
partners, despite the fact that the personal liability of the partner is unlimited. The major
disadvantage of partnership firm of business organization is that conflict amongst the
partners is a potential threat to the business. It will not be out of place to mention here
that the Indian Partnership Act, 1932, governs partnership firms and, therefore they
should be formed within the parameters laid down by the Act. Company is another form
of business organization, which has the advantage of distinct legal identity and limited
liability to the shareholders.
CHOOSING APPROPRIATE MODE OF OPERATIONS:
10
You can choose any of the following modes of operations
 Merchant Exporter i.e. buying the goods from the market or from the
manufacturer and then selling it to foreign buyers.
 Manufacturer Exporter i.e. manufacturing the goods yourself for export.
 Sales Agent / Commission Agent / Indenting Agent i.e. acting on behalf of the
seller and charging the Commission.
 Buying Agent i.e. acting on behalf of the buyer and charging Commission.
 Service provider i.e. providing service from India to another country.
REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING

IMPORTER EXPORTER CODE (IEC) NUMBER.
The Customs Authorities will now allow the exporter to export or import goods into or
from India unless he holds a valid IEC number. Before applying for IEC number it is
necessary to open a bank account in the name of the company with any commercial bank
authorized to deal in foreign exchange. The duly signed application form should be
supported by the following documents.
 Bank receipt (in duplicate) / Demand Draft for payment of the fees of Rs. 1000/-
 Certificate from the banker of the applicant firm as per Annexure 1 to the form
given.
 One copy of PAN number issued by Income Tax Authorities duty attested by the
applicant.
 One copy of Passport Size photographs of the applicant duly attested by the
banker to the applicant.
 Declaration by the applicant that the proprietor/partners/directors as the case may
be of the applicant company, are not associated as proprietor/partners/directors in
11
any other firm, which has been caution, listed by the RBI. Where the applicant
declares that they are associated as proprietor/partners/directors in any other firm,
which has been caution, listed by the RBI, they will be allotted IEC No.
APPLICATION FOR OBTAINING AN IEC NUMBER
For obtaining IEC number apply in the prescribe form along with the documents
listed above to Regional Licensing Authority (Office of the Regional DGFT). The
registered office or the head office may apply for allotment of IEC No.
Whenever, there is a change in the name, address or constitution of the holder of IEC
No., such change should be intimated within 30 days to the concern authorities.
IEC certificate will be issued in the form (copy enclosed). A copy of IEC No. is also
endorsed to the concerned banker.
VALIDITY:
The IEC No allotted to a firm/company will be valid for all its branches/divisions
units/factories as indicated in the IEC No. Import/Export of any commodity by that
firm/company. They’re being no date of expiry; the IEC once allotted is valid till it is
revoked. But, if no import or export is affected in the previous financial year, the same
will be made inoperative. However, this can be made operative by a formal request to the
DGFT.
Here, below given is the example of the IEC no. of the TRADE LINK
EXPORT.
12
Doc No. 1- IEC NO FORM
13
HOW ONE BEGINS TO DO EXPORT

Before entering into the venture of exports, one must look for the product to be exported
and the market where he intends to export.
In case of a manufacturer, obviously he would like to export the product he manufactures

as is or with possible modification as may be required by the market. However, in case of
a merchant exporter or a trader, one has to identity the product to export. If the exporter is
already in the trade in the domestic market and is familiar with the product it would be an
advantage to export the said product of which he has reasonable knowledge.
Before selecting a product, one must simultaneously made a study and find out the
prospective market. For finding out the market for the selected product, the following
methods will help.
 Get statistical information as to imports of the product by various countries
and their growth prospects in the respective countries
 Approach the chamber of commerce for their guidance to find out the market.
 Approach the Export Promotion Council dealing in the product of selection to
get more information.
The Preliminary
Once you are ready with the product you wish to export and have found the market for
the same, you are ready to proceed further. Following sequences can be followed:
 Any one, who wishes to export, must first of all get an Importer Exporter
Code Number (IE Code).This can be obtained by making a formal
application to the office of the Regional Directorate General of Foreign
Trade (DGFT).
 Get yourself registered with the related Export Promotion Council and
become a member. Also arrange to obtain Registration-Cum-Membership
Certificate (RCMC) from the council. This has twin objectives:
14
o Under the Foreign Trade Policy, it is mandatory that an exporter gets him
registered with the Export Promotion Council to avail of various export
facilities.
o Being a member, you will have access to all the information relating to the
product that could be made available by the council
o Many foreign buyers send their enquiries for the imports to the Export
Promotion Council. Hence you will have few customers interested in your
product.
 If you are a manufacturer, find out the provisions under the EXIM Policy of
getting the raw materials duty free.
 Get familiar with the excise formalities as goods meant for export can be cleared
without payment of C. Excise duty on the finished product subject to compliance
of certain formalities.
 Understand the local government regulations in relations to the export of the
product.
 Get information of the government’s regulations of the importing country as to
restrictions on the quantity, product specification, packing regulations, customs
regulations, requirement of specific documents/information etc.
 Availability of Vessels/Airlines, the transport charges, frequency of operation etc.,
 To look for a Custom House Agent (CHA) (also know as freight forwarders or
clearing agents) for handling the documents/cargo in the customs.
 If the product is covered under any quota regulation, find out the agency/council
who are handling the quota distribution for the product and the availability of
quota for exports.
15
NEGOTIATING CONTRACT.
Once the prospective customer is found, the business deal has to be concluded. The
following aspects may be considered before entering into a final contract with the
buyer.
 Credit Worthiness of the Customer.
 Availability of the Steamer/Airlines and the frequency
 The freight charges
 The full product specification
 The quantity, Price
 Terms of Payment
 Type of packing and markings on the packages
 Mode of shipment & Shipment schedule
 Tolerance of quantity to be shipped
 Documentation requirement for the customer
 Documentation requirement of the government of importing country
 Compliance of the local governmental rules and regulations
Before entering into contract one should take note of the above factors. While these are
indicative, the requirements will vary from country to country, product to product and
buyer to buyer.
16
EXPORT SALES & CONTRACT TERMS & CONDITIONS
Very often exporters do not enter into any formal contract and finalize the trade deal
through the exchange of letters, cable, telex etc. It is, however, expedient that the parties
(exporters & importers) incorporate all important terms & conditions of their trade deal in
a separate document or contract that will avoid disputes arising out of uncertainty or
ambiguity. Export contract may be sent in duplicate along with the Proforma Invoice to
the overseas buyer.
NATURE OF INTERNATIONAL TRADE CONTRACTS.
There are certain, peculiar characteristics of international trade contract, which are not
present in those for sales of goods in the domestic market
Whereas the parties to a domestic trace contract normally needs only agree on the
elements which are necessary for their particular trade transactions like price, description,
quality and quantity of goods, delivery terms etc the situation will be quite different when
the buyer and the seller to sale/purchase contract belong to different countries. The
parties to all international trade contracts provide all their relative rights and obligations
in several ways
For example, they may agree to adopt either the Law of the country of the buyer or that
of the seller. The traders are normally reluctant to leave the determination of the rights
and obligations by implications under the legal system of either’s country. They prefer to
make explicit provisions regarding the rights and obligations by including a set of
detailed and precise terms and conditions in their contract.
Herewith, Export contract of TRADE LINK EXPORT is attached in PDF form to explain
what and how a contract is made under exporting circumstances.
17
ENTERING INTO AN EXPORT CONTRACT
In order to avoid disputes, it is necessary to enter into an export contract with the
overseas buyer. For this purpose, export contract should be carefully drafted
incorporating comprehensive but in precise terms, all relevant and important conditions
of the trade deal.
There should not be any ambiguity regarding the exact specifications of goods and terms
of sale including export price, mode of payment, storage and distribution methods, type
of packaging, port of shipment, delivery schedule etc. The different aspects of an export
contract are enumerated as under:
 Product, Standards and Specifications

 Quantity
 Inspection
 Total Value of Contract
 Terms of Delivery
 Taxes, Duties and Charges
 Period of Delivery/Shipment
 Packing, Labeling and Marking
 Terms of Payment-- Amount/Mode & Currency
 Discounts and Commissions
 Licenses and Permits
 Insurance
 Documentary Requirements
 Guarantee
 Force Majeure of Excuse for Non-performance of contract
 Remedies
 Arbitration clause
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TERMS OF SHIPMENTS – INCOTERMS
The INCOTERMS (International Commercial Terms) is a universally recognized set of

definition of international trade terms, such as FOB, CFR & CIF, developed by the
International Chamber of Commerce (ICC) in Paris, France. It defines the trade contract
responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving
tool. The exporter and the importer need not undergo a lengthy negotiation about the
conditions of each transaction. Once they have agreed on a commercial terms like FOB,
they can sell and buy at FOB without discussing who will be responsible for the freight,
cargo insurance and other costs and risks.
The INCOTERMS was first published in 1936 --- INCOTERMS 1936 --- and it is revised
periodically to keep with changes in the international trade needs. The complete
definition of each term is available from the current publication --- INCOTERMS 2000.
Under INCOTERMS 2000, the international commercial terms are grouped into E, F, C
and D, designated by the first letter of the term, relating to the final letter of the term. E.g.
EXW—exworks comes under grouped ‘E’.
The purpose of Incoterms is to provide a set of international rules for the interpretation of
the most commonly used trade terms in foreign trade. Thus, the uncertainties of different
interpretations of such terms in different countries can be avoided or at least reduced to a
considerable degree. The scope of Incoterms is limited to matters relating to the rights
and obligations of the parties to the contract of sale with respect to the delivery of goods.
Incoterms deal with the number of identified obligations imposed on the parties and the
distribution of risk between the parties.
In international trade, it would be best for exporters to refrain, wherever possible, from
dealing in trade terms that would hold the seller responsible for the import customs
clearance and/or payment of import customs duties and taxes and/or other costs and risks
19
at the buyer’s end, for example the trade terms DEO (Delivery Ex Quay) and DDP
(Delivered Duty Paid)
Quite often, the charges and expenses at the buyer’s end may cost more to the seller than
anticipated. To overcome losses, hire a reliable customs broker or freight forwarder in the
importing country to handle the import routines.
Similarly, it would be best for importers not to deal in EXW (Ex Works) which would
hold the buyer responsible for the export customs clearance, payment of export customs
charges and taxes, and other costs and risks at the seller’s end
MORE CLARIFICATION ON INCOTERMS
EXW {+the named place}
Ex Works: Ex means from. Works means factory, mill or warehouse, which are the
seller’s premises. EXW applies to goods available only at the seller’s premises. Buyer is
responsible for loading the goods on truck or container at the sellers premises and for the
subsequent costs and risks. In practice, it is not uncommon that the seller loads sthe
goods on truck or container at the sellers pre4mises without charging loading fee. N the
quotation, indicate the named place (sellers premises) after the acronym EXW for
example EXW Kobe and EXW San Antonio.
The term EXW is commonly used between the manufacturer (seller) and export-
trader(buyer), and the export-trader resells on other trade terms to the foreign buyers.
Some manufacturers may use the term Ex Factory, which means the same as Ex Works.
FCA {+the named point of departure}
Free Carrier: The delivery of goods on truck, rail car or container at the specified
point(depot) of departure, which is usually the sellers premises, or a named railroad
station or a named cargo terminal or into the custody of the carrier, at sellers expense.
The point(depot) at origin may or may not be a customs clearance centre. Buyer is
responsible for the main carriage/freight, cargo insurance and other costs and risks.
20
In the air shipment, technically speaking, goods placed in the custody of an air carrier are
considered as delivery on board the plane. In practice, many importers and exporters still
use the term FOB in the air shipment. The term FCA is also used in the RO/RO (roll
on/roll off) services
In the export quotation, indicate the point of departure (loading) after the acronym FCA,
for example FCA Hong Kong and FCA Seattle. Some manufacturers may use the former
terms FOT (Free on Trucks) and FOR (Free on Rail) in selling to export-traders.
FAS {+the named port of origin}
Free Alongside Ship: Goods are placed in the dock shed or at the side of the ship, on the
dock or lighter, within reach of its loading equipment so that they can be loaded aboard
the ship, at seller’s expense. Buyer is responsible for the loading fee, main
carriage/freight, cargo insurance, and other costs and risks In the export quotation,
indicate the port of origin(loading)after the acronym FAS, for example FAS New York
and FAS Bremen. The FAS term is popular in the break-bulk shipments and with the
importing countries using their own vessels.
FOB {+the named port of origin)
Free on Board: The delivery of goods on the board the vessel at the named port of origin
(Loading) at seller’s expense. Buyer is responsible for the main carriage/freight, cargo
insurance and other costs and risks. In the export quotation, indicate the port of origin
(loading) after the acronym FOB, for example FOB Vancouver and FOB Shanghai.
Under the rules of the INCOTERMS 1990, the term FOB is used for ocean freight only.
However, in practice, many importers and exporters still use the term FOB in the air
freight. In North America, the term FOB has other applications. Many buyers and sellers
in Canada and the USA dealing on the open account and consignment basis are
accustomed to using the shipping terms FOB Origin and FOB destination.
21
FOB Origin means the buyer is responsible for the freight and other costs and risks. FOB
Destination means the seller is responsible for the freight and other costs and risks until
the goods are delivered to the buyer’s premises which may include the import custom
clearance and payment of import customs duties and taxes at the buyer’s country,
depending on the agreement between the buyer and seller. In international trade, avoid
using the shipping terms FOB Origin and FOB Destination, which are not part of the
INCOTERMS (International Commercial Terms).
CFR {+the named port of destination}
Cost and Freight: The delivery of goods to the named port of destination (discharge) at
the seller’s expenses. Buyer is responsible for the cargo insurance and other costs and
risks. The term CFR was formerly written as C&F. Many importers and exporters
worldwide still use the term C&F.
In the export quotation, indicate the port of destination (discharge) after the acronym
CFR, for example CFR Karachi and CFR Alexandria. Under the rules of the
INCOTERMS 1990, the term Cost and Freight is used for ocean freight only. However,
in practice, the term Cost and Freight (C&F) is still commonly used in the air freight.
CIF {+named port of destination}
Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named
port of destination (discharge) at the seller’s expense. Buyer is responsible for the import
customs clearance and other costs and risks.
In the export quotation, indicate the port of destination (discharge) after the acronym CIF,
for example CIF Pusan and CIF Singapore. Under the rules of the INCOTERMS 1990,
the term CIFI is used for ocean freight only. However, in practice, many importers and
exporters still use the term CIF in the airfreight.
22
CPT {+the named place of destination}
Carriage Paid To: The delivery of goods to the named port of destination (discharge) at
the seller’s expenses. Buyer assumes the cargo insurance, import custom clearance,
payment of custom duties and taxes, and other costs and risks. In the export quotation,
indicate the port of destination (discharge) after the acronym CPT, for example CPT Los
Angeles and CPT Osaka.
CIP {+ the named place of destination)
Carriage and Insurance Paid To: The delivery of goods and the cargo insurance to the
named place of destination (discharge) at seller’s expense. Buyer assumes the importer
customs clearance, payment of customs duties and texes, and other costs and risks.
In the export quotation, indicate the place of destination (discharge) after the acronym
CIP, for example CIP Paris and CIP Athens.
DAF {+ the names point at frontier}
Delivered At Frontier: The delivery of goods to the specified point at the frontier at
seller’s expense. Buyer is responsible for the import custom clearance, payment of
custom duties and taxes, and other costs and risks.
In the export quotation, indicate the point at frontier (discharge) after the acronym DAF,
for example DAF Buffalo and DAF Welland.
DES {+named port of destination}
Delivered Ex Ship: The delivery of goods on board the vessel at the named port of
destination (discharge) at seller’s expense. Buyer assumes the unloading free, import
customs clearance, payment of customs duties and taxes, cargo insurance, and other costs
and risks.
23
In the export quotation, indicate the Port of destination (discharge) after the acronym
DES, for example DES Helsinki and DES Stockholm.
DEQ {+ the named port of destination
Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination at
buyers expense. Seller is responsible for the importer customs clearance, payment of
customs duties and taxes, at the buyers end. Buyer assumes the cargo insurance and other
costs and risks. In the export quotation, indicate the Port of destination (discharge) after
the acronym DEQ, for example DEQ Libreville and DEQ Maputo.
DDU {+ the named point of destination}
Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point
at destination, which is often the project site or buyers premises at seller’s expense. Buyer
assumes the import customs clearance, payment of customs duties and taxes. The seller
may opt not to insure the goods at his/her own risks.
In the export quotation, indicate the point of destination (discharge) after the acronym
DDU for example DDU La Paz and DDU N’djamena.
DDP {+ the named point of destination)
Delivered Duty Paid: The seller is responsible for most of the expenses which include
the cargo insurance, import custom clearance, and payment of custom duties, and taxes at
the buyers end, and the delivery of goods to the final point of destination, which is often
the project site or buyers premise. The seller may opt not to insure the goods at his/her
own risk. In the export quotation, indicate the point of destination (discharge) after the
acronym DDP, for example DDP Bujumbura and DDP Mbabane.
24
“E”-term,”F”-term, “C”-term &”D”-term: Incoterms 2000, like its immediate

predecessor, groups the term in four categories denoted by the first letter in the three-
letter abbreviation.
 Under the “E”-TERM (EXW), the seller only makes the goods available to the
buyer at the seller’s own premises. It is the only one of that category.
 Under the “F”-TERM (FCA, FAS, &FOB), the seller is called upon to deliver the
goods to a carrier appointed by the buyer.
 Under the “C”-TERM (CFR, CIF, CPT, & CIP), the seller has to contract for
carriage, but without assuming the risk of loss or damage to the goods or
additional cost due to events occurring after shipment or discharge.
 Under the “D”-TERM (DAF, DEQ, DES, DDU & DDP), the seller has to bear all
costs and risks needed to bring the goods to the place of destination.
All terms list the seller’s and buyer’s obligations. The respective obligations of both
parties have been grouped under up to 10 headings where each heading on the seller’s
side “mirrors” the equivalent position of the buyer. Examples are Delivery, Transfer of
risks, and Division of costs. This layout helps the user to compare the parties respective
obligations under each Incoterms.
25
PROCESSING AN EXPORT ORDER
You should not be happy merely on receiving an export order. You should first
acknowledge the export order, and then proceed to examine carefully in respect of
 Items
 Specification
 Pre-shipment inspection
 Payment conditions
 Special packaging
 Labeling and marketing requirements
 Shipment and delivery date
 Marine insurance
 Documentation requirement etc.
If you are satisfied on these aspects, a formal confirmation should be sent to the buyer,
otherwise clarification should be sought from the buyer before confirming the order.
After confirmation of the export order immediate steps should be taken for
procurement/manufacture of the export goods. In the meanwhile, you should proceed to
enter into a formal export contract with the overseas buyer.
Before accepting any order necessary homework should have been done as to availability
of the production capacity, raw material e.t.c. It would be in the interest of the exporter to
look into entering into forward contract to safeguard against exchange rate fluctuations.
Ensure that the mode of payment is also agreed upon. In case of shipment against letter of
26
credit, the buyer should be advised to open the credit well in advance before effecting the
shipment.
27
28
Doc no. 2 : Export order given by Ross Inc.
29
FINANCIAL RISKS INVOLVED IN FOREIGN TRADE
As an exporter while selling goods abroad, you encounter various types of risks. The
major risks, which you have to undergo, are as follows:
 Credit Risk
 Currency Risk
 Carriage Risk
 Country Risk
You can protect yourself against the above risks by initiating appropriate steps.
Credit Risks:
You can cover your credit risk against the foreign buyer by insisting upon opening a letter
of credit in your favour. Alternatively one can avail of the facility offered by various
credit risk agencies. A specific insurance cover can also be obtained from ECGC (Exports
Credit & Guarantee Corporation) to cover your country risk besides covering credit risk.
Currency Risks:
As regards covering the currency risk, due to the exchange rate fluctuations, you can
request your banker to book a forward contract.
Carriage Risk:
Taking an appropriate general insurance policy can cover the carriage risk.
Country Risk:
ECGC provides cover to protect the exporter from country risks. Detailed procedures
how an exporter can get him protected against the above risks are given in separate
chapters later.
30
EXPORT DOCUMENTS
Any export shipment involved various documents required by various authorities such as
customs, excise, RBI, Inspection and according depending upon the requirements, there
are categorized into 2 categories, namely commercial documents and regulatory
documents.
A. Commercial Documents. : - Commercial documents are required for effecting

physical transfer of goods and their title from the exporter to the importer and the
realisation of export sale proceeds. Out of the 16 commercial documents in the
export documentation framework as many as 14 have been standardised and
aligned to one another. These are proforma invoice, commercial invoice, packing
list, shipping instructions, intimation for inspection, certificate, of inspection of
quality control, insurance declaration, certificate' of insurance, mate's receipt, bill
of lading or combined transport document, application for certificate origin,
certificate of origin, shipment advice and letter to the bank for collection or
negotiation of documents. However, shipping order and bill of exchange could not
be brought within the fold of the Aligned Documentation System,
1. Commercial Invoice: Commercial invoice is an important and basic export

document. It is also known as a 'Document of Contents' as it contains all the
information required for the preparation of other documents. It is actually a seller's
bill of merchandise. The exporter prepares it after the execution of export order
giving details about the goods shipped. It is essential that the invoice is prepared in
the name of the buyer or the consignee mentioned in the letter of credit. It is a prima
facie evidence of the contract of sale or purchase and therefore, must be prepared
strictly in accordance with the contract of sale.
31
Doc no. 3: Example of commercial invoice of TRADE LINK EXPORT
32
Contents of Commercial Invoice
 Name and address of the exporter.

 Name and address of the consignee.
 Name and the number of Vessel or Flight.
 Name of the port of loading.
 Name of the port of discharge and final destination.
 Invoice number and date.
 Exporter's reference number.
 Buyer's reference number and date.
 Name of the country of origin of goods.
 Name of the country of final destination.
 Terms of delivery and payment.
 Marks and container number.
 Number and packing description.
 Description of goods giving details of quantity, rate and total amount in terms of
internationally accepted price quotation.
 Signature of the exporter with date.
2 Inspection Certificate: the inspection authority such as the export inspection

agency issues the certificate. This certificate states that the goods have been
inspected before shipment, and that they confirm to accepted quality standards.
33
Doc no. 4: Example of inspection certificate of TRADE LINK EXPORT
3 Marine insurance policy: Goods in transit are subject to risk of loss of goods
arising due to fire on ship, perils of sea, theft etc. marine insurance protects losses
incidental to voyages and in land transportation. Marine insurance policy is one of
the most important document used as collateral security because it protects the
interest of all those who have insurable interest at the time of loss. The exporter is
bound to insure the goods in case of CIF quotation, but he can also insure the goods
in case of FOB contract, at the request of the importer, but the exporter will make
the premium payment. There are different types of policies such as
34
 SPECIFIC POLICY: This policy is taken to cover different risks for a

single shipment. For a regular exporter, this policy is not advisable as he
will have to take a separate policy every time a shipment is made, so this
policy is taken when exports are in frequent.
 Floating Policy: This is taken to cover all shipments for some months.
There is no time limit, but there is a limit on the value of goods and once
this value is crossed by several shipments, then it has to be renewed.
 Open Policy: This policy remains in force until cancelled by either party
i.e. insurance company or the exporter.
 Open Cover Policy: This policy is generally issued for 12 months period,
for all shipments to one or more destinations. The open cover may specify
the maximum value of consignment that may be sent per ship and if the
value exceeded, the insurance company must be informed by the exporter.
 Insurance Premium: Differs upon product to product and a number of
such other factors, such as, distance of voyage, type and condition of
packing, etc. Premium for air consignments are lowered as compared to
consignments by sea.
4. Consular Invoice: Consular invoice is a document required mainly by the Latin

American countries like Kenya, Uganda, Tanzania, Mauritius, New Zealand,
Myanmar, Iraq, Australia, Fiji, Cyprus, Nigeria, Ghana, Guinea, Zanzibar, etc. This
invoice is the most important document, which needs to be submitted for
certification to the Embassy of the importing country concerned. The main purpose
of the consular invoice is to enable the authorities of the importing country to
collect accurate information about the volume, value, quality, grade, source, etc., of
the goods imported for the purpose of assessing import duties and also for statistical
purposes. In order to obtain consular invoice, the exporter is required to submit
three copies of invoice to the Consulate of the importing country concerned. The
Consulate of the importing country certifies them in return for fees. One copy of the
invoice is given to the exporter while the other two are dispatched to the customs
office of the importer's country for the calculation of the import duty. The exporter
35
negotiates a copy of the consular invoice to the importer along with other shipping
documents.
5. Certificate of Origin: The importers in several countries require a certificate of

origin without which clearance to import is refused. The certificate of origin states
that the goods exported are originally manufactured in the country whose name is
mentioned in the certificate. Certificate of origin is required when:-
 The goods produced in a particular country are subject to’ preferential tariff rates
in the foreign market at the time importation.
 The goods produced in a particular country are banned for import in the foreign
market.
Contents of Certificate of Origin
 Name and logo of chamber of commerce.

 Name and address of the consignee.
 Name and the number of Vessel of Flight
 Name of the port of discharge and place of delivery.
 Packing and container description.
 Total number of containers and packages.
 Description of goods in terms of quantity.
 Signature and initials of the concerned officer of the issuing authority.
 Seal of the issuing authority.
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Doc no. 5: Example of Certificate of origin by TRADE LINK EXPORT
37
6. Bill of Lading: The bill of lading is a document issued by the shipping company
or its agent acknowledging the receipt of goods on board the vessel, and
undertaking to deliver the goods in the like order and condition as received, to the
consignee or his order, provided the freight and other charges as specified in the bill
have been duly paid. It is also a document of title to the goods and as such, is freely
transferable by endorsement and delivery.
Bill of Lading serves three main purposes:
 As a document of title to the goods;

 As a receipt from the shipping company; and
 As a contract for the transportation of goods.
Contents of Bill of Lading
 Name and logo of the shipping line.

 Name and address of the shipper.
 Name and the number of vessel.
 Total number of containers and packages,
 Container status and seal number.
 Gross weight in kg. and volume in terms of cubic meters.
 Amount of freight paid or payable.
 Shipping bill number and date.
 Signature and initials of the Chief Officer.
38
Doc no. 6: Example of BILL OF LADING by Trade Link Exports
39
7. Airway Bill: An airway bill, also called an air consignment note, is a receipt
issued by an airline for the carriage of goods. As each shipping company has its own bill
of lading, so each airline has its own airway bill. Airway Bill or Air Consignment Note is
not treated as a document of title and is not issued in negotiable form.
Contents of Airway Bill
 Name of the airport of departure and destination.

 The names and addresses of the consignor, consignee and the first carrier.
 Amount of freight paid or payable.
 Signature and initials of the issuing carrier or his agent.
B Auxiliary Documents: These documents generally form the basic documents

based on which the commercial and or regulatory documents are prepared. These
documents also do not have any fixed formats and the number of such documents will
wary according to individual requirements.
1. Proforma Invoice: The starting point of the export contract is in the form of
offer made by the exporter to the foreign customer. The offer made by the
exporter is in the form of a proforma invoice. It is a quotation given as a reply to
an inquiry. It normally forms the basis of all trade transactions.
Contents of Proforma Invoice

 Name and address of the importer.
 Mode of transportation, such as Sea or Air or Multimodal transport.
40

 Name of the port of discharge and final destination.
 Provisional invoice number and date.
 Exporter's reference number.
 Buyer's reference number and date.
 Name of the country of origin of goods.
 Name of the country of final destination.
 Marks and container number. .
 Number and packing description.
 Description of goods giving details of quantity, rate and total amount in
terms of internationally accepted price quotation.
41
Doc no 7:Example of the Performa invoice send to WESTERIA buyer from TRADE
LINK EXPORT
42
2. Intimation for Inspection: Whenever the consignment requires the pre-

shipment inspection, necessary application is to be made to the concerned
inspection agency for conducting the inspection and issue of certificate thereof.
3. Declaration of Insurance: Where the contract terms require that the
insurance to be covered by the exporter, the shipper has to give details of the
shipment to the insurance company for necessary insurance cover. The detailed
declaration will cover:
 Name of the shipper \ exporter.

 Name & address of buyer.
 Details of goods such as packages, quantity, value in foreign
currency as well as in Indian Rs. Etc.
 Name of the Vessel \ Aircraft.
 Value for which insurance to be covered.
4. Application of the Certificate Origin: In case the exporter has to obtain

Certificate of Origin from the concerned authorities, an application has to be
made to the concerned authority with required documents. While the simple
invoice copy will do for getting C\O from the chamber of commerce, in respect of
obtained the same from the office of the Textile Committee or Export Promotion
Council, the documents requirement are different.
5. Mate's Receipt: Mate's receipt is a receipt issued by the Commanding Officer
of the ship when the cargo is loaded on the ship. The mate's receipt is a prima
facie evidence that goods are loaded in the vessel. The mate's receipt is first
handed over to the Port Trust Authorities. After making payment of all port dues,
the exporter or his agent collects the mate's receipt from the Port Trust
Authorities. The mate's receipt is freely transferable. It must be handed over to the
shipping company in order to get the bill of lading. Bill of lading is prepared on
the basis of the mate's receipt.
43
Contents of Mate's Receipt
 Name and logo of the shipping line.

 Name and address of the shipper.
 Name and the number of vessel.
 Gross weight in kg. and volume in terms of cubic meters.
 Shipping bill number and date.
 Signature and initials of the Chief Officer.
Significance of Mate's Receipt
 It is an acknowledgement of goods received for export on board the ship.

 It is a transferable document. It must be handed over to the shipping company
in order to get the bill of lading.
 Bill of lading, which is the title of goods, is prepared on the basis of the mate's
receipt.
 It enables the exporter to clear port trust dues to the Port Trust Authorities.
Obtaining Mate's Receipt
The goods are then loaded on board the ship for which the Mate or the
Captain of the ship issues Mate's Receipt to the Port Superintendent.
6. Shipping order: it is issued by the Shipping/Conference Line intimating the

exporter about the reservation of space for shipment of cargo which the exporter
44
intends to ship. Details of the vessel, poet of the shipment, and the date on which
the goods are to be shipped are mentioned. This order enables the exporter to
make necessary arrangements for customs clearance and loading of the goods.
7. Shipping Instructions: at the pre-shipment stage, when the documents are to
sent to the CHA for customs clearance, necessary instructions are to be give with
relevance to
 The export promotion scheme under which goods are to be

exported.
 Name of the specific vessel on which the goods are to be
loaded.
 If goods are to be FCL or LCL.
 If freight amount are to be paid / collected.
 If shipment are covered under A.R.E.-1 procedure.
 Instructions for obtaining Bill of Lading etc.
8. Bank letter for negotiation of documents: at the post shipment stage, the
exporter has to submit the documents to a bank for negotiation or discounting or
collection for forwarding the same to the customer and also for realization of
export proceeds. The bank letter is the set of instruction for the bank as to how to
handle the documents by them and by the bank at the buyer’s country which may
include
 Name and address of the buyer.

 Details of various document being sent and the number of the
copies thereof.
 Name and address of the buyer’s bank if available.
 If the documents are sent L/C or on open terms.
 If the proceeds are to adjusted against any pre-shipment packing
credit loan.
45
 If the bill amount is to be adjusted against any forward

exchange cover.
46
Doc no. 8: Letter to Bank for the negotiation of document from TRADE LINK EXPORT.
47
C. Regulatory Document: Regulatory pre-shipment export documents are prescribed by

the different government departments and bodies in order to comply with various
rules and regulations under the relevant laws governing export trade such as export
inspection, foreign exchange regulation, ex port trade control, customs, etc. Out of 9
regulatory documents four have been standardised and aligned. These are shipping
bill or bill of export, exchange control declaration (GR from), export application dock
challan or port trust copy of shipping bill and receipt for payment of port charges.
1. Shipping Bill: Shipping bill is the main customs document, required by the
customs authorities for granting permission for the shipment of goods. The
cargo is moved inside the dock area only after the shipping bill is duly
stamped, i.e. certified by the customs. Shipping bill is normally prepared in
five copies: -
 Customs copy.
 Drawback copy.
 Export promotion copy.
 Port trust copy.
 Exporter's copy.
Contents of Shipping Bill

 Name and address of the importer.
 Name of the vessel, master or agents and flag.
 Name of the port at which goods are to be discharged.
 Country of final destination.
 Details about packages, description of goods, marks and numbers, quantity and
details of each case.
 FOB price and real value of goods as defined in the Sea Customs Act.
 Whether Indian or foreign merchandise to be re-exported
 Total number of packages with total weight and value.
48
2. A.R.E. 1 form (Central excise): this form ARE-1 is prescribed under Central
Excise rules for export of goods. In case goods meant for export are cleared
directly from the premises of a manufacturer, the exporter can avail the
facility of exemption from payment of terminal excise duty. The goods may be
cleared for export either under claim for rebate of duty paid or under bond
without payment of duty. In both the events the goods are to be cleared under
form A.R.E-1 which will show the details of the goods being exported, the
relevant duty involved and if the duty is paid or goods being cleared under
bond, details of goods being sealed either by the exporter or Central Excise
officials etc.
3. Exchange Control declaration Form (GR/PP/SOFTEX): under the exchange
control regulations all exporters must declare the details of shipment for
monitoring by the Reserve Bank of India. For this purpose, RBI has
prescribed different forms for different types of shipments like GRI, PP forms
etc. These declaration forms must be presented to the customs officials at the
time of passing of export documentation. Under the EDI processing of
shipping bill in the customs, these forms have been dispensed with and a new
form SDF has to be submitted to the customs in the place of above forms.
4. Export Application: this is the application to be made to the customs officials
before shipment of goods. The prescribed form of the application is the
Shipping Bill/Bill of Export. Different types are required for shipment like ex-
bond, duty free goods, and dutiable goods and for export under different
export promotion schemes such as claims for duty drawback etc.
5. Vehicle Ticket/Cart Ticket/Gate Pass etc.: before the goods are being taken
inside the port for loading, necessary permission has to be obtained for
moving the vehicle into the customs area. This permission is granted by the
Port Trust Authority. This document will contain the detail of the export cargo,
name and address of the shippers, lorry number, marks and number of the
packages, driver’s licence details etc.
6. Bank Certificate of Realisation: this is the form prescribed under the Foreign
Trade Policy, wherein the negotiating bank declares the fob value of exports
49
and for the date of realisation of the export proceeds. This certificate is
required fore obtaining the benefit under various schemes and this value of
fob is reckoned as fob value of exports.
D. Other Document:
 Black List Certificate: it certifies that the ship/aircraft carrying the
cargo has not touched the particular country on its journey or that the
goods are not from the particular country. This is required by certain
nations who have strained political and economical relations with the
so called “Black Listed Countries”.
 Language Certificate: Importers in the European Community require a

language certificate along with the GSP certificate in respect of
handloom cotton fabrics classifiable under NAMEX code 55.09.
Generally four copies of language certificate are prepared by the
concerned authority who issues GSP certificate. Three copies are
handed over to the exporter. A copy is sent along with the other
documents for realisation of export proceeds.
 Freight Payment Certificate: in most of the cases, the B/L or AWB
will mention the transportation and other related charges. However if
the exporter does not want these details to be disclosed to the buyer, the
shipping company may issue a separate certificate for payment of the
freight charges instead of declaring on the main transport documents.
This document showing the freight payment is called the freight
certificate.
 Insurance Premium Certificate: this is the certificate issued by the

Insurance Company as acknowledgement of the amount of premium
paid for the insurance cover. This certificate is required by the bank for
arriving at the fob value of the goods to be declared in the bank
certificate of realisation.
50
 Combined Certificate of Origin and Value: this certificate is required

by the Commonwealth Countries. This certificate is printed in a special
way by the Commonwealth Countries. This certificate should contain
special details as to the origin and value of goods, which are useful for
determining import duty. All other details are generally the same as that
of Commercial Invoice, such as name of the exporter and the importer,
quality and quantity of the goods etc.
 Customs Invoice: This is required by the countries like Canada, USA

for imposing preferential tariff rates.
 Legalized Invoice: this is required by the certain Latin American

Countries like Mexico. It is just like consular invoice, which requires
certification from Consulate or authorised mission, stationed in the
exporter’s country.
Pre-Shipment Documents:
 Shipping bill.
 Export order/Sales contract/Purchase order.
 Letter of Credit
 Commercial invoice.
 Packing list.
 Certificate of origin.
 Guaranteed Remittance (G.R/SDF/PP/SOFTEX),or SDF.
 Certificate of Inspection.
 Various declarations required as per custom procedure.
1. Shipment Advice to Importer:- After the shipment of goods, the exporter

intimates the importer about the shipment of goods giving him details about the
date of shipment, the name of the vessel, the destination, etc. He should also send
one copy of non-negotiable bill of lading to the importer.
51
2. Packing List: The exporter prepares the packing list to facilitate the buyer to
check the shipment. It contains the detailed description of the goods packed in
each case, their gross and net weight, etc. The difference between a packing note
and a packing list is that the packing note contains the particulars of the contents
of an individual pack, while the packing list is a consolidated statement of the
contents of a number of cases or packs.
3. Bill of Exchange: The instrument is used in receiving payment from the importer.
The importer may prefer Bill of Exchange to LC as it does not involve blocking
of funds. The exporter draws a bill of exchange on the importer, to make payment
on demand at sight or after a certain period of time.
 B/E is a means to collect payment.

 B/E is a means to demand payment.
 B/E is a means to extent the credit.
 B/E is a means to promise the payment.
 B/E is an official acknowledgement of receipt of payment.
 Financial documents perform the function of obtaining the finance
collection of payment etc.
 2 sets. Each one bearing the exclusion clause making the other part of the
draft invalid.
 Sight B/E.
 It is known as draft.
 There are two copies of draft. Each one bears reference to the other part
A&B. when any one of the draft is paid, the second draft becomes null and
void.
Parties to bill of exchange.
2. The drawer: The exporter / person who draws the bill.

3. The drawee: The importer / person on whom the bill is drawn for payment.
4. The payee: The person to whom payment is made, generally, the exporter /
supplier of the goods.
52
MARINE INSURANCE POLICY
Goods in transit are subject to risks of loss of goods arising due to fire on the ship, perils
of sea, thefts etc. Marine insurance protects losses incidental to voyages and in land
transportation.
Marine Insurance Policy is one of the most important document used as collateral
security because it protects the interest of all those who have insurable interest at the time
of loss. The exporter is bound to insure the goods in case of CIF quotation, but he can
also insure the goods in case of FOB contract, at the request of the importer, but the
exporter will make the premium payment.
There are different types of policies such as
Specific Policy: This policy is taken to cover different risks for a single shipment. For a
regular exporter, this policy is not advisable as he will have to take a separate policy
every time the shipment is made, so this policy is taken when exports are infrequent.
Floating Policy: This policy is taken to cover all shipments for same months. There is no
time limit, but there is a limit on the value of goods and once this value is crossed by
several shipments, then it has to be renewed.
Open Policy: This policy remains in force until cancelled by either party, i.e. insurance
company or the exporter.
Open Cover Policy: This policy is generally issued for 12 months period, for all
shipments to one or all destinations. The open cover may specify the maximum value of
consignment that may be sent pre ship and if the value exceeded, the exporter must
inform the insurance company.
53
The Insurance Policy Normally Contains:
 The name and address of the insurance company.

 The name of the assured & description of the risk covered.
 A description of the consignment.
 The sum insured & the date of issue.
54
 The place where claims are payable together with details of the agent to whom
claims may be directed & any other details, as applicable.
55
Doc no. 9: Insurance
56
QUALITY CONTROL AND PRE-SHIPMENT INSPECTION
Realizing the importance of the need for supplying quality goods as per international
standards, the Government of India has introduced Compulsory Quality Control and Pre-
Shipment Inspection of over 1050 items of export under Export (Quality Control and Pre-
Shipment Inspection) Act 1963.
At present, the export items that are subjected to compulsory inspection includes food
and agricultural products, chemicals, engineering, coir, jute and footwear.
Compulsory Pre-shipment Inspection:
 Foods and Agriculture & Fishery

 Mineral & Ore
 Organic & Inorganic Chemicals
 Refectories & Rubber Products
 Foot wear & Foot wear components
 Ceramic Products & Pesticides
 Light Eng. Products
 Steel; Products
 Jute Products
 Coir & Coir Products
Exemption from compulsory Pre-shipment Inspection:
 Status Houses
 Certification by Units IPQC – approved by EIA
 EUO/EPZ/SEZ
 Firm Letter from the overseas buyer
57
 Specified products such as Eng/Fishery average level of Rs.1.5 Cr.for the last
three years no compliant.
For monitoring pre-shipment inspection, Govt. of India has set up Export Inspection
Council (EIO) The EIC has set up 5 Export Inspection Agencies (EIA). The EIAs are
located one each at Mumbai, Calcutta, Cochin, Delhi and Chennai. The EIAs has a
network of nearly 60 offices throughout India. Each EIA is given certain jurisdiction
for inspection purpose. For instance, EIA of Mumbai has jurisdiction over
Maharashtra, Gujarat and Goa.
Systems of Quality Control:
For the purpose of pre-shipment inspection, EIC has recognized three systems of
inspection namely:
 Self-Certification
 In-Process Quality Control
 Consignment Wise Inspection
Self-Certification:
Under this system, complete authority is given to the manufacturing units to certify
their own products and issue certificates for export. The manufacturing units which
have been recognized under this scheme have to pay a nominal yearly fee at the rate
of 0.1% of FOB price subject to minimum of Rs.2,500/- and maximum of Rs.1 lakh
in a year to the concerned EIA
In-Process Quality Control (IPQC):
In this system, companies/units adjusted as having adequate level of quality control right
from raw material stage to the finished product stage including packaging are eligible to
get the inspection certificate on a formal request by the exporter. Over 800 units all over
India are operating under this system.
58
Constant vigil and surveillance are kept on units approved under IPQC and self-
certification system. Units approved under the above two systems are often known as
“Export worth Units”, because of their consistent standards of quality.
Consignment wise Inspection:
Under this system, each and every consignment is subject to compulsory inspection. The
exporter has to follow a certain procedure such as:
 He has to make an application to Export Inspection Agency with certain

documents.
 After the inspection, the goods are repacked with EIA seal
 The inspector then makes a report to Deputy Director of EIA
 The Dy. Director of EIA then issues Inspection Certificate in triplicate if the
inspection report is favorable
Norms:
 Adequate Testing Facility

 Raw Material Testing & Process Control
 After Sales Services & Maintaining Product Quality
 Control on bought out components
 Meteorological Control & PKG.
 Independent Quality Audit & Houses.
Fumigation: For ensuring that no insects or bacteria are carried with the export
certain types of export products are fumigated before shipment. The fumigation is
carried out in the port of shipment.
59
SHIPPING AND CUSTOMS FORMALITIES
(As per the Prevailing Law i.e., ICA 62)
The shipment of export cargo has to be made with prior permission of, and under the
close supervision of the custom authorities. The goods cannot be loaded on board the ship
unless a formal permission is obtained from the custom authorities. The custom
authorities grant this permission only when it is being satisfied that the goods being
exported are of the same type and value as have been declared by the exporter or his C&F
agent, and that the duty has been properly determined and paid, if any.
The custom procedure can be briefly explained as follows:
 Submission of Documents: The exporter or his agent submits the necessary

documents along with the shipping bill to the Custom House. The documents
include:
o ARE-1 (Original and duplicate)

o Excise gate pass (Original and duplicate transporters’ copy
o Proforma Invoice
o Packing List
o GRI form (Original and duplicate)
o Customs Invoice (where required in the importing country)
o Original letter of credit/contract
o Declaration form in triplicate
o Quality Certificate
o Purchase memo
o Labels
o Licence (if any required) including advance licence copy
o Railway receipt/lorry way bill
60
o Inspection Certificate by Export Inspection Agency
 Verification of Documents: The Customs Appraiser verifies the documents and

appraises the value of goods. He then makes an endorsement of “Examination
Order” on the duplicate copy of shipping bill regarding the extent of physical
examination of the goods at the docks. All documents are returned back to the
agent or exporter, except
o Original Copy of GR to be forwarded to RBI

o Original copy of shipping bill
o One copy of commercial invoice
 Carting Order: The exporter’s agent has to obtain the carting order from the Port
Trust Authorities. Carting Order is the permission to bring the goods inside the
docks. The superintendent of Port Trust issues the carting order. Carting Order is
issued only after verifying the endorsement on the duplicate copy of shipping bill.
The Carting Order enables the exporter’s agent to cart goods inside the docks and
store them in proper sheds.
 Storing the Goods in the Sheds: After securing the carting order, the goods are
moved inside the docks. The goods are then stored in the sheds at the docks.
 Examination of Goods: The exporter’s agent then approaches the customs

examiner to examine the goods. The customs examiner examines the cargo and
records his report on the duplicate copy of the shipping bill. The customs
examiner then sings the “Let Export Order”
 Let Export Order: The Let Export Order is then shown to the Customs
Preventive Officer, along with other documents. The CPO is in charge of
supervision of loading operations on the vessel. If CPO finds everything in order,
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he endorses the duplicate copy of shipping bill with the “Let Ship Order” This
order helps the exporter/shipper to load the goods on the ship.
 Loading Goods: The goods are then loaded on the ship. The CPO supervises the
loading operations. After loading is completed, the Chief Mate (Cargo Officer) of
the ship issues the “Mate’s Receipt”. The Mate’s Receipt is sent to the Port Trust
Office. The C&F agent pays the port trust dues and collects the mate’s receipt.
The C&F agent then approaches the CPO and gets the certification of shipment of
goods on AR Forms and other documents
 Obtaining Bill of Lading: The Mate’s Receipt is then handed over to the
shipping company (on whose vessel the goods are loaded). The shipping company
issues bill of lading. The Bill of Lading is issued in:
o 3 negotiable copies of Bill of Lading

o 10 to 12 Non-negotiable copies of Bill of Lading.
The negotiable copies have title to goods; whereas non-negotiable copies do not have
title to goods but are used for record purpose.
PROCEDURE OF EXCISE CLEARANCE:
The common procedure of excise clearance under “bond” and under “rebate” is
discussed as follows:
 Preparing of Invoice: The export goods have to be cleared from the factory
under invoice. The invoice contains details like name of the exporter, value of
goods, excise duty chargeable, etc. The invoice is to be prepared in triplicate. In
case of export under Bond, the invoice should be marked as “For Export without
payment of duty”. In addition to the invoice, a prescribed for ARE 1 has to be
filed in by exporter.
 Filling up of ARE-1 form (Annexure-20): The ARE-1 form needs to be filled in

four copies. A fifth (Optional) may be filled in by the exporter, which can be used
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at the time of claiming other export incentives. The ARE-1 copies have distinct
color for the purpose of verification and processing.
 Application to Assistant Commissioner of Central Excise (ACCE): The

exporter has to make an application to ACCE regarding the removal of goods
from the factory/warehouse for export purpose.
 Information to Range Superintendent of Central Excise (RSCE): The ACCE
will inform the RSCE under whose jurisdiction the goods are intended to be
cleared for export
 Deputation of Inspector: The RSCE will then depute an inspector to clear the
goods, either at the factory or warehouse, or in certain cases at the port.
FACTORY STUFFING OF CARGO
Clearance of goods to docks: If the goods meant for export is of a small quantity
which may not be sufficient to make one full container, the cargo is said to be less
than container load (LCL) cargo. Such cargo has to be taken to the docks where the
goods will be consolidated (combining the cargo of other exporters to make up
quantity for a full container) by the agent and loaded into a container. Here the
examination of the cargo is done at the docks.(There are also inland container depots
approved by the customs where the goods can be consolidated and stuffed into the
container by the agent under the supervision of the customs officer)
If the goods meant for export is of sufficient quantity to make up a full container, the
exporter has the option to take the goods to the docks and get them examined and
stuffed into a separate container. An exporter gets the benefit on the freight amount
for a full container. (Generally called box rate)
Alternatively, he can have a container allotted to him and get the same to his Mills
Premises. The goods meant for exports can be stuffed into the container under the
supervision of the regional Central Excise Authority. Here the exporter has to
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 Obtain permission from the Customs for getting the container to his mills
premises for stuffing (House Stuffing)
 Inform the C.Excise Authorities at least 24 hours before bringing the
container for loading.
The C.Excise Authority will supervise the loading, seal the container and certify the
invoice as directed in the permission given by the custom authorities. A special Lock is
used to lock the doors of the container. Samples from the goods will be drawn, if
necessary, as required under the customs permission. Such samples will be sealed and
forwarded along with the container. The examiner in the docks may arrange to send the
sample for testing. Then the container is moved to the dock for loading. Generally, such
containerized goods are not subject to further examination in the customs. They will be
directly taken for loading.
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METHODS OF RECEIVING PAYMENT AGAINST EXPORTS
Before we proceed to understand the concept of Letter of Credit, let us understand the
various types of payment methods available against export.
METHODS OF PAYMENT
There are three methods of payment depending upon the terms of payment, and each
method of payment involves varying degrees of risks for the exporter. The methods are:
 Payment in advance
 Documentary Bills
 Letter of Credit
 Open Account
 Counter Trade
A. PAYMENT IN ADVANCE
This method does not involve any risk of bad debts, provided entire amount has been
received in advance. At times, a certain per cent is paid in advance, say 50% and the rest
on delivery. This method of payment is desirable when:
 The financial position of the buyer is weak or credit worthiness of the buyer is
not known.
 The economic/ political conditions in the buyer’s country are unstable.
 The seller is not willing to assume credit risk, as un the case of open account
method.
 However, this is the most unpopular methods as a foreign buyer would not be
willing to pay advance of shipment unless:
 The goods are specifically designed for the customer, and

 There is heavy demand for the goods (a seller’s market situation).
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B. DOCUMENTARY BILLS:
Under this method, the exporter agrees to submit the documents to his bank along with
the bill of exchange. The minimum documents required are
 Full set of bill of lading

 Commercial Invoice
 Marine Insurance policy and other document, if required.
There are two main types of documentary bills:
 Documents against Payment,

 Documents against Acceptance.
Documents against payment (D/P): The documents are released to the importer against
payment. This method indicates that the payment is made against Sight Draft. Necessary
arrangements will have to be made to store the goods, if a delay in payment occurs.
The risk involved that the importer may refuse to accept the documents and to pay
against them. The reason for non-acceptance may be political or commercial ones. In
India, ECGC covers losses arising out of such risks. Under this system, as compared to
D/A, the exporter has certain advantages:
 The document remain in the hands of the bank and the exporter does not lose
possession or the ownership of goods till payment is made,
 Other reason may include that the exporter may not be able to allow credit and
wait for payment.
Documents Against acceptance (D/A): The document are released against acceptance
of the Time Draft i.e. credit allowed for a certain period, say 90 days. However, the
exporter need not wait for payment till bill is met on due date, as he can discount the bill
with the negotiating bank and can avail of funds immediately after shipment of goods.
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In case of D/A as compared to D/P bills, the risk involved is much grater, as the
importer has already taken possession of goods which may or may not be in his custody
on the maturity date of the bill. If the importer fails to pay on due date, the exporter, will
have to start civil proceedings to receive his payment, if all other alternatives fails. The
risk involved can be insured with ECGC.
C. LETTER OF CREDIT (L/C):
This method of payment has become the most popular form in recent times, it is more
secured as company to other methods of payment (other than advance payment).
A letter of credit can be defined as “ an undertaking by importer’s bank stating that

payment will be made to the exporter if the required documents are presented to the bank
within the variety of the L/C”.
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THE LETTER OF CREIDT
Introduction
The cycle of a business transaction can be said to be complete prima facie when the buyer
has received the product he desires to buy and the seller gets his payment in due
consideration of the product supplied.
While the seller is keen to receive the payment for his supplies, the buyer is equally keen
that he gets what he wants by the paying for the same.
Tough there are many merit and demerits in each of the different mode of payments we
have discussed earlier, in relation either to the buyer or to the seller, we shall now deal in
detail about the mode of payment under the Documentary Credit.
Generally, though exporters are complacent once they get the letter of Credit on hand
feeling that their payment is secured, let me say it is as much a dubious instrument as is a
safe instrument.
If one does not understand the implications of the terms and condition of a letter of credit,
the provisions under UCP 500, how co-operative are the exporter’s bank and how good
are the L/C opening bank and the reimbursement bank, he is sure to land in trouble at
once stage or another.
There are ample cases of frauds under the Letter of Credit. More and more ingenious
methods are adopted to circumvent the provisions of UPC 500 by fair or foul means.
Hence, even the safety and security under the Letters of Credit may prove to be no better
than a mirage for a man in the desert.
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Hence, sufficient care is to be taken by the exporter to ensure that instrument is received
in order and the conditions of the L/C can be well complied with, and there are no clauses
of ambiguity.
Doc no. 10 Example of LC from the south African bank to TRADE LINK EXPORT.
What is a Documentary Credit?
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To say in simple language, this is an Undertaking by a Bank associated with the buyer to
make the payment for the supply of goods by a seller subject to compliance of various
requirements that may be specified in the document of undertaking by the Bank. This
document is known as Documentary Credit. A Documentary Credit is also called a Letter
of Credit (L/C).
CONTENTS OF A LETTER OF CREDIT
A letter of credit is an important instrument in realizing the payment against exports. So,
needless to mention that the letter of credit when established by the importer must contain
all necessary details which should take care of the interest of Importer as well as
Exporter. Let us see shat a letter of credit should contain in the interest of the exporter.
This is only an illustrative list.
 name and address of the bank establishing the letter of credit

 letter of credit number and date
 The letter of credit is irrevocable
 Date of expiry and place of expiry
 Value of the credit
 Product details to be shipped
 Port of loading and discharge
 Mode of transport
 Final date of shipment
 Details of goods to be exported like description of the product, quantity, unit rate,
terms of shipment like CIF, FOB etc.
 Type of packing
 Documents to be submitted to the bank upon shipment
 Tolerance level for both quantity and value
 If L/C is restricted for negotiation
 Reimbursement clause
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PROCEDURE INVOLVED IN THE LETTER OF CREDIT
The following are the step in the process of opening a letter of credit:
 Exporter’s Request: The exporter requests the importer to issue LC in his favor.
LC is the most secured form of payment in foreign trade.
 Importer’s Request to his Bank: The importer requests his bank to open a L/C. He
May either pay the amount of credit in his current account with the bank.
 Issue of LC: The issuing bank issues the L/C and forwards it to its correspondent
bank with also request to inform the beneficiary that the L/C has been opened.
The issuing bank may also request the advising bank to add its confirmation to the
L/C, if so required by the beneficiary.
 Receipt of LC: the exporter takes in his possession the L/C. He should see it that
the L/C is confirmed.
 Shipment of Goods: Then exporter supplies the goods and presents the full set of
documents along with the draft to the negotiating bank.
 Scrutiny of Documents: The negotiating bank then scrutinizes the documents and
if they are in order makes the payment to the exporter.
 Negotiation: The exporter’s bank negotiates the document against the letter of
credit and forwards the export documents to the L/C opening bank or as per their
instructions.
 Realization of payment: The issuing bank will reimburse the amount (which is
paid to the exporter) to the negotiating bank.
 Document to Importer: the issuing in turn presents the documents to the importer
and debits his account for the corresponding amount.
In order to have uniformity and to avoid disputes, the ICC Paris has evolved uniform
customs and practices of documentary credit (UCPDC), in short known as UCP 500
effective from 1-1-96. These are rules have been adopted by more than 150 countries.
They provide the comprehensive and practical working aid to banker, lawyer, importers,
exporters, Exporters, transporters, executives involved in international trade.
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Note: as soon as an L/C is received ensure that the same is authenticated. Meaning that
the genuineness of the L/C is certified by the Advising Bank by an endorsement with the
marking ‘AUTHENTICATED’ OR ELSE THE L/C IS OF NO USE.
Different Type of Documentary Credits.
There are various types of Documentary Credit opened by a bank in favour of it’s
customer depending upon the requirement. Let us talk about few types of Documentary
Credit, which are in common use.
 Revocable / Irrevocable Documentary Credit: A Revocable Documentary Credit

can be revoked (cancelled) by the buyer at his own discretion and this does not
require the consent of the seller. The risk factor here is that the L/C may be
cancelled even after the shipment is done and before the beneficiary present the
documents to the bank for claiming the reimbursement. Hence, a revocable L/C is
as goods as no L/C. obviously, no seller will entertain a revocable L/C. Contrary
to this, an Irrevocable Documentary Credit once established and advised to the
beneficiary, cannot be revoked or cancelled unilaterally by the buyer without the
consent of the beneficiary (Seller).A Seller must always ask for an Irrevocable
Letter of Credit.
 Restricted/ Unrestricted Documentary Credit: A Documentary Credit stipulates
the name of the bank who is authorized to negotiate the document for claming the
reimbursement. In this case the beneficiary is obliged to negotiate the documents
only through the specified bank i.e. Negotiation of document is restricted to that
particular bank. On the contrary if no specific bank is nominated for negotiation,
it may say ‘Negotiation by any bank’ which means the beneficiary is free no
negotiate the document through the bank of his choice. This is beneficial because
he can negotiate the documents through his own bank where he is having an
account. Since the bank is not alien to him, he will not face any
practical/procedural difficulty in negotiating the document. It is suggested to have
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an unrestricted L/C or L/C which may be restricted to the bank of the

beneficiary’s choice.
 Confirmed/Unconfirmed Documentary Credit: Confirmed Documentary Credit is

one in which the beneficiary has the option to have the L/C confirmed by a bank
in the beneficiary country i.e. the bank who confirms the L/C takes the
responsibility of making the final payment to the beneficiary upon negotiation of
the document in strict compliance with the terms and conditions of the Letter of
Credit. This process will make the final payment in the beneficiary’s country by
the bank, which confirms the L/C immediately upon negotiation of the
documents. The beneficiary do not stand the risk of waiting for the document to
reach the opening bank who will have the final say so to the compliance under the
L/C before making the payment. Further, the payment is also made immediately
after negotiation and without recourse to the beneficiary i.e. the payment once
made by the confirmed bank cannot be revoked. Moreover, if the importing
country’s regulation changes and the money is not allowed to be repatriated, this
will eliminate the risk. On the contrary, in an unconfirmed L/C, the negotiating
bank only accepts the documents and pays for the same with recourse i.e. if as and
when the documents reach the opening bank, and the opening find some
discrepancy in the documents it may refuse to make the payment or seek
clarification for the applicant before reimbursement. The beneficiary is fully at the
mercy of the opening bank for payment. It is suggested to ask for a Confirmed
L/C.
 With Resource and Without (Sans) Resource Letter of Credit: The revocable or
irrevocable LC can further be classified as with resource and without resource
LC.
o With resource LC: In this type the exporter is held liable to the
paying/ negotiating bank, if the draft drawn against LC is not honored
by the importer/issuing bank. The negotiating bank can make the
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exporter to pay the amount along with the interest, which it has
already paid to the beneficiary.
o Without (Sans) Resource LC: In the case of sans (without) resource
letter of credit, the negotiating bank has no recourse to the exporter,
but only to the issuing bank or to the confirming bank.
Normally, the negotiating bank makes advance payment to the exporter in

resource of letter of credit either by discounting bills against letter of credit or by
purchasing the bills of exchange. In such an instance, if the issuing bank fails to
make payment or dishonor the letter of credit, then the negotiating bank cannot
get the money back from the exporter or hold him liable to pay the amount.
However, in the case of with resource letter of credit, the negotiating bank can ask
the exporter to pay back the money along with certain other expenses. For the
exporter, sans Resource letter of credit is more safe as compared to With Resource
letter of credit.
 Transferable/Non-transferable Documentary Credit: In a transferable L/C, the

beneficiary can transfer the L/C opened in his name in favor of a third party who
may effect the shipment and negotiate the documents and claim payment under
the said L/C.
 Revolving Documentary Credit: Where an exporter is having a regular shipment
for a particular customer and the value of each shipment may also be of more or
less equal value, and then one can call for a Revolving Documentary Credit.
The salient feature of this L/C is that the buyer opens an L/C which can take care
of shipments, say, may be for a period of one year on a monthly basis.
For e.g. an exporter enters into a contract for supply of 5000 pairs of Trousers
valued approx. US.$.75,000/- to be shipped every month. The buyer can open an
L/C for a value of US.$.75000/- with validity for 12 months stipulating shipment
every month for a value of US$. 75000/-and by adding a clause to make 12
shipment of like value the L/C stands replenished for the full value of the L/C
after each shipment is made the documents are negotiated for which payment are
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also made immediately for the value of the shipment. The main benefit in this L/C
is that the buyer, the bank and the exporter are saved from the routine of opening
one L/C every month, the anxiety of non-receipt of the L/C on time, the
amendments that may be warranted every time, the bank charges for opening
number of L/Cs etc.,. A revolving Documentary Credit may have cumulative
effect i.e. if a particular shipment is not made, then the value is added to the value
for future utilization. In an automatic Revolving Credit, the bank is liable for the
total amount covering the entire shipment and where it is non-automatic its
responsibility is restricted to the value of one shipment. In automatic Revolving
Credit the value of the credit is automatically replenished by an amendment.
Types of Payments under a Documentary Credit.
Payment under a documentary credit can be of the following types:
 Payment at Sight: In this mode, the payment is made by the L/C opening bank or
its nominated bank or by a confirming bank on presentation of the documents in
full conformity with the L/C. The L/C may or may not call for draft at sight for
the full value of the documents.
 Deferred Payment Scheme: In this case the payment is to be made at a future date
as stipulated in the L/C. Here, generally NO draft is required as the due date of
payment is defined in the L/C. In case of a confirmed L/C, the final payment is
made by the confirmed bank on due date and by the issuing bank or its nominated
bank if the L/C is not confirmed.
 Acceptance Credit: This type of credit requires a usance draft to be drawn on a
nominated or accepting bank. The nominated/accepting bank makes the payment
on the due date as per instructions of the negotiating bank. In case of a confirmed
L/C the payment on due date is made by the negotiating bank (confirming bank).
 Negotiation Credit: here the negotiating bank upon negotiation of the documents
makes the payment if it prepares to take the risk and will recourse to the
beneficiary. If the credit is confirmed, then the negotiation bank is obliged to
make the payment upon submission of a clean document by the beneficiary.
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Expect in the case of confirmed L/C there is always a time lag between the date of
negotiation of the document and the date of receipt of the payment. This is a grey area. If
the bank acts swiftly and without prejudice, one gets payment within a week’s time. If the
payment is delayed beyond this time, though an exporter has every right to ask for
compensation, in actual practice, no justice is done to the exporter for the delayed
payment. Very rarely, on persistent approach by the exporter/their banker, does a
defaulting bank come forward to compensate for the delayed payment. Generally the
exporter has to forego lot of money in correspondence through the negotiating bank
because every communication of the bank is charged to the exporter. It is no surprise
many exporter suffer this loss silently.
Scrutiny of letter of credit
Mere receipt of letter of credit is no guarantee of payment. There are many ifs and buts
before the documents are submitted to the bank against the letter of credit for realization
of proceeds from the opening bank. As soon as the letter of credit is received a through
scrutiny is to be undertaken to ensure that
 First and foremost that the credit is properly authenticated by the advising bank.
 The letter of credit has been opened in accordance with the terms of the contract.
 The name and address of the beneficiary has been spelt properly.
 The details of product description, quality, and value are in order.
 The validity of shipment and expiry are correct.
 The documents that are required can be submitted.
 There is sufficient % of tolerance of quantity and value.
 The unit price and the terms of contract are correct.
 The terms and conditions stipulated can be complied with.
 That the credit is available for negotiation without restriction.
 In case of exports requires the credit to be confirmed by the local, then necessary
clause is incorporated by the opening bank on the credit.
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 Last but not the least; the credit has a reimbursing clause enabling the negotiation
bank to get reimbursement of the money paid to the exporter against the
documents.
There are only few suggestions. The requirement may differ for different exporter and the
scrutiny has be done relative to the requirement.
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Doc no 11: Example of Swift copy of payment drawn by TRADE LINK EXPORT from
the bank
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PARTIES TO LETTER OF CREDIT
 Applicant: the buyer or importer of goods.

 Issuing Bank: importer’s bank who issues the L/C.
 Beneficiary: the party to whom the L/C is addressed. The seller or supplier of
goods.
 Advising Bank: issuing bank’s branch or correspondent bank in the exporter’s
country to which the L/C is sent for onward transmission to the beneficiary.
 Confirming Bank: the bank in beneficiary’s country, which guarantees the credit
on the request of the issuing bank. (Many a times the advising bank and
confirming bank are one and the same).
 Negotiation Bank: the bank to whom the beneficiary presents his documents for
Payment u Under L/C.
 Reimbursing Bank: the banks that will reimburse the negotiating bank for the
value of the credit.
Where an L/C stipulates that the Negotiation is restricted to a specific bank, which is not
the Advising Bank, or Where the L/C is not restricted, and the seller desires to negotiate
the document, which is not the advising bank, then we have a separate Negotiating Bank.
Where the opening bank prefers to advise the L/C through its own branch in the
beneficiary country or through another bank of its choice, then the L/C may be advised to
the beneficiary directly by this bank or if it instructed to advise the L/C through the
buyer’s nominated bank then it does so. Here, we have two advising bank.
As far as possible, one should restrict the involvement of the number of the banks to the
minimum. More the number of the banks, more the time in the transmission of the L/C, in
addition to multiplicity of bank charges.
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TOTAL OPERATION UNDER THE LETTER OF CREDIT.
The Unconfirmed L/C.
 The Buyer makes an application to his bank to open an L/C.

 Opening bank establishes the L/C.
 Opening bank advises the L/C through his associate or through the bank.
Nominated by the beneficiary.
 The Bank in the beneficiary country which receives the L/C sends the Original
L/C to the customer either directly or through the bank Specified in the L/C.
 The buyer complies with the L/C requirements and submits the relevant
documents. To the bank for claiming reimbursement.
 The negotiating bank negotiates and sends the documents to the opening bank or
as Directed. Meantime pays the beneficiary.
 Advises the opening bank or the reimbursement bank the details of his Accounts
and the nominated bank where the proceeds are to be credited.
 Once the credit is received, the nominated bank advises the negotiating bank of
the credit. Thus the negotiating bank gets the credit for the L/C documents.
The Confirmed L/C.
All the steps from 1to6 as far as the beneficiary are concerned since the payment is made
to the beneficiary without recourse. However, the negotiating bank may have to follow
the subsequent steps since he has to receive his money from the opening bank.
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PREPARATION AND SUBMISSION OF DOCUMENTS FOR

BANK NEGOTTIATION /PURCHASE
Document against exports should normally be realized through an authorized dealer

foreign exchange. However payment of export can be received directly from the overseas
buyer in the form of bank draft, pay order, banker’s cheque, personal cheque foreign
currency notes, foreign currency traveler’s cheque, etc. Without any monetary limit
provided the exporter’s track record is good, he is a customer of the authorized dealers
through whom documents are to be negotiated and prima facie the instrument of payment
represents export proceeds realization. Take care to submit various documents in a proper
manner and within the prescribed time schedule. Apply to the Reserve Bank for extension
of time in case you feel there is likely to be a delay in realizing export proceeds.
The following are the steps in realizing export proceeds:
 Approaching a Bank: After dispatch of the goods, either by sea, or by air, the
exporter should approach his bank (authorized dealer) with a formal request to
realize sale proceeds from the foreign buyer. It is obligatory to submit the
shipping documents to an authorized dealer within 21 days of the date of
shipment (subject to certain exceptions). In India, the exporters have to realize the
full value of exports within 180 days from the date of shipment, (unless the
payment terms offered are “deferred payment terms”). Where it is not possible to
realize the sale proceeds within the prescribed period, the exporter should apply
for extension in prescribed form ETX (in duplicate) to RBI.
 Submission of Documents to the Bank: The exporter should submit the following
documents
o Bill of Exchange
o Full set of Bill of Lading
o Commercial Invoice Copies
o Certificate of Origin
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o Insurance Policy
o Inspection Certificate
o Packing List
o GR (duplicate copy to forward it to RBI)
o Bank Certificate
o Other relevant documents.
The above documents need to be submitted in two complete sets, because it is

customary to dispatch two sets of documents, one after the other. This is because,
if one set is misplaced or delayed in transit, the importer can get at least the other
set and clear the goods.
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THE ECGC COVER
The abbreviated form for Export Credit and Guarantee Corporation is ECGC. As the
name indicates this is a sort of guarantee or a sort of cover for the exporter. Let us now
see what this is all about.
Needless to say that an exporter before entering into a contract with the overseas buyer
for making any supply, takes care to ensure that the customer with whom he is dealing
have some credit worthiness. This he may be able to do either through the local agent
who is in a better position to know about the customer or through a bank or through any
of the exporter’s associates if happens to be in the area of the customer etc., But, in a
business things may change. The financial status of a customer may take drastic turn and
an established customer may go bankrupt within a short period of time.
Moreover, the buyer may be willing to make the payment, but there are other
environment which prevents him from effecting the transfer of funds through the bank.
For e.g., there could be break out of war, the balance of payment position of the country
may become unfavourable, there may be some coup of the government etc., and all
transactions could be sealed.
These are the risk factors for the exporters. What is the guarantee that he will get paid for
the supplies he has made?
With a view to provide support to Indian exporters, the Govt. of India set up the Export
Risk Insurance Corporation (ERIC) in 1957. This was transformed into Export Credit &
Guarantee Corporation Ltd. in 1964. In order to give the Indian identity a sharper focus
the name was again changed to Export Credit & Guarantee Corporation of India Ltd., in
1983. This is a company wholly owned by the Govt. of India and functions under the
administrative control of the Ministry of Commerce and managed by the Board of
Directors representing Government, Banking, Insurance, Trade, Industry etc.
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Though one may insist for a Letter of Credit, still there could be some elements of risk,
which we will study later here. Except getting an advance payment for the full value of
the supplies, any other mode of payment will have some risk.
Take the case of an exporter who has made supplies and before the payment is received
the buyer goes bankrupt or there comes some new provision or policy of Government of
the importing country preventing repatriation of the funds to other countries what
recourse the exporter has to recover his dues. The litigation procedure might be time
consuming and the exporter can never be sure of getting his full payment. An ECGC
cover a safeguard his interest to a great extent.
An exporter can either agree for sight payment or can made shipment on credit terms for
say 60 days, 90 days etc., In project exports the period of payment may extend to some
years. Longer the period of credit given to the customer, more will be the risk factor for
the exporter.
In respect of sight bill, there is almost no risk because the customer has to make payment
first before he retires the documents. Therefore, before the title of the goods is passed on
to the customer, the importer makes the3 payment. However, in respect of usance bill
(credit bills) the buyer retires the documents by accepting the usance draft and takes
delivery of the goods. In case the customer goes bankrupt or become insolvent, before the
due date of payment, the exporter is totally at a loss. While big units may be able to
absorb the one time loss, small exporters will get broke even with one such transaction.
Here the ECGC comes into picture. It takes up the responsibility of paying the funds to
the exporter and makes all efforts including legal proceedings to recover the dues from
the customer, provided the exporter has taken an ECGC cover.
WHAT ECGC OFFERS FOR PROTECTION OF EXPORTER’S INTEREST?
ECGC offers various types of insurance cover to protect the exporter’s interest. For each
type of cover an exporter has to take Policy specific to the respective requirements. The
Policy that is most commonly taken by the exporters is the Standard Policy or otherwise
called the Shipments (Comprehensive Risks) Policy.
84
Doc no. 12: Example of TRADE LINK EXPORT ECGC form.
SHIPMENTS (COMPREHENSIVE RISKS) POLICY also called STANDARD

POLICY
For exporters with an annual export turnover in excess of Rs.50 lakhs, the Shipments
(Comprehensive Risks) Policy is the one intended for covering shipments on cash basis
or on short-term credit basis. (Credits not exceeding 180 days)
The risks covered this Policy is as follows effective from the date of shipment.:
Commercial Risks
 Insolvency of the buyer

 Failure of the buyer to make payment within a specified period.
 Buyer’s failure to accept the goods subject to certain conditions.
85
Political Risks
 Imposition of restrictions by the Govt. of the buyer’s country or any

government action that may block or delay the transfer of payment made by
the buyer.
 War, civil war, revolution or civil disturbances in the buyer’s country
 New import restrictions or cancellation of a valid import licence
 Interruption or diversion of voyage outside India resulting in payment of
additional freight or insurance charges which cannot be recovered from the
buyer.
 Any other cause of loss neither occurring outside India nor normally insured
by general insurers and beyond the control of both the e porters and the buyer.
Risks not covered under the Policy
The Standard Policy does not cover losses on account of following risks:
 Commercial disputes including quality disputes raised by the buyer unless

the exporter obtains a decree from a competent court of law in the buyer’s
country in his favour
 Causes inherent in the nature of the goods
 Buyer’s failure to obtain necessary import or exchange control clearance
from authorities concerned
 Insolvency or default of the agent of the exporter or of the collecting bank
 Loss or damage to goods which can be covered by general insurers.
 Exchange rate fluctuations
 Failure of the exporter to fulfill the terms of the export contract or
negligence on his part.
Shipments Covered
86
The Standard Policy is meant to cover all the shipments that may be made by an exporter
during a period of 24 months ahead. The policy cannot be issued for selected shipments,
selected buyer or selected markets. For specific requirements an exporter can opt for
different policy from the various services offered by the corporation
Exclusions:
Shipments made against advance payments received or shipments against confirmed

letters of credit, which has the confirmation from the bank in India, may be excluded.
However, shipments against confirmed L/C may be covered for political risks only. The
premium for cover under political risks will be less than that under the comprehensive
policy. ECGC may also agree to exclude certain items if the exporter is dealing in
different distinct products.
VARIOUS POLICIES OFFERED BY ECGC:
1. STANDARD POLICY
An exporter whose annual export turnover is more than Rs.50 lakhs is eligible for this
policy
Period of the Policy: 24 Months
Exclusions permitted: Export to Associates
Letters of Credit
Consignment Exports
Risk Covered: Commercial Risks
Political Risks
LC Opening Bank Risks
Percentage of Cover: 90%
87
Minimum Premium: Rs.10, 000/- adjustable
Important Obligations of the Exporter
 Obtaining valid credit limit on buyers and banks

 Monthly Declaration of shipments and payment of premium
 Declaration of payment overdue by more than 30 days
 Filing of claim within 24 months
 Sharing of recovery
Highlights
 Lowest Premium Rate

 NCB OF 5% every year
 Discrepancy cover of LC
 Automatic Approval fort resale/shipment upto 25% of GIV
 Increased discretionary limit
2. SMALL EXPORTERS POLICY
Exclusions Permitted: Exports to Associates
Letters of Credit
Consignment Exports
Political Risks
88
Percentage of Cover: 95% for commercial risks
100% for political risks
Minimum Premium: Rs.2, 000 adjustable
Important Obligations of the Exporter:
 Obtaining valid credit limit on buyers and banks

 Quarterly Declaration of shipment and payment of premium.
 Declaration of payment overdue by more than 30 days
 Filing of claim within 24 months
 Sharing of recovery.
Highlights
 Highest coverage/compensation
 Lowest premium rate
 NCB of 5% every year
 Discrepancy cover for LC
 Automatic approval for resale/shipment upto 25% of GIV
 Increased discretionary limit
3. SPECIFIC SHIPMENT POLICIES – SHORT TERM (SSP-ST)
These policies can be availed of by exporters who do not hold our Standard Policy or by
exporters having standard policy, in respect of shipment permitted to be excluded from
the purview of the standard policy. Exporters can pick and choose the contract/shipment
to be covered and indicate the type of cover required.
Period of Policy :
The policy would be valid for shipment(s) made from the date of the policy upto last date
allowed under the relevant contract for shipment.
89
Risk Covered:
 Commercial Risks
 Political risks
 LC Opening Bank Risk
 Insolvency risk on agent on conditions
Important Obligations of the exporters:
 Upfront premium payment

 Statement of shipment made
 Payment Advice slip
 Statement Of Overdue
 Filing of Claim within 12 months from due date
 Sharing of recovery
Highlights:
 Selection for Insurance cover

 Other exports not to be declared
 “Add on” Marine Insurance Cover
 Premium rate reduced proportionately on higher share of loss to exporter.
4. EXPORTS (SPECIFIC BUYERS) POLICY
The specific buyer policy provides cover for shipments made to a particular buyer or set
of buyers. An exporter not holding the standard policy can avail of this to cover their
shipments to one or more buyers. Exporters holding Standard Policy can also avail this
Policy for covering shipments to individuals Buyers, if all shipments to such buyers have
been permitted to be excluded from the purview of the Standard Policy.
90
Political Risks
Insolvency or default of LC Opening Bank
Important Obligation of the Exporters:
1. Deposit Premium on Quarterly in advance

2. Submission of shipment declaration quarterly
3. Declaration of payment overdue for more than 30 days
4. Filing of the within 12 months from due date
5. Sharing of recovery
Highlights:
1 Selective buyer can be insured

2 Option to exclude LC exports
3 Premium rate can be reduced proportionately
5. EXPORTS TURNOVER POLICY
Turnover Policy is for the benefit of large exporters who contribute not less than Rs.10
lakhs per annum towards premium. The policy envisages projection of the export
turnover of the policyholder for a year and the initial determination on the premium
payable on that basis, subject to adjustment at the end of the year based on actual.
91
Period of the Policy : 12 Months
Risk covered: Commercial Risks
Political Risks
Important Obligation of the Exporter
1. Premium will be payable in four equal quarterly installments in

advance
2. Submission of quarterly statement of shipments
3. Declaration of overdue payments
4. Filling of claim within 24 months from due date
5. Sharing of recovery
Highlights:
1. Simplified procedure for payment of premium

2. 10% of projected premium is waived when exports increase beyond
projection
3. Increased discretionary limit
6. BUYER EXPOSURE POLICY :
The Buyer Exposure Policy is to insure the exporters having large number of shipments
with simplified procedure and rationalized premium. An exporters can chose to obtain
exposure based cover on the selected buyer. The cover would be cover against
commercial and political risk. The option to exclude LC shipment is available. If the
exporter has opted for commercial and political risks cover, failure of LC opening bank
92
with World Rank up to 25,000 as per latest Bankers Almanac is available. If exporters
opts for only political risks for LC exports premium at a less rate is offered
Period of the Policy: 12 months
Risk covered: Buyer Risk
Political Risks
Percentage of Cover: 90% for Standard policyholder and 80% for others
Important Obligations of the Exporter:
1 Premium Payable in advance

2 Option to pay the premium quarterly in advance is available
3 Premium non refundable
4 Obtaining approval for extension in due date beyond 180 days
5 Declaration of overdue payments
6 Filing of claim within 12 months from due date
7 Sharing of recovery
Highlights:
1. 5% discount premium if paid in advance

2. Declaration procedure waived
3. Exporter to approach only for default in claim
4. One Policy for one buyer
93
References
o Trade Link export source documents.
o Exim.co.in
o Wikipedia.com
 Export Import Procedures Documentation and
Logistics
o Rama Gopal, CA. C. , Fellow of ICA (I), ICS (I) &
Associate Member of Indian Institute of Bankers.
o dgftcom.nic.in/exim/2000/procedures
o www.nfpl.net/
o www.eximguru.com › Exim
o howtoexportimport.com/Export-customs-
clearance-procedures-and-form
94

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EXPORT PROCEDURE AND DOCUMENTATION

Dissertation Project Report

EXPORT PROCEDURE AND

In reference to: Trade Link Export

Mr. ALKA MAURYA

TRADE LINK EXPORTS

Prof. ALKA MAURYA

DATE OF SUBMISSION: 02/12/2013

This is to certify that Ms./Mr.___________________, a student of Post

I hereby declare that the Project Report conducted at

Trade Link Exports

Under the guidance of

Mr. ALKA MAURYA

MASTER OF BUSINESS ADMINISTRATION-IB

AMITY UNIVERSITY, UTTAR PRADESH

Place: Moradabad PULKIT AGARWAL

SERIAL CONTENT PAGE

SERIAL CONTENT PAGE

8 LETTER TO BANK FOR NEGOTITATION 44

10 THE LETTER OF CREDIT 64

India has a mission to capture 2% of the global share of trade by 2012, up

TWO CLASSES OF EXPORTS:

Physical Exports: If the goods physically go out of the country or services

Exporters can be basically classified into two groups

 Manufacturer Exporter: As the exporter has the facility to manufacturer the

An exporter can be both a manufacturer exporter as well as a merchant

Once it is decided to export, it is mandatory on your part to follow certain

HOW TO SET UP AN EXPORT ORGANISATION

The proper selection of organization depends upon

 Ability to raise finance.

If the size of the business is small, it would be advantageous to form a sole

CHOOSING APPROPRIATE MODE OF OPERATIONS:

You can choose any of the following modes of operations

 Manufacturer Exporter i.e. manufacturing the goods yourself for export.

 Service provider i.e. providing service from India to another country.

REGISTRATION WITH REGIONAL LICENCING AUTHORITIES OBTAINING

APPLICATION FOR OBTAINING AN IEC NUMBER

Doc No. 1- IEC NO FORM

HOW ONE BEGINS TO DO EXPORT

In case of a manufacturer, obviously he would like to export the product he manufactures

EXPORT SALES & CONTRACT TERMS & CONDITIONS

NATURE OF INTERNATIONAL TRADE CONTRACTS.

ENTERING INTO AN EXPORT CONTRACT

 Product, Standards and Specifications

TERMS OF SHIPMENTS – INCOTERMS

The INCOTERMS (International Commercial Terms) is a universally recognized set of

MORE CLARIFICATION ON INCOTERMS

EXW {+the named place}

FCA {+the named point of departure}

FAS {+the named port of origin}

FOB {+the named port of origin)

CFR {+the named port of destination}

CIF {+named port of destination}

CPT {+the named place of destination}

CIP {+ the named place of destination)

DAF {+ the names point at frontier}

DES {+named port of destination}

DEQ {+ the named port of destination

DDU {+ the named point of destination}