Seminar on Export Procedure and Documentation Seminar on

EXPORT PROCEDURE AND DOCUMENTATION

KOHIMA, NOVEMBER 08, 2006

The Seminar was conducted by the Eximius Centre, Exim Bank in association with the Government of Nagaland and United Bank of India (UBI) at Kohima on November 08, 2006. The objective of the programme was to develop the knowledge and skill of existing and potential entrepreneurs in proper compliance with the procedure and documentation for exports, and thereby to enhance the prospect of their export efforts. 60 participants representing small, medium and large enterprises from both private and public sectors attended the Seminar. FACULTY 1. Mr. Z. Khuma, Jt. Director General of Foreign Trade (DGFT), Kolkata; 2. Mr. K.P. John Kutty, Deputy General Manager, Reserve Bank of India (RBI); 3. Mr. P.P. Singh, Senior Manager, UBI; 4. Mr. P.P. Taneja, Asst. Commissioner of Customs, Dimapur; 5. Mr. N.C. Das, Manager, Export Credit Guarantee Corporation of India Ltd; and 6. Mr. Sunil Kumar, OSD, CAPEXIL. TOPICS COVERED 1. 2. 3. 4. 5. 6. Foreign Trade Policy; Foreign Exchange Regulations; Introduction to exports procedures; Customs formalities; Export Factoring & Forfaiting; Export Credit Risk Insurance.

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation GIST OF MAJOR TOPICS

1. Foreign Trade Policy

Indias Foreign Trade Policy (FTP) originally introduced to regulate and control trade, particularly imports, in order to preserve the countrys foreign exchange, is now designed to serve as a trade promotion mechanism. The objective of FTP is to accelerate Indias global merchandise trade- to double our percentage share in 5 years- and to act as an effective instrument of economic growth. The process of liberalisation of FTP started in April 1992, and become an ongoing process towards removal of restrictions and achieving simplification. As an export promotion tool, FTP provides for various incentive schemes for exports: dutyfree import of raw materials required for export production, import, on concessional duty, of capital goods and plant & machinery required for export production, and special schemes for EOU, SEZ and areas having potential for export of agri/horticultural products. A special Agriculture & Village Industries Scheme (Vishesh Krishi Gram Udyog Yojana) has been introduced under the FTP to facilitate export of fruits, vegetables, flowers, minor forest produce, dairy, poultry, value added products and Gram Udyog products. DGFT, functioning under the Ministry of Commerce and Industries, Government of India, regulates the countrys export-import trade, and formulates the related policies and procedures. In its role as facilitator of foreign trade, the office of DGFT has simplified a number of procedures such as the procedure for registration of IEC code. Online access, through internet, has been introduced for activities such as viewing IEC status and submission of documents (electronic filing). Schemes such as Duty Drawback, Duty Entitled Pass Book, and Standard Input Output Norms for availing incentives, have been simplified to make them more user-friendly. DGFT website (www.dgft.gov.in) incorporates regular updates on export incentives and other aspects of FTP.

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Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation

2. Foreign Exchange Regulations Reserve Bank of India (RBI) is vested inter alia with the task of monitoring Indias foreign exchange inflow and outflow. Prior to the economic liberalisation process which commenced in the 1990s, foreign exchange was a scarce commodity and its release was governed by the Foreign Exchange Regulation Act (FERA). With liberalisation of the FTP, RBIs role has evolved into that of a facilitator. FERA has been replaced by the Foreign Exchange Management Act (FEMA) with the objective of facilitating external trade and payments, and for orderly development and maintenance of foreign exchange market in India. Commercial banks through notified Authorised Dealers (ADs) and financial institutions have been given greater flexibility in meeting the foreign exchange requirements of exporters. Based on the FTP, ADs have been given increased autonomy to extend facilities to exporters, and need to seek RBIs prior permission in very select cases. ADs are authorised to receive advance payment for exports, change of buyer, reduction in value, write-off of unrealised export bills and permit Exchange Earners Foreign Currency Account (EEFC), in which prescribed percentage of export earnings can be credited. Reflecting the liberalised environment and the comfortable position of Indias foreign exchange reserves, RBIs Exchange Control Department has been renamed as Foreign Exchange Department. ADs now handle the export transactions in conformity with the FTP announced by DGFT and the directions issued by RBI from time to time. RBI website (www.rbi.org.in) incorporates these under the master circulars link in the website.

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3. Export Procedure & Documentation

Setting up an export business requires basic documentation such as a Permanent Account Number (PAN card), Importer Exporter Code (IEC) from DGFT office and opening a bank account. Other key factors include knowledge of trading systems, FTP and Industrial Policy, access to market

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation information (for which internet is a good source), ensuring product quality and compliance with export procedures & documentation. The Ministry of Commerce, through the Director General of Foreign Trade (DGFT), controls the Foreign Trade Policy (FTP), while the Ministry of Finance, through the Reserve Bank of India (RBI) and the Indian Customs, controls the physical movement of goods and services and the transactions of foreign exchange (both inflow & outflow) from the country. Receipts of proceeds of exports by way of foreign exchange and payment for imports to foreign suppliers by way of foreign exchange are to be routed through normal banking channels only. Some Common Terms used in International Trade

EXW (Ex Works) at a named point of origin (e.g., exfactory, ex-mill, ex-warehouse). Price quoted applies only at the point of origin. All other charges are for the account of the buyer. FCA (Free Carrier) to a named place. Price envisages seller's responsibility for cost of loading goods at the named shipping point. FAS (Free alongside ship) at a named domestic port of export. Price includes charges for delivery of the goods alongside a vessel at the port. The seller handles the costs of unloading and wharfage; all other costs viz. loading, ocean transportation, and insurance are left to the buyer. FOB (Free on Board) at a named port of export. Price covers all costs up to and including delivery of goods aboard an overseas vessel. CIF (Cost, Insurance, Freight) to a named overseas port of import. Price of goods includes insurance, all transportation and miscellaneous charges upto the point of debarkation from the vessel (used for ocean shipments only). CFR (Cost and Freight) to a named overseas port of import. Price of goods includes costs as above except insurance (used for ocean shipments only).

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation

CPT (carriage paid to) and CIP (carriage and insurance paid) to a named place of destination. Used in place of CIF and CFR respectively, (used for shipment by modes other than water). Payment Terms: The common payment terms in export are: Advance payment (Payment by Buyer before shipment of goods); Documents against payment (Delivery of shipping documents to Buyer against payment); Documents against acceptance (Delivery of shipping documents to Buyer against acceptance by Buyer/its bankers to effect payment on the agreed date); Letter of Credit (an arrangement whereby a bank {the Issuing Bank} acting on the instructions of a customer {the buyer} is to make a payment to the beneficiary {the seller} or is to accept bills of exchange (drafts) drawn by the Beneficiary {the seller}. It is, in short, an undertaking or a guarantee by a bank of payment to the beneficiary should certain conditions be met).

Insurance: Export shipments are usually insured against loss, damage and delay in transit, by cargo insurance. For international shipments, the carrier's liability is frequently limited by international agreements. Cargo insurance may be made by either the buyer or the seller, depending on the terms of sale.

Documentation Risks are inherent in both domestic trade and international trade, but the degree of risk is higher in international trade. Hence, proper documentation mitigates the risk in international trade. Documentation must be precise. Slight discrepancies or omissions may prevent merchandise from being exported, result in exporting firms not getting paid, or even result in the seizure of the exporter's goods by local or foreign government customs. Collection documents are subject to precise time limits and may not be honoured by a bank, if out of date. Much of the documentation is routine for the freight forwarders or customs brokers acting on the firm's behalf, but the exporter is ultimately responsible for the accuracy of the documentation. It is

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation said that International Trade is a sale of documents. It is very important to clearly understand the documents involved in the transaction to avoid the risk factors and adhere to the legal obligations. The entire documentation in export trade can be basically divided into two categories: Export Documents

Pre-shipment Documents

Post-shipment Documents

Pre-shipment documents are those that an exporter has to generate, authenticate and submit to the concerned authorities and departments to get the necessary clearances, prior to the actual shipment of the cargo, so that the cargo can be shipped out with valid documents. The pre-shipment documents are generally prepared when the product is ready for export and prior to shipment. The standard pre-shipment documents include: Customs Invoice Packing List G R Form (original and duplicate) ARE-1 Form (original and duplicate) Copy Of Export order Letter Of Credit Shipping Bill (entire set) Export Licence(for notified items) Certificate Of Origin Certificate Of Inspection Any Other Documents (as required in L/C or by Customs)

The post-shipment documents comprise the certified copies of some of the main pre-shipment documents and certain additional documents to be generated and compiled by the exporter so that the proof of shipments can be properly presented to the negotiating bank for collecting the

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation payments through L/C or for presentation to the foreign buyer for collection of payment through the nominated bank. The standard pre-shipment documents include Custom attested invoice Custom attested packing list Copy of Export Order / Copy Of LC Commercial Invoice Consular Invoice (If Specified) Bill of Lading / Air Way Bill Certificate of Origin Certificate of Inspection (If Specified) Bill of Exchange (Draft) G R Form (Duplicate) Any other document specified in Export Order / LC

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4. Customs Formalities Central Board of Excise and Customs (CBEC) is assigned a number of tasks, some of which are: a) Collection of customs duties on imports and exports as per basic Customs laws (Customs Act, 1962 and Customs Tariff Act, 1975); b) Enforcement of the various provisions of the Customs Act governing imports and exports of cargo, baggage, postal articles and arrival & departure of vessels, air crafts etc.; c) Discharge of various agency functions and enforcing various prohibitions and restrictions on imports and exports under the Customs Act and other allied enactments; d) Prevention of smuggling including introduction of narcotics drug trafficking; and e) International passenger processing.

CBEC Mission is to achieve excellence in the formulation and implementation of Customs and Excise initiatives aimed at:

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation

realising the revenues in a fair, equitable and efficient manner; administering the Government's economic, tariff and trade policies with a practical and pragmatic approach; facilitating trade and industry by streamlining and simplifying Customs and Excise processes and helping Indian business to enhance its competitiveness; creating a climate for voluntary compliance by providing guidance and building mutual trust; combating revenue evasion, commercial frauds and social menace in an effective manner. procedures and terms

Some of the important documents, are briefly described below:

Customs Invoice: is a regulatory document for export, to be prepared in prescribed format. Customs Packing List: is also a regulatory document for export, to be prepared in prescribed format. G R Forms: Wherever manual-shipping bill is in force, GR form in the prescribed format is a mandatory document. These forms are available from RBI or Authorised Dealers of Commercial Banks. Under the EDI scheme, the foreign exchange copy of the shipping bill performs the role of GR forms. In addition, a self declaration form has to be submitted by the exporter to the bank. Both these documents perform the function of GR Form. ARE-1 Form: It is a very important regulatory document prescribed by CBEC for the Exemption/ Draw back of excise duty. Exporters are exempted from the payment of excise duty, and the exemption can be availed by two methods. Exporter can pay the excise duty, export the cargo and draw back the duty paid earlier. Alternatively, the exporter can export the cargo under Bond i.e. without payment of Excise duty. In either case, the ARE-1 form formalities have to be completed by the exporter as a pre-shipment Document. ARE-1 is to be filled in and submitted to the Excise department at least 24 hrs in advance along with request for inspection, sealing and certification by the department. If the export is done by paying duty, then the specified copies of ARE-1 can be used for Draw Back. In case of EPCG, it is used for completing the export

Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation obligation given under Bond to the Government, discharging the Bond on such completion. and for

Custodian: The goods imported into India and exported out of India are allowed through designated Sea Ports/ Land Custom Stations/ Airports. The goods so imported/ exported are initially deposited in the custody of Custodian such as: Port authorities for goods imported through sea; Custodians for goods imported by airAirport Authority of India Air India or STC etc

For places other than points of landingInland Container Depot (ICD) Container Freight Station (CFS)

Export Promotion Schemes Under the FTP, the Promotion Schemes: following are some of the Export

Duty Exemption/Remission Schemes: Advance Authorisation Scheme (DEEC/Adv. Licence) Duty Free Replenishment Scheme DEPB Scheme Duty Free Import Authorisation Export promotion capital goods scheme(EPCG) EOU/STP/EHTP/Biotechnology parks Special Economic Zones (separate act & rules framed) Free Trade And Warehousing Zones Deemed Exports Special schemes under export promotion
Vishesh Krishi and Gram Udyog Yojana Focus market schemes (export to specified countries) Focus product schemes (export of specified commodities)

Details on Customs formalities and circulars are available on the website www.cbec.gov.in

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Eximius Centre, Export-Import Bank of India

Seminar on Export Procedure and Documentation 5. Export Factoring and Forfaiting Global Trade Finance Private Limited (GTF), a Joint Venture, promoted by Exim with WestLB, Germany (since replaced by FIM Bank, Malta and Bank of Maharashtra) and IFC (World Bank), commenced business in September 2001. GTF's objective is to promote market driven exportfinancing solutions for small and medium sized Indian exporters operating in an increasingly competitive world trade environment. GTF offers, for the first time in India, structured foreign trade financing products such as forfaiting and factoring. Factoring is a continuous arrangement between a factoring concern and the seller of goods and services (on credit) whereby the factor purchases the accounts receivable for immediate cash and also provides other services such as sales ledger maintenance, collection and credit protection. GTF offers various products such as: DOMESTIC 1. Domestic Factoring 2. Reverse Factoring 3. Channel Financing EXPORTS 1. Export Factoring with credit protection with insurance cover with recourse 2. Forfaiting IMPORTS 1. Import Factoring GTF has launched a new initiative to enable online sanction of Factoring facilities for registered SSI export oriented units. Details can be obtained from the website www.gtfindia.com

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Eximius Centre, Export-Import Bank of India

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Seminar on Export Procedure and Documentation 6. Export Credit Insurance Risks such as non-payment, country, geographical, loss in transit and war are inherent in foreign trade. Export Credit Guarantee Corporation of India Ltd (ECGC) offers policies to protect exporters from non-payment risks of buyer/country and guarantees to banks against non-payment by the borrower. Export credit insurance assesses the buyer and the country risks, enabling it to devise various insurance schemes. ECGC offers different policies tailored to the specific needs of the exporter against various risks which include: 1. 2. 3. 4. 5. 6. 7. 8. Standard Policy Export Turnover Policy Specific Shipments Policy Exports (specific buyer) Policy Buyer Exposure Policy Consignment Exports Policy Software Projects/ IT-enabled Services Policy Small Exporters Policy ECGC policies are available on its website

Details of www.ecgc.in

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