Table Showing India's Foreign Trade For The Period Of:-2012-2013 Particulars Amount in (Rupees Crores)

CHAPTER 1
INTRODUCTION
The term export is derived from the conceptual meaning as to ship the goods and
services out of the port of a country. The seller of such goods and services is referred to
as an "exporter" who is based in the country of export whereas the overseas based
buyer is referred to as an "importer". In International Trade, "exports" refers to selling
goods and services produced in home country to other markets.
Any good or commodity, transported from one country to another country in a legitimate
fashion, typically for use in trade. Export goods or services are provided to
foreign consumers by domestic producers.
Export of commercial quantities of goods normally requires involvement of the customs
authorities in both the country of export and the country of import. The advent of small
trades over the internet such as through Amazon and e-Bay has largely bypassed the
involvement of Customs in many countries because of the low individual values of these
trades.

Nonetheless, these small exports are still subject to legal restrictions applied by
the country of export. An export's counterpart is an import.
Table showing Indias Foreign Trade for the period of:-
2012-2013
Particulars Amount in (Rupees crores)
Total Exports 845125.2
Total Imports 1356468.7
Trade Balance for the period -511343.5
Fig 1
DOCUMENTATION PROCEDURE OF GARMENT EXPORT HOUSE
PROBLEMS
There are few problems which need to be solved before India makes a mark for itself in
the export sector. The Indian goods have to be of superior quality. The packaging and
branding should be such that countries are interested to export from India. At the same
time India must look for potential market to sell their goods. The government policies
amendments can give a boost to the exports.
Though India has not been affected to the same extent as other economies of the world,
yet our exports have suffered a decline in the last 10 months due to a contraction in
demand in the traditional markets of our exports
ADVANTAGES OF EXPORT IMPORT
Enhance your domestic competitiveness
Increase sales and profits
Gain your global market share
Reduce dependence on existing markets
Exploit international trade technology
Reduce dependence on existing markets
Extend sales potential of existing products
Stabilize seasonal market fluctuations
Enhance potential for expansion of your business
Sell excess production capacity
Maintain cost competitiveness in your domestic market
DISADVANTAGES OF EXPORT IMPORT
o You may need to wait for long-term gains
o Hire staff to launch international trading
o Modify your product or packaging
o Develop new promotional material
o Incur added administrative costs
o Wait long for payments
NATIONAL INSTITUTE OF FASHION TECHNOLOGY(MFM) 2
CHAPTER 2
INDUSTRY PROFILE
2.1 WORLD APPAREL INDUSTRY
Global garment exports are valued at more than US$ 310 billion a year, of which
the world's top 15 clothing exporters account for more than 80%.
Developing countries in Asia continue expanding their Garment Industry due to
their very-low-cost production.
India is the second most preferred country after China for textile and apparel
sourcing. Its Apparel industry is likely to achieve an export target of US$ 28
billion by 2012-13. Factors effecting like vast sources of raw materials, low labor
costs, entrepreneurship and design skills of Indian traders, changes in the policies
to open up Indian economy to the outside world etc.
Bangladesh has emerged as a key player in RMG sector (Ready Made Garment
Industry).
2.2 INDIAN APPAREL INDUSTRY
14% of total industrial Production and 30% of total exports (in India).
Current share in world clothing export 3.5-4 %
One of the largest foreign exchange earners.
2nd largest exporter and producer of Apparel Products.
NATIONNAL INSTITUTE OF FASHION TECHNOLOGY(MFM) 3
30,000 manufacturing units and 35 million employed.
Industry is dominated by sub-contractors and consists mainly of small
units.
55% of investment in technology done for spinning.
Supply base is medium quality with small volume.
During 2008, exports of apparel and textile products to US declined by
0.43% in value terms though export volumes increased by 7.49% due
value increase in Rupee
PRODUCTS
Garments and Clothing
Home Decor and Furnishings:
The majority of home textiles are produced in Asia. Lower prices and high
volume products have contributed to the expansion of exports particularly from
China and India.
Handlooms:
30 lakh Weavers, 23% of total cloth produced, promoted through input support,
publicity, market support, up gradation of technology, welfare measures.
Textiles, Fabrics and Yarns:
8% of GDP, 30% of export earnings, 2nd highest mill area after china, facing
competition on quality and value addition factors.
Leather- Clothing and other Products:
Comprises of jackets, footwear, etc. with 7% share in exports, major centers
include Chennai, Kanpur, Agra, J alandhar & Delhi employing 15 lakh people.
50% consumption within India. Top importers: Germany, USA and UK.
Apparel Accessories- Industry and Products:
One of the major manufacturers of accessories with low price and quality
products.
PRODUCTION CENTRES
LUDHIANA
TIRUPUR
NEW DELHI
BANGALORE
MUMBAI
CHENNAI
J AIPUR
COMPETITIVENESS
Caters basic requirement of people.
Large skilled/ unskilled workforce with cheap rate.
Sound Export Potential
Comprises of effective Supply Chain( Diverse Fabrics to large market)
Heavy Production Capacity
India has a large fiber base
Have a large and organized mill area
Economic Upgraded Technology
DOMESTIC INDUSTRY
Domestic market has grown from US$ 23 billion to US$ 30 billion, exports has
increased from around US$ 14 billion to US$ 19 billion (04-06 to 06-07 )
Current share in world export 3.5-4%
Mens Apparel 46%, Women 17%, Kids 37%
50% of prod. need to be exported.
2,000 manufacturer-exporters export apparel, while the roughly 26,000 merchant-
exporters serve as export brokers.
India has more than 6,000 knitting units registered as producers or exporters; the
majority are SSI units
MAJOR EXPORTERS IN INDIA
Madura Garments (Indian Rayan)
Arvind Mills Ltd
Raymonds Ltd.
Alok Industries Ltd.
Welspun India Ltd.
Bombay Dyeing
J NS Fabrics & Exports.
Primex Apparel Sourcing Services
The Outlook Sourcing Services
Pratibha Syntex Pvt. Ltd
Provogue India Ltd.
Wills Lifestyle
Orient Craft Limited
Gokaldas Exports Limited
COMPETITORS
China
Vietnam
Bangladesh
Indonesia
Mexico
Hong Kong
Dominican Republic
Korea
Thailand
Philippines
QUALITY STANDARDS
For textile and apparel industry product quality is calculated in terms of quality
and standard of fibers, yarns, fabric construction, color fastness, surface designs
and the final finished garment products. However quality expectations for export
are related to the type of customer segments and the retail outlets.
Only limited use of various chemicals like azo dyes, heavy metals, odour, etc
should be permitted to prevent ecological requirements.
Apparel Industry have ISO Certification
Operation incurs heavy expenditure to the manufacturers. ISO standards are
implemented to lower its operating costs and improve the quality of its output,
ultimately increasing the level of customer satisfaction.
ISO standards enable the industry to enhance the quality of raw material input,
thereby strengthening the quality of the ultimate/final product, which leads to
performance improvement, factual approach towards the decision making process,
and a mutually benefiting suppliers relationship.
Right from yarn purchase to shipment every activity is governed by documented
standard operating procedures and instructions, which complies with the
requirements of ISO 9001.
Each process is carried out with the PDCA process approach (i.e. Plan-Do-Check-
Act), which gives better results in achieving better quality and on time shipments.
Inspection and testing at each stage of manufacture assures quality requirements
are met.
Internal audit and external audit performed periodically ensures effective
implementation of Quality Management System
Periodical feedback from customers reveals their level of satisfaction
Standards are specified on selection of Cotton Yarn.
FOREIGN TRADE POLICY
Clothing and accessories are classified under HS code 61 and 62. All the products
listed under these codes are freely importable. Further more the manufacturers of
these products are exempt from obtaining a license to manufacture though they
are required to file an Industrial Entrepreneur Memoranda (IEM) in Part 'A' with
the Secretariat of Industrial Assistance (SIA), and obtain an acknowledgement
and part B after the commencement of commercial production. Certain items of
clothing are reserved for small scale industries.
Most of the articles falling under HS 61-62 carry an import duty of 56.83 per cent
which includes 30 per cent basic duty, 16 per cent additional duty and 4 per cent
special additional duty. India has reduced peak rate of customs duty to 20%, in
view of the WTO Agreement.
In the foreign trade policy, certain amendments and inclusions have been done
pertaining to specific sectors of textiles and garment specially the handlooms.
Handlooms
Specific funds would be earmarked under MAI/ MDA Scheme for
promoting handloom exports.
Duty free import entitlement of specified trimmings and embellishments
shall be 5% of FOB value of exports during the previous financial year.
Duty free import entitlement of hand knotted carpet samples shall be 1%
of FOB value of exports during the previous financial year.
Duty free import of old pieces of hand knotted carpets on consignment
basis for re-export after repair shall be permitted.
New towns of export excellence with a threshold limit of Rs 250 crore
shall be notified.
NATIONNAL INSTITUTE OF FASHION TECHNOLOGY(MFM) 9
The textile and apparel industry is an important one to India, contributing
1.6% of industrial production and 30 % of total exports.
Import duties on capital equipment are low (the majority of the capital
equipment used by the apparel industry, like sewing machines, can be
imported at 5% basic customs duty).
Fabrics can be imported duty-free if made up into garments and re-
exported
Import duties on fabrics and other raw materials are duty free for export
production.
The apparel industry can import duty free specified trimmings and
embellishments like Fasteners, Rivets, Garment Stay, textile, Badges,
Sewing Thread, Sequin, Tape & others for export production.
CHALLENGES TO INDIAN APPAREL INDUSTRY
Policies of the Government of India favoring small firms
Small units use low levels of technology and produce mostly low value-added
goods of low quality that are less competitive globally
Indias Apparel industry depends heavily on domestically produced cotton
Small Unit sector had restricted the entry of large-scale units and discouraged
investment in new apparel manufacturing technologies
India have high energy and capital costs, raw material costs, multiple taxation etc.
Appreciation of Rupee
Low Institutional Support
CHAPTER 3
3.1 EXPORT PROCESS
STEP 1 RECIEPT OF ENQUIRY
It refers to the set of enquiries received by the exporter from the importer to serve his
own purpose. For an exporter it may not be possible to respond to all enquiries, therefore
an exporter checks the worthiness of importer by framing various questions like:-
For how long they have been in that business?
Whether they intend to purchase goods on their own account or they intend to act
as commission agent?
The name and address of at least two firms which they already represent or have
represented in the past?
This process continues further only if the exporter is satisfied with the response.
STEP 2 ROLE OF MERCHANDISER
The merchandiser is an important intermediate between the buyer and the exporter. He
works under the supervision of the directors. He often accompanies the CMD or the head
of department for getting the orders from the overseas buyer. The merchandiser forwards
different styles of samples to the buyer through local buying house as every buyer or
agent wants to assure that the goods manufactured at last should match up to their
description and illustration. This is called ad samples. If these samples are approved by
the buyer or some alterations has to be made say, in color or size, the merchandiser of the
buyer informs the merchandiser of the exporter about the alterations. Accordingly, a new
sample is prepared and forwarded.
To send samples to an enquirer is a costly business, specially as samples should always
be sent by air if possible, therefore the enquirer should be asked to pay for the samples
plus the cost of dispatch (or at least be asked to pay half of the cost) & if he is really
interested in that particular contract, he will do so.
To serve this purpose, a DEBIT NOTE is prepared by the exporter. In this context, the
firm has maintained a program which has the records of various buyers and the follow up
of sample payments.
The exporter after having satisfied himself that the enquirer abroad is capable of meeting
his obligations provides him with the price list, details of terms of business and payment
which he is expected to adhere to.
Once the samples and the other details regarding the process are approved by the buyer,
the process of Documentation starts
MERCHANDISER
BULK
SAMPLING
ORDER CONFIRMATION PURCHASE ORDER
BULK SHIPMENTS
FABRIC ORDERING 60 70 DAYS
TRIMS/ ACCESSORIES 30 40 DAYS
FABRIC IN HOUSE
TRIM IN HOUSE
TESTING
WASHING CUTTING FINISHING PACKING INSPECTION
15 20 Days prior to ex factory of goods.
Generate invoice (retail invoice)
Booking with nominated forwarder
Booking confirmed in two three days time.
Ex factory vessel cargo cut off date H/O
STEP 3 DOCUMENTATION
An exporter is required to deal with various documents both at the:
1. Pre shipment and
2. Post shipment stages
To complete the export transaction, these documents are important:
As an evidence of shipment and title of goods
For obtaining payments.
These documents are of vital interest to both the exporter and the importer. The importer
needs them to claim peaceful and legal possession and delivery of the goods in his
country. The exporter needs to hand them over to him to claim payment for the
shipment.
1. PURCHASE ORDER (P.O.)
Purchase order is the very first document which is being forwarded by the buyer to the
exporters merchandiser. It covers all the information regarding the goods. Once the
order is received, the first decision as to whether it will be filled is based upon the
approval of credit. i.e., the shipment should be contingent upon the ability of the
customer to secure foreign exchange in those countries where there are exchange
restrictions. This also applies to merchandiser destined for those countries where there
are import quotas and import license.
The Contents of P.O. Are as follows:
Year
Division
Company
Group
Shipping Group
Purchase order No.
Category
Factory
Proj. Issue
Actual Issue
Style Division
Style No.
Prototype No.
Style Desc. No.
Type
Buying Office
Handling Buying Office
LC Beneficiary
Size- Scale
Fabric
Quality
Pack Method
Content
Construct
Finish
Gauge
Type
Garment Weight
LIC
Colour
Unit
Cost
Currency
Terms
Consignment_Date
Ship Mode
Quota category
Duty(%)
Ship To
In Catalog
Size Breakdown
Issue By
Signature
Total Value
Scrutinizing the Purchase Order
In particular, the purchase order should be scrutinized on the following basis:
Terms of payments
Documents
TERMS OF PAYMENTS
In international trade, the payment for the goods can be made by means of any of the
following methods of payment. These payment methods are also known as payment
terms.
Advance payment
Open account Documentary Collection (documents against payments(d/p),
documents against acceptance(d/a)
Documentary credit(letter of credit)
ADVANCE PAYMENT:
Under this method the exporter receives payment from the overseas exporter in advance
in the form of demand draft or cheque denominated in foreign currency or by way of
direct telegraphic transfer against the supply of goods to be made later on. When an
exporter receives the advance payment, then he must have an evidence of advance
payment in the form of certificate of foreign inward remittance (FIRC).
OPEN ACCOUNT:
Open account is an arrangement between the exporter and the importer, where by the
goods are manufactured and delivered even before the payment is required. The importer
does not accept any negotiable instrument and thus, does not provide any evidence to the
exporter of his legal, commitment to make the payment. Importer makes the payment
only when he has received the goods and expected them to be quality satisfaction.
DOCUMENTARY COLLECTION:
It involves collection of given sum of money due from the importer by a bank against
delivery of certain documents at the instructions of the exporter. The parties involved in
the documentary collection are as follows-
The Exporter: The seller ships the goods and then hands over the document related to
the goods to their banks with the instruction on how and when the buyer would pay.
The Remitting Bank/ Exporter's Bank: the bank which presents documents to the
importer for collection of payments/acceptance of drafts as per instructions of the
collecting bank.
Role of remitting bank:
Check that the documents for consistency.
Send the documents to a bank in the buyer's country with instructions on
collecting payment.
Pay the exporter when it receives payments from the collecting bank.
The Collecting Bank: the bank which forwards the documents for collection or
obtaining acceptance of the draft from the importer as per instructions of the exporter.
Role of the collecting banks are:
Act as the remitting bank's agent
Present the bill to the buyer for payment or acceptance.
Release the documents to the buyer when the exporter's instructions have been
followed.
Remit the proceeds of the bill according to the Remitting Bank's schedule
instructions.
The Importer i.e., the party to whom the documents are handed over against
payment/acceptance.
i. DOCUMENTS AGAINST PAYMENT:
Under this method, the shipping documents concerning the shipment of goods are given
to the importer against payment for the goods. The payment is made by the importer
against the sight draft sent along with the shipping documents. If the importer does not
honor the draft, he is not given the shipping documents.
Flow of documents against payment
1. 2. 3.
CREDIT MAKES
THE A/C OF PAYMENT
SENDS THE
REMITTANCE
HANDOVER DOX.
Fig. 2
Exporter
(Fwd dox to)
Exporters
bank
(Fwd dox to)
Importers
bank
(Ask
Payment)
Importer
ii. DOCUMENTS AGAINST ACCEPTANCE:
In this case the remitting bank hands over the shipping documents to the importer
only upon the acceptance of accompanying draft. The acceptance implies that he agrees
to pay the amount of the draft on the due date, under d/a terms, there is always a period of
credit (usance period), on the expiry of which the importer is required to make payment.
Flow of documents against Acceptance
1. 2. 3.

CREDIT
THE
REMITTANCE
SENT TO
MAKES
Fig. 3
LETTER OF CREDIT (DOCUMENTARY CREDIT)
Letter of credit refers to a written promise made by the importers bank to the exporter
that the payment shall be made to him provided the shipment is sent by him in strict
compliance with the terms and conditions to the export contract.
The terms and conditions of the export contract form the part of letter of credit and are
known as the terms and conditions of letter of credit. The essential characteristics of the
letter of credit is that it relies on the doctrine of strict compliance for release of payment
to the exporter against the draft (s) drawn by him. The banks do not deal in goods, they
Exporter
(Fwd dox to)
Exporters
bank
(Fwd dox to)
Importers
bank
(Ask
Payment)
Importer
deal in documents. As such, the importer has to specify to the bank the documents which
it should examine as the evidence to the effect that the exporter has sent the shipment in
strict compliance with the terms and conditions of the export contract.
Flow of Letter Of Credit

Fig. 4
PARTIES OF LETTER OF CREDIT
Applicant (Opener): Applicant which is also referred to as account party is
normally a buyer or customer of the goods, who has to make payment to beneficiary. LC
is initiated and issued at his request and on the basis of his instructions.
Issuing Bank (Opening Bank): The issuing bank is the one which create a letter
of credit and takes the responsibility to make the payments on receipt of the documents
from the beneficiary or through their banker. The payments has to be made to the
beneficiary within seven working days from the date of receipt of documents at their end,
Importer
Importers
bank
Exporter
Exporters
bank
Send goods. I'll pay
Send the dox.
provided the documents are in accordance with the terms and conditions of the letter of
credit. If the documents are discrepant one, the rejection thereof to be communicated
within seven working days from the date of receipt of documents at their end.
Beneficiary: Beneficiary is normally stands for a seller of the goods, who has to
receive payment from the applicant. A credit is issued in his favor to enable him or his
agent to obtain payment on surrender of stipulated document and comply with the term
and conditions of the L/c. If L/c is a transferable one and he transfers the credit to another
party, then he is referred to as the first or original beneficiary.
Advising Bank: An Advising Bank provides advice to the beneficiary and takes
the responsibility for sending the documents to the issuing bank and is normally located
in the country of the beneficiary.
Second Beneficiary: Second Beneficiary is the person who represent the first or
original Beneficiary of credit in his absence. In this case, the credits belonging to the
original beneficiary is transferable. The rights of the transferee are subject to terms of
transfer.
TYPES OF LETTER OF CREDIT
1. Revocable Letter of Credit L/C:
A revocable letter of credit may be revoked or modified for any reason, at any time by the
issuing bank without notification. It is rarely used in international trade and not
considered satisfactory for the exporters but has an advantage over that of the importers
and the issuing bank. There is no provision for confirming revocable credits as per terms
of UCPDC, hence they cannot be confirmed. It should be indicated in LC that the credit
is revocable. If there is no such indication the credit will be deemed as irrevocable.
2. Irrevocable Letter of Credit L/C:
In this case it is not possible to revoke or amended a credit without the agreement of the
issuing bank, the confirming bank, and the beneficiary. Form an exporters point of view
it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank
insures the beneficiary that if the required documents are presented and the terms and
conditions are complied with, payment will be made.
3. Sight Credit and Usance Credit L/C:
Sight credit states that the payments would be made by the issuing bank at sight, on
demand or on presentation. In case of usance credit, draft is drawn on the issuing bank or
the correspondent bank at specified usance period. The credit will indicate whether the
usance draft is to be drawn on the issuing bank or in the case of confirmed credit on the
confirming bank.
Steps in an Import Transaction with Letter of Credit
The importer includes a purchase contract for the buying of certain goods.

The importer requests this bank to open a LC in favor of his supplier.

The importers bank opens the LC as per the application.

The opening bank will forward the original LC to the advising bank.

The advising bank, after satisfying itself about the authenticity of the credit, forwards the same to
the exporter.

The exporter scrutinizes the LC to ensure that it confirms to the terms of contract.

In case any terms are not as agreed, the importer will be asked to make the required
amendments to the LC.

In case the LC is as required, the exporter proceeds to make arrangements for the goods.

The exporter will effect the shipment of goods.

After the shipment is effected, the exporter will prepare export documents, including Bills of
Exchange.

The exporters bank (negotiation bank) verifies all the documents with the LC.

If the documents are in the conformity with the terms of LC and all other conditions are
satisfied, the bank will negotiates the bill.

The exporter receives the payment in his bank account.

The LC Opening bank (Importers Bank) receives the bill and documents from the
exporters bank.

The importers bank checks the documents and informs the importer. The importer then
accepts/pays the bill (This would depend on the terms, Delivery against Acceptance or
Delivery against Payment). On acceptance/ payment, the importer gets the shipping documents
covering the goods purchased by him.

The LC issuing bank reimburses the negotiating bank, the amount, if the documents are found
in order.
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 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.
More Clarification on Incoterms
The sellers EXW (At the named place)
Ex-Works: Ex means from. Works means factory, mill or warehouse, which are the
sellers premises. EXW applies to goods available only at 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 the goods on truck or
container at the sellers premises without charging loading fee. 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 (At 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.
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.
FAS (At 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 sellers 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 (At 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 sellers 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.
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 buyers premises which may include the import custom
clearance and payment of import customs duties and taxes at the buyers 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 (At the named port of destination)
Cost and Freight: The delivery of goods to the named port of destination (discharge) at
the sellers 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.
CIF (At named port of destination)
Cost, Insurance and Freight: The cargo insurance and delivery of goods to the named
port of destination (discharge) at the sellers 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 air freight.
CPT (At the named place of destination)
Carriage Paid To: The delivery of goods to the named port of destination (discharge) at
the sellers 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 (At 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 sellers expense. Buyer assumes the importer
customs clearance, payment of customs duties and taxes, and other costs and risks.
DAF (At the names point at frontier)
Delivered at Frontier: The delivery of goods at the specified point at the frontier on
sellers expense. Buyer is responsible for the import custom clearance, payment of
custom duties and taxes, and other costs and risks.
DES (At named port of destination)
Delivered Ex Ship: The delivery of goods on board the vessel at the named port of
destination (discharge) at sellers expense. Buyer assumes the unloading free, import
customs clearance, payment of customs duties and taxes, cargo insurance, and other costs
and risks.
DEQ (At the named port of destination
Delivered Ex Quay: The delivery of goods to the Quay (the port) at the destination on
the 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
DDU (At the named point of destination)
Delivered Duty Unpaid: The delivery of goods and the cargo insurance to the final point
of destination, which are often the project site or buyers premises at sellers 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.
DDP (At 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.
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 sellers 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 sellers and buyers obligations. The respective obligations of
both parties have been grouped under up to 10 headings where each heading on the
sellers 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
partys respective obligations under each Incoterms.
DOCUMENTS
The main purpose of the documents accompanying a shipment is to provide a specific
and complete description of the goods so that they can be assessed correctly for Duty
purpose and meet the Import Licensing requirements or Import Quota Restrictions
imposed on the goods for clearance purpose. If there are any discrepancies in the
documents and or if the required documents are not produced, the shipment may not be
allowed for import or may even be confiscated by the Customs of the importing country.
There is a plethora of documents in export trade - different forms, applications and
documents are required to be filled in for obtaining Export Licenses, completing Pre-
shipment Inspection, for Customs Clearance and shipping, for obtaining payment and
export finance and for claiming export benefits like Duty Drawback, etc.
The experienced exporter, because of the complexity of documentation, will find it a
good idea to have the various documents prepared for him by a Shipping and Forwarding
Agent.
The documentation department can be divided into two parts:
i. Pre shipment documentation
ii. Post shipment documentation
PRE SHIPMENT DOCUMENTATION
As any large export firm, the orient craft export house also has separate documentation
department, which is further bifurcated into pre-shipment and the post-shipment
department.
Activities
Insurance Policy Quota Endorsement
Generation of documents.
Custom clearance.
QUOTA ENDORSEMENT
The items in respect of which annual levels of quantities are fixed are known as quota
items and other items are known as non-quota items, each bearing distinctive category
number. The textile committee provides facilities for the pre-shipment inspection items.
This inspection is not from the point of view of quality of goods. There is no judgment on
the quality of the garment or other textile products rather, the inspection is conducted to
determine whether the materials used in the ready made garment or the textile product is
in conformity with the requirement of the quota categories. This verification is known as
authentication of ready made garments, thus an exporter dealing in ready made garments
made of cotton, rayon or blended fabrics or other textile products is required to apply for
the same.
GENERATION OF DOCUMENTS
The pre-shipment documents are divided into two broad categories namely commercial
documents and regulatory documents:-
1. Commercial Documents: are the documents used by the exporter and the importer in
discharge of their respective legal and other incidental responsibilities under sales
contracts. These documents are in use because of the custom of trade in international
trade.
2. Regulatory Documents: are those documents that are prescribed in different
government departments /bodies for compliance of formalities under relevant laws , rules
and regulations covering export trade viz. foreign exchange management act , foreign
trade (development and regulation ) act , central excise rules , exports (quality control and
exception ) act , customs act and major port trusts act.
1. COMMERCIAL DOCUMENTS
It is a document showing the value of goods exported. It may take the form of:
Customs invoice
Legalized invoice
Consular invoice

A general commercial invoice contains the following:
Invoice number and date
Buyers order number
Exporter
Consigning
Country of origin of goods
Country of final destination
Vessels /flight number
Port of discharge
Port of loading
Final destination
Description of goods
Quantity
Rates
Amount
Number and kinds of package
Total quantity
L.C. terms
Currency
Category
Customs invoice:
When the commercial invoice is prepared on the format prescribed by customs authorities
of importers countries, it is called customs invoice. This is the required in USA, Canada,
Australia.
Consular Invoice:
It is a commercial invoice duly verified by the embassy /consulate of the importers
country based in the country of exportation. .embassy/ consulate attested invoice
becomes legalized/ consular invoice. This is the requirement of countries like Mexico and
Middle East countries
Legalized Invoice:
It is the same as consular invoice this term is in use in countries like Turkey, Taiwan,
Latin America, Libya, etc
Packing List:
This document describes the various boxes in which the goods have been exported, it is a
vital document, it informs the buyer regarding the content of various item
A packing list contains
Exporter
Consignee
Invoice number
Purchase order number
L.C number
Color
Style
Total quantity
Fabric
Number of cartons
Certification of inspection:
The export inspection agency conducts pre shipment inspection of the goods notified for
compulsory pre shipment inspection of exports goods.
Certificate of insurance:
This is the document indicating insurance of the cargo. It is issued by the insurance
company. The difference between the two is that the certificate is just an evidence of
insurance. It does not state the terms and conditions of the insurance, on the other hand
the policy states the terms and conditions of the goods.
Bill of lading/airway bill:
This document is a transport document issued by the shipping line indicating the
following:
Title of goods shipped
Receipt for the goods shipped and an admission to their apparent condition and
quality at the time of shipment.
Bill of lading is issued by the shipping line against mates receipt.
Airway bill is the same as bill of lading, but is issued by the airlines carrying the
cargo.
Certificate of origin:
In most countries, importers are required to submit a certificate of origin in respect of
import consignment for obtaining their custom clearance. This can be issued by any
chamber of commerce. The application should be accompanied by two copies of the
commercial invoice and draft for the prescribed fee.
Combined Transport Document:
Combined Transport Document is also known as Multi modal Transport Document, and
is used when goods are transported using more than one mode of transportation. In the
case of multi modal transport document, the contract of carriage is meant for a combined
transport from the place of shipping to the place of delivery. It also evidence receipt of
goods but it does not evidence on board shipment, if it complies with ICC 500, Art. 26(a).
The liability of the combined transport operator starts from the place of shipment and
ends at the place of delivery. This documents need to be signed with appropriate number
of originals in the full set and proper evidence which indicates that transport charges have
been paid or will be paid at destination port.
G.S.P certificate of origin:
The G.S.P certificate of origin is different from the CO. This is required under the
scheme of generalized system of preferences introduced by the developed countries in
pursuance to unclad resolution of 1971 the scheme enables the importer in developed
countries to import goods from developing countries like India at concessional rates of
import duty or without payment of duty. This is issued by textile committee {ready made
garments}
Bill of exchange
It is an unconditional written order requesting the buyer {drawee} to pay a specified sum
of money to a specified person at a specified time. One who prepares this order is called
drawer {seller}. This is also known as draft in international trade. When the buyer has to
pay for the amount at time of its presentation it is known as sight draft. If a credit time is
allowed by exporter it is called usance draft. It is important to note that bill of exchange
should be drawn to the order of the exporters bank i.e. the bank which would negotiate
the documents/ collect the proceeds.
Shipment advice:
This document is used to inform the exporter the details of the shipment in advance. The
required set of the documents are sent separately to the buyer through the bank. The
various auxiliary commercial documents are as follows:
Performa invoice
This document indicates the details of the goods to be exported. It is an offer to sell made
by an exporter to the importer. Once the offer is accepted by the importer, the Performa
invoice becomes an export order. It is prepared after negotiation with the buyer has been
concluded.
Shipping instructions
This document provides a check list of various instructions an exporter may like to give
to the shipping agent.
Insurance declaration
This is prescribed by the insurance companies where in the exporter seeking insurance of
the goods make the declaration with regard to the insurance policy desired and the nature
of the goods.
Shipping order:
This is a reservation slip issued by shipping line at the time of reservation of shipping
space for a particular export shipment. In case the shipment is being sent by air then the
reservation slip is known as carting order
Mates receipt:
It is a receipt issued by the mate (chief officer) of the ship acknowledging the loading of
cargo on the ship. It is used when goods are sent by sea only.
2. REGULATORY DOCUMENTS
Exchange control declaration form (GR Form)
Every exporter is required to declare to the reserve bank of India. The full export value of
the shipment and also submit an undertaking that the full export proceeds shall be
realized by him within a period of six months or due date of payment which ever is
earlier. This declaration is made in the prescribed exchange control declaration form.
These forms are known as gr/ softex/ pp/ sdf form.
Freight payment certificate
This indicates that the freight has been paid.
Insurance premium payment certificate
This is like a receipt for the payment of the freight.
Application for removal of excisable goods for exports
This is used for obtaining approval of the central excise authority to remove the goods
from the factory for sending export shipment.
Shipping bill/bill of export
This is the most important document required by the customs authorities for allowing
exports. It contains all the details of the goods shipped. The clearing and forwarding
agent (C.H.A.) or the exporter himself fills up the shipping bill. It is used when shipment
is sent by sea/air and the bill of export is used when the shipment is sent by road. Various
types of bills are as under
Claim for duty drawback (green bill)
For duty free goods(white bill)
For duty entitlement pass book scheme(blue bill)
SETS OF DOCUMENTS
There are three set of documents prepared in the pre shipment department:
1. Office set
The term itself specifies that this set is maintained by the pre shipment department for the
office purpose to be used further by post shipment department.
2. Consignee set
It is same as the office set. It is forwarded to the buyer for the purpose of getting the
delivery order for the release of goods. The set is received by the buyer before the
opening bank receives the original documents forwarded by the negotiating bank of the
exporter. The set contains:
Invoice
Packing list
Airway bill/ bill of lading
Export certificate (Canada and European countries.)
Special custom invoice ( Canada)
G.S. P.( E. U. Countries)
Visa (U.S.A.)
Single country declaration (U.S.A.)
Multiple country declaration (if 100% E.O.U. for U.S.A)
Certificate of origin (E.U.)
Canada custom invoice
3. Custom clearance set
This set of document is forwarded to the agent when the goods are ex. Factory for getting
custom clearance. It contains:
Invoice
Packing list
Duplicate visa{U.S.A.}
Draw back declaration form
Export certificate {Canada & E.U.}
S.d.f. {E.U., Canada, non quota}
Certificate of origin{E.U.}
S.d.f (Canada, U.S.A, non quota countries)
Certificate from PhD. Chamber of Commerce( non quota countries)
The above mentioned documents are handed over to the custom house agent (C.H.A.) by
the agent. The C.H.A. in lieu of the same forwards a set of documents to the agent after
getting custom clearance who in turn forwards the same to pre- shipment department. The
set contains:
Custom attested invoice
Custom attested S.d.f
Exchange control copy ( signed by S.P)
Export performance copy
Airway bill/ bill of lading
Drawback / E.D.I.
3.1.i EXPORT FINANCING
Financial assistance extended by the banks to the exporters pre-shipment and post-
shipment stages. Financial assistance extended to the exporter prior to shipment of goods
from India falls within the scope of pre-shipment finance while that extended after
shipment of the goods falls under post-shipment finance. While the pre-shipment finance
is provided for working capital for the purchase of raw material, processing & finishing
of the goods meant for export, post-shipment finance is generally provided in order to
bridge the gap between shipment of goods & realization of money.
RBI GUIDELINES TO LIBERAL EXPORT FINANCE
The Reserve Bank of India is learnt to be looking at reviewing the interest rate
structure on foreign currency denominated packing credit available to exporters.
PCFC provides an additional window for pre-shipment credit to exporters at
internationally competitive interest rates.
It is applicable to both domestic and imported inputs for export goods, in any
convertible currency, for a maximum of 180 days.
Pre-shipment credit is provided as a loan or advance by a bank to an exporter for
financing the purchase, processing, manufacturing or packing of goods prior to
shipment.
The RBI has already deregulated post-shipment credit beyond 90 days till 180
days, with effect from May 1, 2003.
The RBI is understood to be examining a proposal from exporters who were
facing difficulty in availing concessional foreign currency packing credit.
This is because with demand for dollar loans surpassing supply, banks could
manage a better margin by lending it to corporate, out of the purview of export
credit.
Banking sources said by removing the cap on PCFC, which is acting as a major
disincentive for banks, there will be some pressure on outflow of dollars in
addition to meeting the genuine dollar demand of exporters.
According to banking sources, while the RBI wants to deregulate interest rates
and leave it to the discretion of banks, there is a concern that small exporters
might be hit if rates turn too high. Hence, there is also a possibility of putting a
cap as well.
Exporters do not want rates to be deregulated as post deregulation; they will no
longer remain concessional.
At present, the spread charged by banks for pre-shipment credit in foreign
currency is related to the international reference rate such as London inter-bank
offered rate Euro Libor/Euribor (6 months).
The lending rate to the exporters should not exceed 75 basis point over
Libor/Euribor, excluding withholding tax.
In fact, excess dollar inflows are increasingly becoming a problem to manage as
with each dollar sucked out of the market, additional rupee funds is being added
to the liquidity-flush system.
In addition to PCFC, under the existing norm, banks may arrange for 'lines of
credit' from abroad and also negotiate lines of credit with overseas banks for
granting PCFC to exporters without the prior approval of RBI, provided the rate
of interest on the line of credit does not exceed 75 basis point over six months
Libor/Euro.
1. PRE SHIPMENT FINANCE
Pre Shipment Finance is issued by a financial institution when the seller wants the
payment of the goods before shipment. The main objectives behind pre shipment finance
or pre export finance is to enable exporter to:
Procure raw materials.
Carry out manufacturing process.
Provide a secure warehouse for goods and raw materials.
Process and pack the goods.
Ship the goods to the buyers.
Meet other financial cost of the business.
Export Duty or any other tax.
Freight and insurance charges
TYPES OF PRE SHIPMENT FINANCE:
Packing Credit
Advance against Cheques/Draft etc. representing Advance Payments.
Pre shipment finance is extended in the following forms:
Packing Credit in Indian Rupee
Packing Credit in Foreign Currency (PCFC)
Pre-shipment Credit in Foreign Currency (PCFC)
Authorized dealers are permitted to extend Pre shipment Credit in Foreign Currency
(PCFC) with an objective of making the credit available to the exporters at internationally
competitive price. This is considered as an added advantage under which credit is
provided in foreign currency in order to facilitate the purchase of raw material after
fulfilling the basic export orders. The rate of interest on PCFC is linked to London
Interbank Offered Rate (LIBOR). According to guidelines, the final cost of exporter
must not exceed 200 bps over 6 month LIBOR, excluding the tax. The exporter has
freedom to avail PCFC in convertible currencies like USD, Pound Sterling, Euro, Yen
etc. However, the risk associated with the cross currency transaction is that of the
exporter. The sources of funds for the banks for extending PCFC facility include the
Foreign Currency balances available with the bank are
Exchange, Earner Foreign Currency Account (EEFC),
Resident Foreign Currency Accounts (RFC)
Foreign Currency (Non-Resident) Accounts.
Banks are also permitted to utilize the foreign currency balances available under Escrow
account and Exporters Foreign Currency accounts. It ensures that the requirement of
funds by the account holders for permissible transactions is met. But the limit prescribed
for maintaining maximum balance in the account is not exceeded. In addition, banks may
arrange for borrowings from abroad. Banks may negotiate terms of credit with overseas
bank for the purpose of grant of PCFC to exporters, without the prior approval of RBI,
provided the rate of interest on borrowing does not exceed 0.75% over 6 month LIBOR.
STAGES OF PRE SHIPMENT FINANCE
Appraisal and Sanction of Limits
Before making any allowance for Credit facilities banks need to check the different
aspects like product profile, political and economic details about country. Apart from
these things, the bank also looks in to the status report of the prospective buyer, with
whom the exporter proposes to do the business. To check all these information, banks
can seek the help of institution like ECGC or International consulting agencies like Dun
and Brad street etc. The Bank extended the packing credit facilities after ensuring the
following:
The exporter is a regular customer, a bona fide exporter and has a goods standing
in the market.
Whether the exporter has the necessary license and quota permit (as mentioned
earlier) or not.
Whether the country with which the exporter wants to deal is under the list of
Restricted Cover Countries (RCC) or not.
Disbursement of Packing Credit Advance
Once the proper sanctioning of the documents is done, bank ensures whether exporter has
executed the list of documents mentioned earlier or not. Disbursement is normally
allowed when all the documents are properly executed. Sometimes an exporter is not
able to produce the export order at time of availing packing credit. So, in these cases, the
bank provides a special packing credit facility and is known as Running Account
Packing.
Before disbursing the bank specifically check for the following particulars in the
submitted documents:
a. Name of buyer
b. Commodity to be exported
c. Quantity
d. Value (either CIF or FOB)
e. Last date of shipment / negotiation.
f. Any other terms to be complied with
Follow up of Packing Credit Advance
Exporter needs to submit stock statement giving all the necessary information about the
stocks. It is then used by the banks as a guarantee for securing the packing credit in
advance. Bank also decides the rate of submission of this stock.
Apart from this, authorized dealers (banks) also physically inspect the stock at regular
intervals.
Liquidation of Packing Credit Advance
Packing Credit Advance needs be liquidated out of as the export proceeds of the
relevant shipment, thereby converting pre shipment credit into post shipment credit. This
liquidation can also be done by the payment receivable from the Government of India and
includes the duty drawback, payment from the Market Development Fund (MDF) of the
Central Government or from any other relevant source. In case if the export does not
take place then the entire advance can also be recovered at a certain interest rate. RBI has
allowed some flexibility in to this regulation under which substitution of commodity or
buyer can be allowed by a bank without any reference to RBI. Hence in effect the
packing credit advance may be repaid by proceeds from export of the same or another
commodity to the same or another buyer. However, bank need to ensure that the
substitution is commercially necessary and unavoidable.
Overdue Packing
Bank considers a packing credit as an overdue, if the borrower fails to liquidate the
packing credit on the due date. And, if the condition persists then the bank takes the
necessary step to recover its dues as per normal recovery procedure.
Document to be submitted to the bank for sanction of limits:
Credit Monitoring Arrangement (CMA)
Monthly stock statement
Half yearly statement
Audited balance sheet
Funds flow statement
Credit Monetary Arrangement:
It is nothing but the bank financing for working capital. It was earlier known as Credit
Authorization Scheme. RBI prescribed certain forms to be filled for applying that is
called as CMA Data Base. It is done for arranging working capital finance information
about income, expenses, assets and liabilities.
2. POST SHIPMENT FINANCE:
Post Shipment Finance is a kind of loan provided by a financial institution to an exporter
or seller against a shipment that has already been made. This type of export finance is
granted from the date of extending the credit after shipment of the goods to the
realization date of the exporter proceeds. Exporters dont wait for the importer to deposit
the funds.
TYPES OF POST SHIPMENT FINANCE:
Export Bills purchased/discounted.
Export Bills negotiated
Export Bills Purchased/ Discounted (DP & DA Bills):
Export bills (Non L/C Bills) is used in terms of sale contract/ order may be discounted or
purchased by the banks. It is used in indisputable international trade transactions and the
proper limit has to be sanctioned to the exporter for purchase of export bill facility.
Export Bills Negotiated (Bill under L/C):
The risk of payment is less under the LC, as the issuing bank makes sure the payment.
The risk is further reduced, if a bank guarantees the payments by confirming the LC.
Because of the inborn security available in this method, banks often become ready to
extend the finance against bills under LC. However, this arises two major risk factors for
the banks:
The risk of non performance by the exporter, when he is unable to meet his terms
and conditions. In this case, the issuing banks do not honor the letter of credit.
The bank also faces the documentary risk where the issuing bank refuses to honor
its commitment. So, it is important for the negotiating bank, and the lending bank
to properly check all the necessary documents before submission.
POST SHIPMENT CREDIT
Post shipment credit is required to bridge the gap between the time of shipment of goods
and the actual payment received. Post shipment credit is provided against the security of
approved shipping documents submitted against letter of credit or otherwise.
Post shipment loans normally are of three types:
Short term: short term period is normally for six months and is provided by
commercial banks.
Medium Term: medium term period is up to five years, loan is provided by the
Commercial banks in collaboration with export import banks.
Long Term: loans are provided for the purchase of capital goods or turnkey
projects. Period of credit is normally more than five years.
Banks enjoy certain benefits for advancing loans to the exporter:
Refinance by export and import bank or by RBI at a given rate of interest.
Guarantee provided by the ECGC or a substantial part of risk is covered by
ECGC.
3.2 IMPORT
Basic concepts relating to foreign trade in India:
As already mentioned, Orient Craft Ltd. is in the business of manufacturing garments for
exports. We manufacture a wide assortment of garments to suit all customer profiles,
viz., men, women and children. We also make garments to suit all usage types like
sportswear, casual wear, and formal wear and so on.
Understanding the garment manufacture process:
The first step is the order procurement. OCL has earned for itself an extremely
respectable reputation in the international market. This means that even in a highly
competitive industry, OCL is in a commanding position as regards the procurement of
orders. Because of its strong bargaining position, OCL never has to go out and hunt for
orders; rather they are in the enviable position of being overbooked.
Thus, the manufacturing process kicks off once the order has been accepted by OCL.
IMPORT PROCESS
The first step in the process is the import of raw material from the suppliers. To ensure
the highest level of customer satisfaction, OCL has a unique policy of buyer specified
supplier. This means that every buyer has the discretion of specifying the name of the
supplier from whom the raw material is to be sourced.
This ensures that the specifications of the final product exactly meet customers
requirement. From the buyers perspective the main advantage is that the products
sourced from all the different manufacturers all over the world will be identical if the
supplier is the same. For example, suppose GAP USA, needs 1, 00,000 T-shirts. Now
consider that they place the order for this with 4 different manufacturers from different
corners of the world. If the discretion of selecting the supplier is left to manufacturers
like OCL, then the products coming from different manufacturers will have different
attributes. To standardize the final products, the buyers specify the supplier from whom
the material is to be procured.
Now OCL will need to import the raw material for processing the order from the supplier
as specified by the buyer.
This raw material comprises broadly of:
Fabric this comprises the major chunk of the imports.
Trims these include zippers, buttons, lining material etc.
Step 1: Placing the order with the supplier:
OCL sends its requirements to the supplier giving him the exact specifications of the
product required. Then the supplier replies to OCL giving the details of the material he
can supply along with the shipment dates of each of these.
Step 2: Raising a Letter of Credit (L/C):
To safeguard his interests, the supplier would require some sort of payment guarantee
from OCL. This guarantee is given in the form of a L/C.
A L/C is simply a proof of the credit-worthiness of the importer. It is issued by the
importers bank on the strength of the amount deposited by the importer with the bank or
on the basis of the accounts of the importer with the bank.
The following figure shows how the flow of funds moves from the importer (OCL) to the
supplier:
Requesting the bank to issue
The first step here is to send a request to the bank asking them to issue a L/C in favor of
the specified supplier.
This would typically include:
a. Amount of the L/C
b. Name and address of the beneficiary.
c. Import covered under [the sections or acts of the Import Export Policy pertaining to
the transaction.
In addition to the above specified items, OCL will also at this stage, undertake to submit
the relevant Bill of Entry to the bank upon successful completion of the transaction.
Step 3: Bank issues L/C
The bank with which the L/C has been raised next sends this L/C across to the
beneficiary bank. The most popular means of this transfer is SWIFT, a method similar in
function to the TELEX of old days.
Supplier, in say,
Italy
OCL, New Delhi
Bank, Italy
branch
XYZ Bank, New
Delhi Branch
At this stage, the commercial department of OCL raises what is known as L-Number
Step 4: Arrival of goods
When the goods finally reach the destination port as given in the L/C, a cargo collection
receipt is sent to the bank with which the L/C was raised.
At the same time, OCL also receives a Cargo Arrival Notice, which is an intimation of
the arrival of the goods. It must be noted here that this notice is merely intimation and no
collection of goods can take place against this. The commercial department at OCL
raises an R-Number against this notice.
R-Number is the requisition for release order and attestation of documents.
A representative of OCL goes to the bank with this requisition, and signs the declaration
that the payment due is made. The most common method of this payment is to deduct the
amount from the current account of OCL with that bank.
Once the payment order has been released, the bank endorses the cargo receipt and the
commercial department of OCL can then take delivery of the goods from the warehouse.
Step 5: Transfer of payments
The bank then sends the amount to the beneficiarys bank through via transfer or any
other method as mutually decided, from where it is sent on to the beneficiary.
Step 6: Submitting the Bill Of Entry
Since imports involve an outflow of foreign currency, the RBI guidelines in this regard
have to be met. Thus OCL needs to submit, within 90 days, a Bill of Entry, which is a
documentary proof of the receipt and delivery of goods.
3.2. i IMPORT FINANCING:
Import financing provides importers who have orders from customers backed by a letter
of credit, with the necessary financial backing to provide their overseas Supplier with a
letter of credit to guarantee payment of goods, it is the loan given to the importer to
provide liquidity for buying with sight payment to the exporter. Each loan must be related
to one specific import transaction and the term of the financing can vary depending on
the type of products imported and the requirements of the importer.
ADVANTAGES
Financing can be arranged for 100% of the transaction. This provides the importer with
sufficient financial strength to sell larger orders than they would be able to on their own
financial strength, below are some advantages:
Obtain liquidity to pay for imports.
The importer can receive better conditions for the purchase based on sight
payment.
Bank

can offer the structure, currency and terms that the business or transaction
requires. Depending on the case, it is possible to create a "tailor made" structure.
Depending on the strength of the buyer, this may be done on open account with
the domestic buyer, allowing the buyer to increase their buying power.
Import Trade Finance
International trade continues to grow every year as nations expand their global sales and
new nations join in. Today, over 225 nations are active in trade resulting in over nine
Trillion dollars in global business every year. Trade related financial services have
developed and expanded in depth, complexity and effectiveness to support the expansion
of world trade. Many trade finance options are now available. However, in North
America the Small to Mid- sized Enterprises (SME) trading community is relatively
unaware of many of the more sophisticated and/or the sources of the more effective trade
finance services. Traders commonly believe that the major international banks are the
primary providers of these services. For the SME community this is no longer the case.
A fragmented market of trade finance organizations has grown over the last 20 years to
fill the void left by the major international banks which retreated from trade finance
service in the 1980's.
Settlement of Import Trade Transactions
Various trade terms are available to balance the trade transaction risks for both the
importer and exporter. As an importer/distributor you will wish to negotiate the most
favorable terms of purchase with your overseas supplier. You will negotiate terms of
purchase to ensure that you receive your import purchase in the right quantity, right
quality, at the right price and on time. At the same time you can expect your overseas
supplier to negotiate terms that will minimize potential risks - particularly the risk of
nonpayment. Import trade transactions can be structured in a number of ways. The
structure used in a specific transaction reflects how well the participants know each other,
the countries involved, and the competition in the market.
MOST COMMON TERMS USED FOR PURCHASE
Consignment Purchase
In a consignment purchase arrangement, the importer/distributor makes payment to the
overseas supplier only after sales to end user is made and payment received.
Consignment purchase terms can be the most advantageous to an importer/distributor. It
is also considered the most risky term for the overseas supplier.
Cash-in-Advance (Advance Payment)
Under these terms of purchase, the importer must send payment to the supplier prior to
shipment of goods. The importer must trust that the supplier will ship the product on
time and that the goods will be as advertised. Basically, Cash-in- advance terms place all
of the risk with the importer/buyer. An Importer may find his seller requiring prepayment
in the following circumstances:
The Importer has not been long established.
The Importer's credit status is doubtful, unsatisfactory and/or the country political
and economic risks are very high.
The product is in heavy demand and the seller does not have to accommodate an
importer's financing request in order to sell the merchandise.
Down Payment
The Buyer pays the Seller a portion of the cost of the goods "in advance" when the
contract is signed or shortly thereafter. There are advantages and disadvantages of down
payment terms. The down payment method induces the Seller to begin performance
without the Buyer paying the full agreed price in advance. The disadvantage is that there
is a possibility the Seller may never deliver the goods even though it has the Buyer's
down payment. This option must be combined with one of the other options to cover the
full cost of goods.
Open Account Payment
Unsecured Open Account terms allows the importer to make payments at some specific
date in the future and without the buyer issuing any negotiable instrument evidencing his
legal commitment to pay at the appointed time. These terms are most common when the
importer/buyer has a strong credit history and is well-known to the seller. The buyer may
also be able to demand open account sales when there are several sources from which to
obtain the seller's product or when open account is the norm in the buyer's market. This
mechanism offers the seller no protection in case of non-payment. However, an exporter
can structure his open account sale transaction to minimize the risk of non-payment.
Documentary Collections
Collections terms offer an important bank payment mechanism that can serve the needs
of both the exporter and importer. Under this arrangement, the sale transaction is settled
by the bank through an exchange of documents, thus enabling simultaneous payment and
transfer of title. The importer is not obliged to pay for goods prior to shipment and the
exporter retains title to the goods until the importer either pays for the value of the draft
upon presentation (sight draft) or accept to pay at a later date and time (term draft).
Risks in Documentary Collections
For the Exporter
If it is a sight draft, the exporter will reduce the risk of non-payment but will not
eliminate it totally since the importer may not be in a position to pay for the goods or may
not be able to procure sufficient foreign exchange to make the payment. In this case the
exporter may be forced to either call back the goods or negotiate sale to some other
interested party, which may be at a reduced rate.
In the case of term draft, the risk to the exporter is higher since the foreign buyer will
take possession of the goods and may not pay at due date, forcing therefore the exporter
to try and collect payment from the foreign buyer in the foreign buyer's home country.
The Importer
The importer faces the risk of paying for goods of sub-standard quality or even with
shortages. In such a circumstance, it would take some time to get refunds from the
exporter. It could also happen that the exporter refuses to make refunds, leading the
importer to lengthy legal proceedings.
CHAPTER 4
CONCLUSIONS
It is evident that documentation is a detailed process which is crucial to the
working of an export house.
The documentation also depends on the terms and requirements of the exporter as
well as the importer.
The authenticity of the documents is instrumental since without that the
documents will stand useless.
CHAPTER 5
BIBLIOGRAPHY
INTERNET:
http://www.eximguru.com/exim/guides/export-
finance/ch_8_bank_guarantees.aspx
http://apparel.indiamart.com/lib/garments/indian07251998.html
http://www.teonline.com/apparel-garments/industry-overview.html
http://apparel.indiamart.com/
http://www.india-exports.com/apparel.html
http://apparel.indiamart.com/lib/garments/indian07251998.html
http://www.cygnusindia.com/Industry%20InsightApparel%20Retailing%20
n%20India-Executive%20Summary%20&%20TOC-March%202004_.pdf
http://hotdocs.usitc.gov/docs/pubs/research_working_papers/PUB3401.PDF
www.google.com
Annexure 1 (e.g. Taken from SPL industries Ltd)
IMPORTER EXPORTER CODE
Annexure 2
REGISTRATION -CUM -MEMBERSHIP CERTIFICATE
Annexure 3
COMMERCIAL INVOICE
Annexure 4
INVOICE
Annexure 5
PACKING LIST
Annexure 6
SHIPMENT INSPECTION REPORT
Annexure 5
CERTIFICATE OF ORIGIN
Annexure 5
GENERALISED CERTIFICATE OF ORIGIN

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