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Certified Export Import

(Foreign Trade) Professional


VS-1018

VS-1018

Certified Export Import (Foreign Trade) Professional

Certified

V skills

Export Import

www.vskills.in
Proficiency Testing Programme

(Foreign Trade)
Professional

of
Intelligent Communication Systems India
Limited

JV of DSIIDC ( Govt of NCT


VS-1018

The guide covers the practical and procedural


aspects of the work related to export and
import trade, documentation required for
export import trade, the role of international
institutions, Incoterms, impact of foreign
exchange, government policies and government
bodies. It also gives an introduction to the
export import trade documentation and its role
and some basic knowledge of export import
business. It is for beginners and intermediaries.

Delhi) & TCIL (Govt of India)

Export

Import

(Foreign

Trade) Training Material

VS-1018

Certified Export Import (Foreign Trade) Professional

Copyright 2011

Cubezoid Solutions Private Limited

Content, design, typesetting and published by Cubezoid Solutions Private Limited,


info@cubezoid.com

All rights reserved

This book is provided on the condition that it shall not by way of trade or otherwise, be lent,
resold, hired out or otherwise circulated without the publishers prior consent in any form of
binding or cover other than in which it is published and without a similar condition including this
condition being imposed on the subsequent purchaser and without limiting the rights under the
copyright reserved above, no part of this publication, may be reproduced, stored in or introduced
into a retrieval system, or transmitted in any form or by any means (electronic, mechanical,
photocopying , recording or otherwise) without the prior permission of the copyright owner and
publisher of the book

Disclaimer:

Due care and diligence has been taken while editing and printing this book. Neither the Author, publisher nor the printer of the
book holds any responsibility for any mistake that may have crept in inadvertently. Cubezoid Solutions Private Limited the
publishers, will be free from any liability for damages and loss of any nature arising out or related to the content. All disputes are
subject to the jurisdiction of the competent courts in Delhi.

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Certified Export Import (Foreign Trade) Professional

FOREWORD
The purpose of this guide is to provide the candidate with general knowledge about export import
business, regulations in international trade, international bodies like WTO, documentation
involved in export import business and basic guidance on how to start an export unit.
The guide covers the practical and procedural aspects of the work related to export import trade
and covers some technicalities of the trade like Incoterms, documentation procedures, government
bodies and various related topics. It also gives an introduction to the international trade,
international trade bodies and some basic knowledge of operations
This goal of this manual is to introduce beginning professionals to all the essential aspects of export
import in a practical manner and to be a source of best answers on the typical questions as why are
export is happening, who are the exporters, what products / services do they export/ import, what
documentation is required to start an export firm, what documentation is required for export trade
and where the pertinent information may be obtained from. Mastering the content of an
appropriate section the user will be able to make his/her own decisions, test them, and ultimately
use recommended tools and approaches for his/her own benefit.
We do not claim that the text we have produced is complete, and this is a general guide only to the
relevant topics. It should be considered as a reference guide only, and doesnt include the entire
topics of Export / Import trade for certification purposes. The certification examination might have
questions outside the purview of this course.
Research Team, Export/Import Trade

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Certified Export Import (Foreign Trade) Professional

TABLE OF CONTENTS
1. International Trade................................
Trade ................................................................
................................................................................................
..................................................................................
..................................................7
..................7
1.1 Regulations of International Trade ......................................................................................................................8
1.2 Risks in International Trade ................................................................................................................................8
1.3 Top trading nations (2010 estimates) ...................................................................................................................9
1.4 Top traded commodities (Exports)....................................................................................................................10

2. International Trade WTO ................................................................


................................................................................................
..................................................................
..................................12
.. 12
2.1 GATT rounds of negotiations ...........................................................................................................................12
2.2 Functions of WTO............................................................................................................................................13
2.3 Principles of the trading system .........................................................................................................................13

3. Export and Import................................


Import ................................................................
................................................................................................
.................................................................................
.................................................16
................. 16
3.1 Export................................................................................................................................................................16
3.2 Advantages of Exporting ....................................................................................................................................16
3.3 Disadvantages of Exporting................................................................................................................................16
3.4 Ways of exporting .............................................................................................................................................17
3.5 Making the export decision................................................................................................................................18
3.6 Import ...............................................................................................................................................................18

4. Starting Exports Important steps................................


steps................................................................
..........................................................................................
..........................................................20
.......................... 20
4.1 Steps for successful exporting ............................................................................................................................22

5. Role of Government Agencies................................


Agencies................................................................
................................................................................................
................................................................24
................................ 24
5.1 Director General of Foreign Trade....................................................................................................................25
5.2 Export Promotion Councils...............................................................................................................................26
5.3 Board of Trade..................................................................................................................................................27
5.4 Commodity Boards ...........................................................................................................................................27
5.5 Institutes for export promotion..........................................................................................................................27
5.6 India Trade Promotion Organization (ITPO) ...................................................................................................28
5.7 National Centre for Trade Information (NCTI)................................................................................................29
5.8 Export Inspection Council (EIC).......................................................................................................................30
5.9 Export Credit Guarantee Corporation...............................................................................................................30
5.10 Directorate General of Commercial Intelligence and Statistics (DGCI&S) ......................................................30
5.11 Indian Trade Promotion Council (ITPO) .......................................................................................................30
5.12 Federation of Indian Exporters Organization (FIEO).....................................................................................30
5.13 Export Import Bank (EXIM) ..........................................................................................................................31
5.14 Export Inspection Council...............................................................................................................................31
5.15 Customs and Central Excise Department ........................................................................................................31
5.16 Marine Products Export Development Authority............................................................................................31
5.17 Agricultural and Processed Food Products Export Development Authority....................................................32
5.18 Indian Council of Arbitration ..........................................................................................................................33
5.19 Federation of Indian Export Organisations......................................................................................................33
5.20 Department of Commercial Intelligence and Statistics ....................................................................................34
5.21 Directorate General of Shipping......................................................................................................................34
5.22 Freight Investigation Bureau ............................................................................................................................35
5.23 State Trading Corporation of India Limited (STC) .........................................................................................35
5.24 Major State trading organizations in India........................................................................................................39

6. Export Documentation ................................................................


................................................................................................
..........................................................................
..........................................44
.......... 44
7. Payment terms................................
terms ................................................................
................................................................................................
.......................................................................................
.......................................................52
....................... 52
7.1 Payment in Advance ..........................................................................................................................................52
7.2 Letter of Credit..................................................................................................................................................52
7.3 Documentary Collections ..................................................................................................................................53
7.4 Open Account ...................................................................................................................................................54

8. INCOTERMS................................
INCOTERMS................................................................
................................................................................................
.......................................................................................
.......................................................56
....................... 56
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Certified Export Import (Foreign Trade) Professional

9. Methods of Financing Exporters ................................................................


............................................................................................
............................................................59
............................ 59
9.1 Pre Shipment Finance .......................................................................................................................................59
9.2 Post Shipment Advance.....................................................................................................................................61

10. Export Assistance................................


Assistance................................................................
................................................................................................
.................................................................................
.................................................63
................. 63
10.1 Importance of Export Assistance .....................................................................................................................63
10.2 Export Promotion Measures in India ..............................................................................................................64
10.4 Eligibility for Export/Trading/Star Trading/Super Star Trading Houses..........................................................68
10.5 Rendering exports price competitive................................................................................................................69
10.6 Strengthening Export Marketing Effort............................................................................................................71
10.7 Special Economic Zones .................................................................................................................................72
10.8 Export Processing Zone /Export Oriented Units .............................................................................................73

11. Processing of an export order ................................................................


...............................................................................................
...............................................................75
............................... 75
11.1 Nature and Format of Export Order ...............................................................................................................75
11.2 Examination and Confirmation of Export Order.............................................................................................75
11.3 Central Excise Clearance .................................................................................................................................77
11.4 Pre-shipment Inspection..................................................................................................................................77
11.5 Appointment of Clearing and Forwarding Agents............................................................................................78
11.6 Transportation of Goods to Port of Shipment.................................................................................................79
11.7 Port Formalities and Customs Clearance.........................................................................................................80
11.8 Certificate of Origin and Shipment Advice ......................................................................................................82
11.9 Presentation of Documents to Bank ................................................................................................................82
11.10 Claiming Export Incentives............................................................................................................................82

12. Product Development for Exports................................


Exports ................................................................
........................................................................................
........................................................85
........................ 85
12.1 Product Development .....................................................................................................................................85
12.2 Planning for product development ..................................................................................................................85
12.3 Sourcing new ideas ..........................................................................................................................................85
12.4 The product development process ..................................................................................................................85
12.5 Market Research..............................................................................................................................................87
12.6 Successful product planning ............................................................................................................................87
12.7 Packing and packaging.....................................................................................................................................89

13. Export Marketing................................


Marketing ................................................................
................................................................................................
.................................................................................
.................................................96
................. 96
13.1 Export Readiness.............................................................................................................................................96
13.2 Identifying the right markets ............................................................................................................................96
13.3 Market Entry for Exports.................................................................................................................................97
13.4 Assessing Export Competitiveness ...................................................................................................................97

14. FOREX AND RISK MANAGEMENT ................................................................


............................................................................
............................................100
............ 100
14.1 What is Foreign Exchange? ...........................................................................................................................100
14.2 Foreign Exchange as a Financial Market........................................................................................................101
14.3 Foreign Exchange is an OTC Market (Over The Counter) ...........................................................................102
14.4 Rates of Exchange..........................................................................................................................................104
14.5 Primary and Counter Currency .....................................................................................................................104
14.6 Market Maker and Market Taker..................................................................................................................105
14.7 Bid/Offer Rate...............................................................................................................................................105
14.8 Middle Rate ...................................................................................................................................................106
14.9 Cross Rates ....................................................................................................................................................106
14.10 Factors affecting exchange rate fluctuations..................................................................................................107
14.11 Major Currencies.........................................................................................................................................110
14.12 Effect of fluctuations in exchange rates: exposure and foreign exchange risk ...............................................112
14.13 Risks of foreign exchange to exporters and importers..................................................................................113
14.14 Managing risk .............................................................................................................................................115

15. Electronic Data Interchange ................................................................


...............................................................................................
...............................................................117
............................... 117
15.1 Advantages.....................................................................................................................................................117
15.2 ASYCUDA....................................................................................................................................................117
15.3 EDI link ups ..................................................................................................................................................117
15.4 Indian Customs EDI System (ICES) .............................................................................................................118

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Certified Export Import (Foreign Trade) Professional

16. National Foreign Trade Policy 20092009-2014 ................................................................


..........................................................................
..........................................128
.......... 128
16.1 Highlights of Foreign Trade Policy 2009-2014 ..............................................................................................131

17. Containerization and transportation................................


transportation................................................................
....................................................................................
....................................................137
.................... 137
17.1 Modes of Transport.......................................................................................................................................137
17.2 Containerization ............................................................................................................................................139

18. Managing Quality in Exports ................................................................


..............................................................................................
..............................................................145
.............................. 145
18.1 Services Quality .............................................................................................................................................145
18.2 ISO 9000 Sstandards .....................................................................................................................................146
18.3 List of Certification Bodies in India...............................................................................................................148

19. Glossary (Acronyms)................................


(Acronyms) ................................................................
................................................................................................
..........................................................................
..........................................150
.......... 150
20. Answers Key ................................................................
................................................................................................
......................................................................................
......................................................153
...................... 153

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Certified Export Import (Foreign Trade) Professional

1. INTERNATIONAL TRADE
Trade is the transfer of ownership of goods and services from one person to another. Trade is
sometimes loosely called commerce or financial transaction or barter. A network that allows trade
is called a market. The original form of trade was barter, the direct exchange of goods and services.
Later one side of the barter was the metals, precious metals (poles, coins), bill, and paper money.
Modern traders instead generally negotiate through a medium of exchange, such as money. As a
result, buying can be separated from selling, or earning. The invention of money (and later credit,
paper money and non-physical money) greatly simplified and promoted trade. Trade between two
traders is called bilateral trade, while trade between more than two traders is called multilateral
trade.
Trade exists for man due to specialization and division of labor, most people concentrate on a
small aspect of production, trading for other products. Trade exists between regions because
different regions have a comparative advantage in the production of some tradable commodity, or
because different regions' size allows for the benefits of mass production. As such, trade at market
prices between locations benefits both locations.
International trade is exchange of capital goods, and services across international borders or
territories. In most countries, it represents a significant share of gross domestic product (GDP).
While international trade has been present throughout much of history, its economic, social, and
political importance has been on the rise in recent centuries.
Industrialization, advanced transportation, globalization, multinational corporations and
outsourcing are all having a major impact on the international trade system. Increasing
international trade is crucial to the continuance of globalization. Without international trade,
nations would be limited to the goods and services produced within their own borders.
International trade is in principle not different from domestic trade as the motivation and the
behavior of parties involved in a trade do not change fundamentally regardless of whether trade is
across a border or not. The main difference is that international trade is typically more costly than
domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time
costs due to border delays and costs associated with country differences such as language, the legal
system or culture.
Another difference between domestic and international trade is that factors of production such as
capital and labour are typically more mobile within a country than across countries. Thus
international trade is mostly restricted to trade in goods and services, and only to a lesser extent to
trade in capital, labor or other factors of production. Then trade in goods and services can serve as
a substitute for trade in factors of production.
Instead of importing a factor of production, a country can import goods that make intensive use of
the factor of production and are thus embodying the respective factor. An example is the import of
labor-intensive goods by the United States from China. Instead of importing Chinese labor the
United States is importing goods from China that were produced with Chinese labor.
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Certified Export Import (Foreign Trade) Professional

1.1 Regulations of International Trade


Traditionally trade was regulated through bilateral treaties between two nations. For centuries
under the belief in mercantilism most nations had high tariffs and many restrictions on
international trade. In the 19th century, especially in the United Kingdom, a belief in free trade
became paramount. This belief became the dominant thinking among western nations since then.
In the years since the Second World War, controversial multilateral treaties like the General
Agreement on Tariffs and Trade (GATT) (GATT) and World Trade Organization have
attempted to promote free trade while creating a globally regulated trade structure. These trade
agreements have often resulted in discontent and protest with claims of unfair trade that is not
beneficial to developing countries.
Free trade is usually most strongly supported by the most economically powerful nations, though
they often engage in selective protectionism for those industries which are strategically important
such as the protective tariffs applied to agriculture by the USA and Europe. The Netherlands and
the United Kingdom were both strong advocates of free trade when they were economically
dominant, today the United States, the United Kingdom, Australia and Japan are its greatest
proponents. However, many other countries (such as India, China and Russia) are increasingly
becoming advocates of free trade as they become more economically powerful themselves. As
tariff levels fall there is also an increasing willingness to negotiate non tariff measures, including
foreign direct investment, procurement and trade facilitation. The latter looks at the transaction
cost associated with meeting trade and customs procedures.
Traditionally agricultural interests are usually in favour of free trade while manufacturing sectors
often support protectionism. This has changed somewhat in recent years, however. In fact,
agricultural lobbies, particularly in the United States, Europe and Japan, are chiefly responsible for
particular rules in the major international trade treaties which allow for more protectionist
measures in agriculture than for most other goods and services.
During recessions there is often strong domestic pressure to increase tariffs to protect domestic
industries. This occurred around the world during the Great Depression. Many economists have
attempted to portray tariffs as the underlining reason behind the collapse in world trade that many
believe seriously deepened the depression.
The regulation of international trade is done through the World Trade Organization at the global
level, and through several other regional arrangements such as MERCOSUR in South America,
the North American Free Trade Agreement (NAFTA) between the United States, Canada and
Mexico, and the European Union between 27 independent states. The 2005 Buenos Aires talks
on the planned establishment of the Free Trade Area of the Americas (FTAA) failed largely
because of opposition from the populations of Latin American nations. Similar agreements such as
the Multilateral Agreement on Investment (MAI) have also failed in recent years.

1.2 Risks in International Trade


Companies doing business across international borders face many of the same risks as would
normally be evident in strictly domestic transactions. For example,
Buyer insolvency (purchaser cannot pay)
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Certified Export Import (Foreign Trade) Professional

Non-acceptance (buyer rejects goods as different from the agreed upon specifications)
Credit risk (allowing the buyer to take possession of goods prior to payment)
Regulatory risk (e.g., a change in rules that prevents the transaction)
Intervention (governmental action to prevent a transaction being completed)
Political risk (change in leadership interfering with transactions or prices)
War and other uncontrollable events.
In addition, international trade also faces the risk of unfavorable exchange rate movements (and,
the potential benefit of favorable movements)

1.3 Top trading nations (2010 estimates)


Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

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Country
European Union
USA
Peoples Republic of China
Germany
Japan
France
United Kingdom
Italy
South Korea
Netherlands
Canada
Hong Kong
Singapore
Russia
Mexico
Spain
Belgium
India
Taiwan
Switzerland
Australia

Exports + Imports (in US dollars)


3.764 trillion
3.173 trillion
2.813 trillion
2.457 trillion
1.402 trillion
1.086 trillion
952 billion
918 billion
884 billion
860 billion
813 billion
796 billion
667 billion
614 billion
609 billion
593 billion
561 billion
528 billion
525 billion
453 billion
411 billion

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Certified Export Import (Foreign Trade) Professional

1.4 Top
Top traded commodities (Exports)
1
2
3
4
5
6
7
8
9
10

Mineral fuels, oils, distillation products etc


Electrical, electronic equipment
Machinery, nuclear reactors, boilers etc
Vehicles other than railways, tramway
Pharmaceutical products
Optical, photo, technical, medical apparatus
Plastics and articles thereof
Pearls, precious stones, metals and coins
Organic Chemicals
Iron and steel

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1.658 trillion
1.605 trillion
1.520 trillion
841 billion
416 billion
396 billion
387 billion
320 billion
310 billion
273 billion

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Certified Export Import (Foreign Trade) Professional

Self Assessment Questions


Q1. The various risks in international trade are
a)
b)
c)
d)

Buyer insolvency (purchaser cannot pay)


Non-acceptance (buyer rejects goods as different from the agreed upon specifications)
Credit risk (allowing the buyer to take possession of goods prior to payment)
All of the above

Q2. The main functions of WTO are


a)
b)
c)
d)

To handle disputes constructively


To help promote peace amongst business community
To provide rules that make life easier for all people involved in foreign trade
All of the above

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Certified Export Import (Foreign Trade) Professional

2. INTERNATIONAL TRADE WTO


The World Trade Organization (WTO) is an organization that intends to supervise and liberalize
international trade. The organization officially commenced on January 1, 1995 under the
Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT), which
commenced in 1948. The organization deals with regulation of trade between participating
countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute
resolution process aimed at enforcing participants' adherence to WTO agreements which are
signed by representatives of member governments and ratified by their parliaments. Most of the
issues that the WTO focuses on derive from previous trade negotiations, especially from the
Uruguay Round (19861994).
The organization is currently endeavoring to persist with a trade negotiation called the Doha
Round, which was launched in 2001 to enhance equitable participation of poorer countries which
represent a majority of the world's population. However, the negotiation has been dogged by
"disagreement between exporters of agricultural bulk commodities and countries with large
numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect
farmers from surges in imports.
The WTO has 153 members representing more than 97% of total world trade and 30 observers,
most seeking membership. The WTO is governed by a ministerial conference, meeting every two
years; a general council, which implements the conference's policy decisions and is responsible for
day-to-day administration; and a director-general, who is appointed by the ministerial conference.
The WTO's headquarters is at Geneva Switzerland.
The WTO's predecessor, the General Agreement on Tariffs and Trade (GATT), was established
after World War II in the wake of other new multilateral institutions dedicated to international
economic cooperation notably the Bretton Woods institutions known as the World Bank and
the International Monetary Funds.

2.1 GATT rounds of negotiations


The GATT was the only multilateral instrument governing international trade from 1945 until the
WTO was established in 1995.

From Geneva to Tokyo


Seven rounds of negotiations occurred under GATT. The first real GATT trade rounds
concentrated on further reducing tariffs. Then, the Kennedy Round in the mid-sixties brought
about a GATT anti dumping Agreement and a section on development. The Tokyo Round
during the seventies was the first major attempt to tackle trade barriers that do not take the form of
tariffs, and to improve the system, adopting a series of agreements on non-tariff barriers, which in
some cases interpreted existing GATT rules, and in others broke entirely new ground. Because
these plurilateral agreements were not accepted by the full GATT membership, they were often
informally called "codes". Several of these codes were amended in the Uruguay Round, and turned
into multilateral commitments accepted by all WTO members. Only four remained plurilateral
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Certified Export Import (Foreign Trade) Professional

(those on government procurement, bovine meat, civil aircraft and dairy products), but in 1997
WTO members agreed to terminate the bovine meat and dairy agreements, leaving only two.

Uruguay Round
Well before GATT's 40th anniversary, its members concluded that the GATT system was
straining to adapt to a new globalizing world economy. In response to the problems identified in
the 1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries'
policies on world trade GATT could not manage etc.), the eighth GATT round known as the
Uruguay Round was launched in September 1986, Uruguay.
It was the biggest negotiating mandate on trade ever agreed: the talks were going to extend the
trading system into several new areas, notably trade in services and intellectual property, and to
reform trade in the sensitive sectors of agriculture and textiles; all the original GATT articles were
up for review. The Final Act concluding the Uruguay Round and officially establishing the WTO
regime was signed during the April 1994 ministerial meeting at Marrakesh, Morocco, and hence is
known as the Marrakesh Agreement.
The GATT still exists as the WTO's umbrella treaty for trade in goods

2.2 Functions of WTO


It oversees the implementation, administration and operation of the covered agreements.
It provides a forum for negotiations and for settling disputes.
Additionally, it is the WTO's duty to review and propagate the national trade policies, and to
ensure the coherence and transparency of trade policies through surveillance in global economic
policy-making. Another priority of the WTO is the assistance of developing, least-developed and
low-income countries in transition to adjust to WTO rules and disciplines through technical
cooperation and training.
The WTO is also a center of economic research and analysis: regular assessments of the global
trade picture in its annual publications and research reports on specific topics are produced by the
organization. Finally, the WTO cooperates closely with the two other components of the Bretton
Woods system, the IMF and the World Bank.

2.3 Principles of the trading system


The WTO establishes a framework for trade policies; it does not define or specify outcomes. That
is, it is concerned with setting the rules of the trade policy games. Five principles are of particular
importance in understanding both the pre-1994 GATT and the WTO

NonNon-Discrimination
It has two major components: the most favoured nation (MFN) rule, and the national treatment
policy. Both are embedded in the main WTO rules on goods, services, and intellectual property,
but their precise scope and nature differ across these areas. The MFN rule requires that a WTO
member must apply the same conditions on all trade with other WTO members, i.e. a WTO
member has to grant the most favorable conditions under which it allows trade in a certain product
type to all other WTO members. Grant someone a special favour and you have to do the same for
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Certified Export Import (Foreign Trade) Professional

all other WTO members. National treatment means that imported goods should be treated no less
favorably than domestically produced goods (at least after the foreign goods have entered the
market) and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security
standards et al. discriminating against imported goods).

Reciprocity
It reflects both a desire to limit the scope of free riding that may arise because of the MFN rule,
and a desire to obtain better access to foreign markets. A related point is that for a nation to
negotiate, it is necessary that the gain from doing so be greater than the gain available from
unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.

Binding and enforceable commitments


commitments
The tariff commitments made by WTO members in a multilateral trade negotiation and on
accession are enumerated in a schedule (list) of concessions. These schedules establish "ceiling
bindings": a country can change its bindings, but only after negotiating with its trading partners,
which could mean compensating them for loss of trade. If satisfaction is not obtained, the
complaining country may invoke the WTO dispute settlement procedures.

Transparency
The WTO members are required to publish their trade regulations, to maintain institutions
allowing for the review of administrative decisions affecting trade, to respond to requests for
information by other members, and to notify changes in trade policies to the WTO. These
internal transparency requirements are supplemented and facilitated by periodic country-specific
reports (trade policy reviews) through the Trade Policy Review Mechanism (TPRM). The WTO
system tries also to improve predictability and stability, discouraging the use of quotas and other
measures used to set limits on quantities of imports.

Safety valves
In specific circumstances, governments are able to restrict trade. There are three types of
provisions in this direction: articles allowing for the use of trade measures to attain noneconomic
objectives; articles aimed at ensuring "fair competition"; and provisions permitting intervention in
trade for economic reasons. Exceptions to the MFN principle also allow for preferential treatment
of developed countries, regional free trade areas and customs unions.

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Certified Export Import (Foreign Trade) Professional

Self Assessment Questions


Q1. GATTs cover all internationally traded services. They are
a)
b)
c)
d)

Cross border supply and consumption abroad


Commercial presences and presences of natural persons
None of the above
Both (a) and (b)

Q2. The member countries of WTO have moved to a Product Patent Regime under
a)
b)
c)
d)

TRIMs
TRIPs
SAPTA
BoP

Q3.GATT 1947, the fundamental principles of agreement are as follows


a)
b)
c)
d)

Most favoured nation treatment by signatory members


National treatment except payment of customs duty at import time
Total restrictions on export/import of rice, tea, tobacco, diamonds, garments, leather etc
Only (a) and (b)

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3. EXPORT AND IMPORT


3.1 Export
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.
In National Accounts, exports consist of transactions in goods and services (sales, barter, gifts or
grants) from residents to non-residents. The exact definition of exports includes and excludes
specific "borderline" cases.
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.

3.2 Advantages of Exporting


Exporting
Ownership advantages are the firm's specific assets, international experience, and the ability to
develop either low cost or differentiated products within the contacts of its value chain. The
locational advantages of a particular market are a combination of market potential and investment
risk. Internationalization advantages are the benefits of retaining a core competence within the
company and threading it though the value chain rather than obtain to license, outsource, or sell it.
If the company and its products are equipped with ownership advantage and internalization
advantage, they enter through low-risk modes such as exporting. Exporting requires significantly
lower level of investment than other modes of international expansion, such as FDI. The lower
risk of export typically results in a lower rate of return on sales than possible though other modes
of international business, but risk is also lower. Exporting allows managers to exercise operation
control but does not provide them the option to exercise as much marketing control. An exporter
usually resides far from the end consumer and often enlists various intermediaries to manage
marketing activities.

3.3 Disadvantages of Exporting


For MSME (Micro, medium and small enterprises), selling goods and services to foreign markets
seems to be more difficult than serving the domestic market. The lack of knowledge for trade
regulations, cultural differences, different languages and foreign exchange situations as well as the
strain of resources and staff interact like a block for exporting. Indeed there are some SME's which
are exporting, but most are selling to a particular area only. The main disadvantages/deterrents to
exporting are

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Financial management effort: To minimize the risk of exchange rate, fluctuation and
transactions processes of export activity the financial management needs more capacity to cope
the major effort
Customer demand: International customers demand more services from their vendor like
installation and startup of equipment, maintenance or more delivery services
Communication technologies improvement: The improvement of communication
technologies in recent years enable the customer to interact with more suppliers while receiving
more information and cheaper communications cost at the same time like 20 years ago. This
leads to more transparency. The vendor is in duty to follow the real-time demand and to
submit all transaction details
Management mistakes: The management might tap in some of the organizational pitfalls, like
poor selection of oversea agents or distributors or chaotic global organization

3.4 Ways of exporting


The company can decide to export directly or indirectly to a foreign country.

Direct selling in export strategy


Direct Selling involves sales representatives, distributors, or retailers who are located outside the
exporter's home country. Direct exports are goods and services that are sold to an independent
party outside of the exporters home country. Mainly the companies are pushed by core
competencies and improving their performance of value chain.

Direct selling through distributors


It is considered to be the most popular option to companies, to develop their own international
marketing capability. This is achieved by charging personnel from the company to give them
greater control over their operations. Direct selling gives the company greater control over the
marketing function and the opportunity to earn more profits. A distributor in a foreign country is a
merchant who purchases the product from the manufacturer and sells them at profit. Distributors
usually carry stock inventory and service the product, and in most cases distribute deals with
retailers rather than end users.

Direct selling through foreign retailers and end users


Exporters can also sell directly to foreign retailers. Usually, products are limited to consumer lines;
it can also sell to direct end users. A good way to generate such sales is by printing catalogs or
attending trade shows.

Direct selling over the Internet


Ecommerce is an important mean to small and big companies all over the world, to trade
internationally. We already can see how important e-commerce is for marketing growth among
exporters companies in emerging economies, in order to overcome capital and infrastructure
barriers, ecommerce eased engagements, provided faster and cheaper delivery of information,
generates quick feedback on new products, improves customer service, accesses a global audience,
levels the field of companies, and support electronic data interchange with suppliers and customers

Indirect selling
Indirect exports, is simply selling goods to or through an independent domestic intermediary in
their own home county. Then intermediaries export the products to customers foreign markets.
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3.5 Making the export decision


decision
Once a company determines it has exportable products, it must still consider other factors, such as
the following
What does the company want to gain from exporting?
Is exporting consistent with other company goals?
What demands will export place on the company's key resources - management and
personnel, production capacity, and finance - and how will these demands be met?
Are the expected benefits worth the costs, or would company resources be better used for
developing new domestic business?
An export's counterpart is an import.

3.6 Import
The term import is derived from the conceptual meaning as to bring in the goods and services into
the port of a country. The buyer of such goods and services is referred to an "importer" who is
based in the country of import whereas the overseas based seller is referred to as an "exporter".
Thus an import is any good (e.g. a commodity) or service brought in from one country to another
country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another
country for sale. Import goods or services are provided to domestic consumers by foreign
producers. An import in the receiving country is an export to the sending country.
Imports, along with exports, form the basis of international trade. Imports of goods normally
require the involvement of the customs authorities in both the country of import and the country
of export and are often subject to import quotas, tariffs and trade agreements. Imports of services
consist of all services rendered by non-residents to residents.
There are two basic types of import
Industrial and consumer goods
Intermediate goods and services
Companies import goods and services to supply to the domestic market at a cheaper price and
better quality than competing goods manufactured in the domestic market. Companies import
products that are not available in the local market.
There are three broad types of importers
Looking for any product around the world to import and sell
Looking for foreign sourcing to get their products at the cheapest price
Using foreign sourcing as part of their global supply chain

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Self Assessment Questions


Q1. MSME Stands for
a)
b)
c)
d)

Micro, Small and Medium Engineering companies


Micro, Small and Medium Enterprises
Maharashtra State Manufacturing Enterprise
None of the above

Q2. International trade is based on the idea that


a)
b)
c)
d)

Exports should exceed Imports


Imports should exceed Exports
Resources are more mobile internationally than are goods
Resources are less mobile internationally than goods

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4. STARTING EXPORTS IMPORTANT STEPS


The right name
Words like international or overseas used in the name of the firm (Example- Vijay International)
convey the message that the firm is engaged in the business of import/export.

Registration
The firm has to be registered under the countrys prevalent law, such as the Company Act of India.
The company would be registered in one of its various forms like proprietorship, partnership,
private limited, public limited etc

Permanent Account Number (PAN)


The Permanent Account Number (PAN) needs to be quoted to open a bank account, to apply for
the import export code (IEC) number and to claim tax exemptions and deductions under the
Income Tax Act.

Opening a Bank Account


The company needs to open an account with a bank dealing in foreign exchange. It makes sense to
open an account with a branch which directly undertakes export-import documents and converts
foreign exchange.

Registering with the Value Added Tax (VAT) Office


The exporter need not pay VAT while making purchase for exports. To avail this benefit, the firm
has to be registered with the VAT. The exporter needs to give the seller Form-H, along with a
copy of the import letter of credit or export order.

Obtaining the IEC number


The IEC number is the most important registration required by an exporter/importer. No export
or import for commercial purposes shall be made by any person without an IEC number. An IEC
number can be obtained through an application to the relevant authority i.e. the Director General
of Foreign trade (DGFT) in India. There is no expiry date of IEC number. The registered/ head
office of the applicant can apply for the IEC number to the licensing authority the regional office
of the DGFT- in the prescribed format. The application should be accompanied by relevant
documents, which are as follows
Application form (in duplicate)
Company profile (in duplicate)
True copy of the income tax PAN A/c Number
True copy of VAT certificate, if any
Prescribed Fees
Bank certificate as per format
Full address of branches in India and abroad, if any
Three passport size photographs duly signed on the reverse
SSI registration copy, duly certified, if any
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Declaration in duplicate

Important Features of IEC number


The IEC number is the first and foremost requirement for exporters and importers
It is a permanent number and has no expiry date
It is valid for imports as well as exports
It is valid for all products
It is a 10 digit number

Registration with Export Promotion Councils (EPC)


Government has set up EPCs to provide information and to facilitate exports. The basic objective
of EPCs is to promote and develop the exports of the country. Each council is responsible for the
promotion of a particular group of products, projects and services. The EPCs keep abreast of the
trends and various opportunities that exist in the international markets. They also offer
professional advice to members in areas such as technology upgradation, quality and design
improvement, standards and specifications etc. They also organize overseas delegations of its
members in order to explore global market opportunities and promote interaction between
exporting community and government.
EPCs are non profit, autonomous and professional bodies. They are non-profit organizations
registered under the companies Act or the Societies Registration Act.
The Ministry of Commerce and Industry regularly interacts with the EPCs and review their
performance.
An exporter may on application, register and become a member of an EPC. On being given
membership, the applicant shall be granted forthwith Registration cum Membership Certificate
(RCMC) of the EPC concerned, subject to certain terms and conditions.

Registration with Export Credit Guarantee Corporation


Exporters should register with the Export Credit Guarantee Corporation (ECGC) to secure
payment against political and commercial risks.

Central Excise
Goods are subject to exemption from excise duty on the final product meant for export. Where
exemption is not availed, the excise duty paid is refunded after actual export. Secondly, the refund
of excise duty is made on inputs used in the manufacture of goods meant for export. Form ARE-1
has to be used in India for this excise clearance.

Registration with Chambers of Commerce, Productivity Council


Council etc
It may be helpful to become a member of various chambers of commerce or a productivity
council, or trade promotion organization recognized by Ministry of Commerce. This helps in
getting a certificate of origin and many other social and networking events.

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Registration for Business Identification Number


It is important to obtain a PAN, based on Business Identification Number (BIN) from the DGFT
registration office prior to filing for customs clearance of export goods.
Export licence is required for negative list, products that are
Prohibited (i.e. cannot be exported)
Restricted (through license) or
Canalized (a license can be obtained for a short period through canalizing agency of the
government)
Any exporter has to procure a license, if his item is not listed under the freely exportable items by
the government.

4.1 Steps for successful exporting


Apply for IEC Number through DGFT
Register with the concerned EPC and get the registration cum membership certificate
Sampling and procuring orders from international buyers
Manufactures good or collect them from other manufacturers as per order
Manages quality control through inspection and quality certifications
Dispatches goods to port/airport
Applies for an insurance cover during transit of goods marine/air insurance
Contacts C&F agent for warehousing and customs clearance
Loads the goods on the ship and get the Mates receipt
Gets Bill of Lading or Airway Bill from the official agent of the shipping company
Gets the certificate of origin from the chambers of commerce
Sends a set of documents to the importer with all the details like date of shipment, name of
vessel etc also sends documents like Bill of lading, invoice and packing list.
Presents all the important document to the bank which scrutinizes all the documents
Exporters bank sends all the documents to the importers bank and payment is released

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Self Assessment Questions


Q1. The validity of IEC (Importer-Exporter Code Number) is
a)
b)
c)
d)

1 year
2 year
5 year
Permanent number without any expiry

Q2. The inspection under which every consignment is checked before it is allowed for export is
a)
b)
c)
d)

Self Certification Scheme


Exemption
Consignment basis
None of the above

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5. ROLE OF GOVERNMENT AGENCIES


AGENCIES
The Government of India has set up several institutions whose main functions are to help an
exporter in his work. It would be advisable for an exporter to acquaint him with these institutions
and the nature of help that they can render to him so that he can initially contact them and have a
clear picture of what help he can expect of the organized sources in his export effort.
Institutions engaged in export effort fall in six distinct tiers. At the top is the Department of
Commerce of the Ministry of Commerce. This is the main organization to formulate and guide
Indias trade policy. At the second tier, there are deliberative and consultative organisations to
ensure that export problems are comprehensively dealt with after mutual discussions between the
Government and the Industry. At the third tier are the commodity specific organisations which
deal with problems relating to individual commodities and/or groups of commodities. The fourth
tier consists of service institutions which facilitate and assist the exporters to expand their
operations and reach out more effectively to the world markets. The fifth tier consists of
Government trading organizations specifically set up to handle export/import of specified
commodities and to supplement the efforts of the private enterprise in the field of export
promotion and import management. Agencies for export promotion at the State level constitute
the sixth tier.
The Department of Commerce is the primary government agency responsible for evolving and
directing foreign trade policy and programmes, including commercial relations with other
countries, State trading, various trade promotional measures and development and regulation of
certain export oriented industries. Apart from the Finance and Administrative Divisions, the
principal functional divisions of the Department of Commerce are Economic Division, Trade
Policy Division, Foreign Trade Territorial Division, Export Products Division, Export Services
Division and Export Industries Division.
The main task of the Trade Policy Division is to keep abreast of the developments in the
international organisations like UCTAD, WTO, the Economic Commissions for Europe, Africa,
Latin America and Asia and Far Past (ESCAP). It is also responsible for Indias relations with the
European Economic Community, European Free Trade Association, Latin American Free Trade
Area, other regional groupings and the Commonwealth.
It also looks after the generalized system of preferences and non-tariff barriers.
The Foreign Trade Territorial Division is entrusted with the work relating to the development of
trade with different countries and regions of the world. This Division also handles matters
pertaining to State trading and barter deals, organization of trade fairs and exhibitions, commercial
publicity abroad, etc. It also maintains contacts with Indian Trade Missions abroad and attends to
the connected administrative work including the protocol functions.
The Export Products Division pays attention to the problems connected with production,
generation of surplus and development of markets for the various products under its jurisdiction.
These products include, inter alia, plantations, marine products, chemicals, plastics, leather and
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leather goods, sports goods, films, steel, metals, engineering products, minerals and ores, coal,
petroleum products, mica, salt, etc. Although in administrative terms the responsibility for these
products remains with the Ministries concerned, this Division keeps itself in close touch with them
to ensure that production is sufficient to realize the full export potential besides meeting the home
consumption. This Division is also responsible for the working of export organisations and
corporations dealing with above commodities and products.
The Export Industries Division is responsible for development and regulation of rubber, tobacco
and cardamom. The Division is also responsible for handling export promotion activities relating
to textiles, woolens, hand-looms, readymade garments, silk and cellulosic fibres, jute and jute
products, handicrafts, coir and coir products.
The Export Services Division deals with the problems of export assistance including import
replenishment licensing, cash assistance, export credit, ex-port houses, Marketing Development
Assistance and grants there from, transport , free trade zones, dry ports, quality control and preshipment inspection, joint ventures abroad and capacity creation in export-oriented industries
including assistance to import capital goods and essential raw materials.
The Economic Division, headed by the Economic Adviser, is responsible the formulation of
export strategies, export planning, periodic appraisal and view of policies as also for maintaining
coordination and constant contacts the other Divisions as well as with various organisations which
have been under the Commerce Department to assist the export drive. This Division also
monitors work relating to technical assistance, management services for export and overseas
investments by Indian entrepreneurs.
The various government agencies that regulate the export import trade in India are

5.1 Director General of Foreign Trade


Earlier known as Chief Controller of Imports and Exports, it is the regulatory authority of foreign
trade, and responsible for the execution of import/export policies of the government.
The Import Export Trade Control Organization headed by the Director General of Foreign Trade
is responsible for the execution of the import and export policies of the Government of India.
Import and export licensing of iron and steel and ferro-alloys is also looked after by this
organization. The Director General of Foreign Trade has subordinate offices, located at
Ahmedabad, Amritsar, Bangalore Bhopal, Bombay, Calcutta, Chandigarh, Cuttack, Ernakulam,
Gandhidham, Guwahati, Hyderabad, Jaipur, Kanpur, Ludhiana, Madras, Moradabad, New Delhi,
Panaji, Patna, Pondicherry, Rajkot, Shillong, Srinagar, Tuticorin, Varanasi, Visakhapatnam,
Baroda, Coimbatore, Panipat and Pune.
The Export Promotion Offices at Bombay, Calcutta, Madras, Cochin, Nagpur and Pune are also
functioning under the administrative control of the Regional Joint Director General of Foreign
Trade.

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5.2 Export Promotion Councils


There are 19 Export Promotion Councils covering the following products: Apparels; Basic
Chemicals, Pharmaceuticals and Cosmetics; Chemicals and Allied Products; Carpet; Cashew;
Cotton Textiles; Electronics & Computer software Engineering; Gems and Jewellery; Handicrafts;
Handlooms; Leathers, Overseas Construction; Plastics and Linoleums; Shellac; Silk; Synthetic and
Rayon Textiles; Sports Goods and Wool and Woolens. These councils are non-profit-making
limited companies registered under the Company Act. The Ministry of Commerce provides
necessary assistance in relation to their programmes of work.
These Councils advise the government regarding current developments in the export sector and
measures necessary to facilitate future growth in exports, assist manufacturers and exporters to
overcome the various constraints and extend to them the full range of services for the development
of markets overseas. The Councils also perform certain regulatory functions as they have the
power to de-register errant or defaulting exporters.
An idea of the functions of the Export Promotion Councils can be had from some of the
important activities of the Engineering Export Promotion Council as mentioned below
To apprise the Government of the exporters problems
To keep its members posted with regard to trade enquiries and opportunities
To help in exploration of overseas markets and identification of items with export potential
To render assistance on specific problems confronting individual exporters
To help resolve amicably disputes between exporters and importers of Indian engineering
goods
To offer various facilities to engineering exporters in line with other exporting countries
The Government is now increasingly limiting its role in direct conduct and promotion of trade.
Accordingly, it has been decided that the Export Promotion Councils, which have so far received
subsidy from the Government for some of their activities, will have to generate their own
resources. Over a period of five years, the grants to the EPCs will be phased out. The EPCs would
have to, therefore, redefine their role and functions. Over the years, they have more or less
functioned as liaison offices of the trade and industry in their dealings with the Government.
Developmental activities were undertaken only by a few EPCs. In the changed scenario, they will
have to reorient their services because with the procedural simplification of foreign trade,
traditional liaison work has lost its importance. They will now have to offer concrete market
promotional and consolidation programmes and set-vices to their members.
EPCs are responsible for promotion of export and networking various members of international
trade and keep track of changing opportunities abroad.
Various EPCs in India are
1
2
3

Agricultural and Processed Food Products Export Development Authority


(APEDA)
Apparel Export Promotion Council
Basic Chemicals, Pharmaceuticals and Cosmetic Export Promotion Councils

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5
6
7
8
9
10

Certified Export Import (Foreign Trade) Professional


The Cashew Export Promotion Council of India
Carpet Export Promotion Council
The Gem & Jewellery Export Promotion Council
Engineering Export Promotion Council
Indian Silk Export Promotion Council
Council for Leather Exports
Tobacco Board

5.3 Board of Trade


The Board of trade has been set up to ensure that the collective advice of the commercial interests
is available to the Government of India for framing and formulating export promotion and import
policies and for successful implementation thereof. The Board of Trade is the highest forum for
Government industry inter-face on trade policy issues. Its members are presidents of FICCJ, ASSOCHAM, CII, FASSI and FIEO, in addition to several other leading industrialists. It has also
representatives from the Ministries of Finance, Industry and Textiles as also from the Prime
Ministers office. The chairman of the State Bank of India and Export-Import Bank and Director
General of Foreign Trade, are also its members. The Board of Trade is presided over by the
Commerce Minister. It deliberates on the policy and major bottlenecks faced by the trade and
industry in foreign trade and makes recommendations for Governments consideration and
implementation.

5.4 Commodity Boards


These are public sector organizations relating to specific products and help in production,
development and marketing of the respective products. Tea Board, Coffee Board, Coir Board,
Silk Board are some examples.
There are 9 statutory Boards for the following commodities: Handicrafts and Handlooms, Silk,
Power loom, Coffee, Coir, Rubber, Tea, Tobacco and Spices. The Commodity Boards deal with
the entire range of problems production, development, marketing, etc. In respect of the
commodities concerned, they act themselves as if they were the Export Promotion Council. Some
of these Boards have opened their branch offices in foreign countries in order to promote the
consumption of the commodities under their jurisdiction.

5.5 Institutes for export promotion


Indian Institute of Foreign Trade IIFT
Some of the principal activities of the Institute are the following
It provides training of a high standard, short-term and long-term, for executives and personnel
employed in trade and industry, export houses, export organisations, government departments,
government trading corporations and Indian embassies and consulates abroad, for developing
specialization in the techniques, methods and procedures of international trade.
It sponsors candidates selected from industry and trade, export houses, government
departments, trading corporations, etc. for higher training abroad in export management and
export techniques and for acquiring firsthand knowledge of the techniques and procedures
adopted by advanced countries in export marketing.
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It plans, organizes, undertakes, sponsors and commissions marketing research and area surveys
in foreign countries in accordance with a planned programme in order to ascertain the
characteristics of the overseas markets and consumer preferences, assesses the current and
potential demand for Indian products, and determines the scope and the techniques to be
adopted for an increased absorption of Indian products in these countries. It also undertakes
commodity studies within the country with a view to locating new products or developing new
uses of existing products with export potential and drawing up long-term plans for their
development, processing and export.
The Institute undertakes and sponsors practical as well as fundamental research on various
problems of international trade. Be-sides its own research programmes, the Institute
undertakes research into problems referred to it by industry and trade and the government.
It provides consultancy to business firms in matters relating to foreign trade.
The Institute disseminates information through its quarterly journal Foreign Trade Review
and reports on various products and market studies undertaken by it. Its monthly Foreign
Trade Bulletin seeks to disseminate information on new decisions and developments affecting
Indias foreign trade.

Indian Institute of Packaging IIP


Indian Institute of Packaging (IIP) is established, by Government of India in collaboration with
Industries, in 1966. The main aims of the Institute are
To undertake research on raw materials for the packaging industry
To keep India in step with international developments in the field of packaging
To organize training programmes on packaging technology
To stimulate consciousness of the need for good packing
To organize consultancy services for the industry. Its activities include effecting improvements
in packaging standards and rendering testing facilities in respect of packages
These institutes help in development of human resources, research and special training
programmes and provide consultancy to export organizations.

5.6 India Trade Promotion Organization


Organization (ITPO)
The India Trade Promotion Organization (ITPO) has come into effect from 1-1-92 with the main
objective of promoting exports and imports, and upgradation of technology through the medium
of fairs to be held in India and abroad, to undertake publicity through the print and electronic
media, to assist Indian companies in product development, to organize programmes, buyer-seller
meets, contact promotion programmes for specific products in specific markets. The India Trade
Promotion Organization provides information and market intelligence to the business community
in India. It also organizes visits of buyers and trade delegations to industry and trade establishments
in India with a view to promote business contacts.
ITPO has foreign offices located at New York, Frankfurt, and Tokyo etc.

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The major activities of ITPOs foreign offices include


To provide necessary inputs to Head Office and Regional Offices for various ITPO activities
Assist in fixing appointments and business meetings for Indian exporters traveling abroad
Sponsoring buying delegations to India. _ Generation of trade enquiries and dissemination of
trade information
Collect latest information on fashion trends, pricing, distribution channels, standards,
specifications, drawings, etc
Mobilization of foreign participation for trade fairs being organized in India
Provide assistance in space booking, custom clearance and other arrangements like stand
erection, decoration, etc. for trade fairs being organized by ITPO in their region
Publicize the ITPO participation in international fairs in their region by direct mailing,
telephone contacts, press conference, etc
Invite buyers, government officials and the representatives of industry associations, etc. to India
pavilion at various fairs in their region
Follow-up of the enquiries of buyers visit, and Indias participation in trade fairs abroad
Feedback on Indias participation in international trade fairs, trade delegations, buyer-seller
meets, India promotions and other export developmental activities
Procurement of samples for product development and adaptation
Assist in setting up of joint ventures and promote upgradation of technology in India
Arrange visit of designers, experts, consultants, etc. for product development and adaptation
To liaise with Government offices, industry associations, chambers of commerce, standards
institutions and other similar organisations
ITPO also has five regional offices in India located at Bombay, Calcutta, Madras, Bangalore and
Kanpur. These offices are involved with all activities of ITPO and service the regions in which they
are located.

5.7 National Centre for Trade Information (NCTI)


NCTI is a joint venture of ITPO and National Informatics Centre.
The main functions of the Centre are
To create databases at national and international levels for Export Promotion
To collect information on various aspects of trade and commerce on different countries
To disseminate information on countries and products to trade and industry
To establish linkages with trade promotion bodies regulatory bodies, chambers, associations
among others
To establish linkages with commercial wings of Indian Missions abroad and foreign Missions
in India
To create information base for all types of marketing intelligence on trade aspects
To organize training, seminars and conferences on matters related to trade and commerce
To maintain liaison with trade and commercial bodies of different countries
To publish papers, periodicals and other literature having a bearing on trade and commerce

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5.8 Export Inspection Council (EIC)


EIC is a statutory body responsible for the enforcement of quality control and compulsory pre
shipment inspection of exportable goods in the country and establishes laboratories and testing
centres throughout the country

5.9 Export Credit Guarantee Corporation


For minimizing the risk element in export business and to facilitate the flow of finance from the
banks to exporters, there is an Export Credit Guarantee Corporation. In addition to the normal
risk policies, the Corporation assists the exporters through special schemes such as packing credit
guarantee, post shipment credit guarantee and export production finance guarantee. I1 is wholly
owned by the Government of India and works on no-profit no-loss basis. To suit varying needs of
the exporters, the Corporation provides different types of cover which may be divided into the
following three broad groups
Standard policies issued to exporters to protect them against the risks of trading with overseas
buyers on credit terms
Financial guarantees issued to banks against the risks involve providing credit to exporters
Special Policies. Under its policies intended to protect the exporters against overseas credit
risks, ECGC bears the main brunt of the risk and pays the exporter 90 per cent of his loss on
account of commercial risks and political risks.
The ECGC is a wholly owned subsidiary of the Government of India under Ministry of
Commerce and Industry. ECGC
Covers commercial and political risks of exporters
Arranges insurance against pre and post shipment credit finance to commercial bankers
Provides guarantee to commercial banks against export credits extended
Issues overseas investment insurance policies
Covers overseas investment insurance policies
Covers exchange investment risk through forwards and futures
Provides guarantees against projects, term loans, export finance and export performance

5.10
5.10 Directorate
Directorate General of Commercial Intelligence and Statistics (DGCI&S
(DGCI&S)
DGCI&S)
Collects & compiles complete information and disseminates it to trade organizations
Publishes journals and informative bulletins
Helps Indian businessmen with letters of introduction when they are going abroad

5.11 Indian Trade Promotion Council (ITPO)


Organizes trade fairs and other exhibitions in the country and abroad for products
Sets up showrooms in the country and abroad for the promotion of exports of new items
Publishes journals such as the Journal of Industry and Trade, etc

5.12 Federation of Indian Exporters Organization (FIEO)


FIEO is the apex body of various exporters and export promotion organizations. It provides a
common coordinating platform for commodity councils, boards and service institutions.
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5.13 Export Import Bank (EXIM)


EXIM bank is an apex institution that finances, facilitates and promotes exports. Its major function
is to arrange loans/funds for exporters, either directly or through other commercial banks.
Export-Import Bank was established on January 1, 1982 for the purpose of financing, facilitating
and promoting foreign trade of India. It extends finance to exporters of capital and manufactured
goods, exporters of softwares and consultancy services and to overseas joint ventures and
turnkey/construction projects abroad. The Bank is the principal financial institution in India for
coordinating the work of institutions engaged in financing export and import trade.

5.14 Export Inspection Council


In consonance with the need for constant improvement in the quality of Indian manufactures and
products, and for lending confidence to the importers abroad in respect of the quality of Indian
exports, the Government had enacted the Quality Control and Pre-shipment Inspection Act.
Eighty-eight per cent of export commodities cohering about 1,000 items have already been brought
within the purview of this Act and are subject to compulsory pre-shipment inspection. It is
envisaged that barring a few items, all the commodities will in the near future be covered by quality
control and compulsory pre-shipment inspection. The Export Inspection Council established
under the Act administers the various schemes of quality control and pre-shipment inspection.
The Council is also charged with the responsibility of establishing laboratories and test houses
throughout the country for the provision of inspection facilities in regard to the commodities thus
notified. It has established inspection agencies under which the network of quality inspection
officials operate in various parts of the country.

5.15 Customs and Central Excise Department


Handles and implements policies related to drawback imposition and recovery of customs and
central excise.

5.16 Marine Products Export Development Authority


The Marine Products Export Development Authority replaced the Marine Products Export
Promotion Council and started functioning in September 1972. The Authority serves the seafood
industry right from fishing to processing, packaging, storing, transporting and marketing to the
different markets all over the world. The Authority is entrusted with the task of ensuring a healthy
growth of the industry through judicious regulation, conservation and control. Importers and
exporters can obtain any information relating to the markets and the products from the Marine
Products Export Development Authority.

The specific functions of the Authority are


Development of off-shore and deep-sea fishing in all its aspects and conservation and management
of off-shore and deep-sea fisheries
Registration of fishing vessels, processing plants, storage premises and conveyances relating to
the marine products industry and ex-ports with a view to promote a healthy development
Laying down standards and specifications for marine products for purposes of export and to
introduce comprehensive in-plant inspection system to maintain a high quality of the products
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Rendering financial or other assistance and to act as an agency for extension of relief and
subsidy as may be entrusted by the Government
Rendering other types of assistance and service to the industry in relation to market
intelligence, export promotion, trade enquiries and import of certain essential items required
in small quantities for the industry
Regulation of export of marine products
Improve the marketing of marine products overseas by providing market intelligence, market
promotion activities, information on the types of products in demand in different countries,
nature of processing for specific types of requirements
Arrange for training in different aspects connected with export with special reference to fishing,
processing and marketing
Such other measures that will be of importance to the export industry. MPEDAs services
extended to foreign buyers range from spotting the exporters and in ensuring that the products
are delivered in markets on time and in prime condition

5.17 Agricultural and Processed Food Products Export Development Authority


With a view to increase the exports from agricultural sector, the Processed Food Export
Promotion Council has been upgraded as Agricultural & Processed Food Products Export
Development Authority (APEDA). It will coordinate its activities with national bodies like
Horticulture Board and State Governments for generating production for exports and with
research institutes for development of value added products. It would also undertake quality
certification and unify the existing inspection and quality control for products such as meat and
meat products.

Products
roducts covered by the Authority
Fruits, vegetables and their products
Meat and meat products
Poultry and poultry products
Dairy products
Confectionery, biscuits and bakery products
Honey, jaggery and sugar products
Cocoa and its products, chocolates of all kinds
Alcoholic and non-alcoholic beverages
Cereal products
Cashewnuts, groundnuts and papads
Guargum
Horticulture and floriculture products
Herbal and medicinal plants

Functions of APEDA
The development of industries relating to the above products for export by way of providing
financial assistance or otherwise for undertaking surveys and feasibility studies, participation in
the equity capital through joint ventures and other relieves and subsidy schemes
The registration of persons as exporters of the products concerned on payment of such fees as
may be prescribed
The fixing of standards and specifications for these products purposes of export
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The carrying out of inspection of meat and meat products in a slaughter house, processing
plant, storage premises, conveyance or other places where such products are kept or handled
for the purpose of ensuring the quality of such products
The improving of packaging of these products
The improving of the marketing of these products outside India
The promotion of export-oriented production and development of these products
The collection of statistics from the owners of factories or establishments engaged in the
production, processing, packaging, marketing or export of these products or from such other
persons as may be prescribed on any matter relating to these products, and the publication of
the statistics so collected, or of any portions thereof or extracts there from
The training in various aspects of the industries connected with these products

5.18 Indian Council of Arbitration


The Indian Council of Arbitration was set up in 1965 as the apex arbitration body by the
Government for promoting and encouraging amicable settlement of foreign trade disputes with a
view to generating goodwill in the field of foreign trade. The Councils objectives include
Propagation and popularization of the idea of commercial arbitration in relation to foreign
trade
Arranging arbitration of disputes in international trade through its constituent members
Maintenance of panels of persons to act as arbitrators
Collaboration with international organisations and arbitral bodies in matters
Concerning international commercial arbitration

5.19 Federation of Indian Export Organisations


An apex body called the Federation of Indian Export Organisations (FIEO) was set up in 1965
with its registered office in Delhi, as a common and coordinating platform for the various export
organisations including the Commodity Councils and Boards and the service institutions and
organisations.
The principal activities of the FIEO are
Convening meetings, conferences, seminars and workshops to pro-vide opportunity to all
sectors of the exporting community and export promotion institutions in India to review,
discuss and, wherever necessary, to formulate recommendations to the Government and other
authorities, on problems, prospects and potentials of Indias exports
Arranging round-table conferences of business interests in India with trade missions and other
business teams on a visit to India
Inviting leading business interests and Economic and Trade Missions from abroad specially for
a tour of industrial and commercial centres in India
Projecting Indian goods and services abroad through various media including films,
exhibitions, advertisements and publications
Sponsoring outgoing multi-interest trade and economic missions, and special teams of
government recognized export houses, consultancy firms, small scale industries and individual
study-cum-sales teams

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Maintaining overseas liaison with International and U.N. Agencies- like, WTO,UNCTAD,
IMF, World Bank
Establishing rapport with overseas chambers of commerce, trade associations and government
departments concerned
Sponsoring special projects related to the export promotion of Indias consultancy services
Executing projects and responsibilities entrusted to it, from time to time, by the Government of
India and serving as a forum for two-way transmission of views and information between
government departments and the exporting community
Promoting trade, economic and technical co-operation between India and other countries by
way of international seminars and creating special infrastructure for follow-up
FIEO the primary servicing agency to provide integrated assistance to Government recognized
export houses as also the central coordinating agency for export promotion of consultancy
services. FIEO is now placing great emphasis on intra and inter-regional co-operation in trade
and economic matters with a view to promoting harmony and understanding through
economic, trade and technical ties

5.20 Department
Department of Commercial Intelligence and Statistics
The Department of Commercial Intelligence and Statistics is located at Calcutta. Its functions
comprise
Commercial intelligence
Collection, compilation and publication of the statistics of trade, tariffs and shipping
The work of the Department is broadly divided into the following principal categories
Collection and supply of commercial information required by the government and the trade
Maintenance of registers of Indian and foreign firms
Publication of the Directory of Exporters of Indian Products and Manufactures
Publication of the weekly Indian Trade Journal and Monthly Statistics of Foreign Trade of
India
Publication of the periodical reports received from Indian Government Trade Representatives
stationed in foreign countries in regard to economic conditions in these countries
Mediation in commercial disputes between Indian and foreign firms with a view to bringing
about amicable settlement
Trade introduction
Maintenance of Commercial Library in Calcutta for the use of the public

5.21 Directorate General of Shipping


Till 1949, the Ministry of Commerce was responsible for all matter relating to policy and
administration of merchant shipping. Subsequently, it was felt that there should be separate
organizations to deal with all execute matters relating to merchant shipping. Accordingly, the
Directorate General of Shipping was set up in September 1949, with headquarters at Bombay. It
functions, inter alias, include
Matters affecting merchant shipping, navigation, administration of merchant shipping
Development of Indian shipping
Regulation of ocean freight rates in overseas trade
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5.22 Freight Investigation Bureau


Freight Investigation Bureau (FIB) was set up in the Directorate General of Shipping 1959. This
has branch offices at Calcutta, Cochin, Kandla, Madras and Vishakhapatnam.
The main functions of FIB are
To investigate into the representations of shippers/ shippers councils relating to
high/anomalous/ discriminatory freight rates and to secure necessary adjustment
To critically examine proposals of Conference Lines on periodic increases in freight rates and
to provide guidance to shippers councils with a view to enabling them to have an effective
dialogue with Conferences on such proposals
To provide spot assistance to shippers all over the country in procuring timely and adequate
shipping space
To collect, maintain and examine freight rates of Conferences/Ship-ping Lines operating in
Indias overseas trade and also in international cross trade
To analyze the impact of changes in freight rates and to keep shippers councils and other
organisations concerned posted on such amendments
To investigate into complaints regarding lack of shipping facilities
To serve as a liaison organization between shippers and shipping companies to solve shipping
and freight problems through mutual consultation

5.23 State Trading Corporation of India Limited (STC)


There is no precise definition of State trading. There are various types of government
participation in foreign trade, all of which can be defined as State trading. For example, in the
centrally-planned economies the entire foreign trade is nationalized and is, therefore, conducted
directly by government departments or government-owned corporations. On the other hand, there
are countries, which are essentially free enterprise economies, but export and import of specific
commodities are entrusted to government trading organisations or departments
State trading, however, is more commonly practiced in the developing economies. The reasons
behind this are varied
Firstly such countries may not have adequately developed private sector trading bodies which
can effectively participate in international commerce and also protect the national interest
Secondly, the private sector bodies, though possessing adequate trading expertise, will be solely
motivated by profit considerations
Thirdly, the centrally-planned economies have emerged as important export markets for a
large number of developing countries including India

Canalization
Canalization of Exports
State participation in imports is generally motivated by some other considerations. These are
To reap the advantage of bulk buying
To mop up any excess profit which the private sector firms might enjoy in import business
To ensure proper internal distribution of the imported items and to maintain stable domestic
price level
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Objectives of State Trading


A country may undertake state trading to achieve one or more of the following objectives
To achieve its political objectives
To boost its export trade
To enlarge domestic planning programmes by purchasing products required to fill a gap in the
plans and by controlling outside economic forces that may affect these plans
To improve the countrys balance of international payments
To control foreign exchange
To maintain national security and defense by furthering military preparedness and by
preventing potential enemies from receiving strategic materials
To acquire specific products either because they can be obtained at lower cost or because they
are scarce at home or abroad
To advance domestic interests by improving bargaining power in trade or by protecting trade
against foreign competition

Functions of State Trading Corporation


At the outset, the main function of STC was to deal with bilateral trading practices, especially in the
socialist countries. But today it has become a premier trading house having branches in almost all
the trading countries of the world. It deals in nearly 300 commodities spread over 84 countries of
the world.

Trading
Trading activities of the STC
Direct Trading
Direct trading includes those goods where STC has monopoly to deal with. Such goods are
procured, packed and shipped by STC while import items are purchased from the foreign
countries by STC offices located there. .

Indirect Trading
In the case of indirect trading, the contracts for the sale or the purchase of commodities are
negotiated by STC while the actual fulfillment of the contracts is entrusted to the private
businessmen enrolled by the STC.

Canalized Trade
Canalized trade includes the import or export of certain items through the concerned agencies of
STC. The canalized items of export include sugar, castor oil, molasses, groundnut extractions, etc.
Canalized items of imports include edible' oils, writing and printing paper, non-edible oils, etc.

Export Promotion Measures


It provides financial and raw material assistance
It participates in trade fairs and exhibitions
It undertakes product research
It undertakes market research

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Other Activities
STC also performs servicing functions, thereby bringing buyers and sellers together and assisting
them in fulfilling contracts. It helps the government departments and, industrial concerns in
processing supplies of plant and machinery from abroad. In some cases, it settles trade disputes
between the Indian and foreign parties.
The corporation is successful in introducing several new commodities for exports and in
developing new markets for Indian goods. In recent years, the STC is also taking active interest in
marketing research, advertising and sales promotion. However, it is a public sector organization
with usual difficulties and limitations of its own.

Services rendered by the State Trading Corporation


To the Indian Industry
STC helps thousands of Indian manufacturers to find markets abroad for their products'. It assists
them in making the best use of raw materials and production infrastructure, guides and helps them
in their marketing efforts. Some of the services offered by STC to the Indian manufacturers
include
Provides financial assistance to the Indian exporters on easy terms
Imports machinery and raw materials for export production
Assists in the areas of marketing, technical know-how, quality control, packaging,
documentation, etc
Supply of imported goods in small quantities as per the requirements of buyers
Helps in exhibiting the products of small scale manufacturers in the international trade fairs
and exhibitions
Market intervention on behalf of the Government

To the Overseas Buyers


STC acts as an expert guide for the overseas buyers interested in Indian goods. It helps them in
finding the best Indian manufacturers, undertakes negotiations, fixes delivery schedules, overseas
quality control, etc., and tries to provide a complete satisfaction to the overseas buyers.

To the Indian Consumers


Indian consumers are also benefited from STC's expertise and infrastructure. STC imports
essential commodities in order to cover shortfalls arising in the domestic market during the periods
of scarcity. Generally, it imports the items of daily requirements such as sugar, wheat, pulses, etc.,
so as to stabilize their prices.
The State Trading Corporation of India (STC) was set up by the Government of India in 1956
which was designated as the sole import agency of such items as the, Government may decide from
time to time. STC, however, would import other items as well apart from the canalized items.

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The functions of the STC as given in the Memorandum of Association are as follows
To organize and undertake trade with the State trading countries as well as other countries in
commodities entrusted to the company for such purpose by the Union Government from time
to time and to undertake the purchase, sale and transport of such commodities in India or
anywhere else in the world
To undertake at the instance of the Union Government import and/or internal distribution of
any commodities in short supply with a view to stabilizing prices and rationalizing distribution
To generally implement such special arrangement for imports, exports; internal trade and/or
distribution of particular commodities as the Union Government may specify in the public
interest
The following items have been canalized for import (subject to changes from time to time)
Newsprint, Wool, Palm oil (edible), Rayon grade wood pulp, Synthetic rubber, Caprolactum,
Alkaloid benzene, Endrine technical, Chlorine diphosphate, Palm oil (soap), Sunflower seed oil,
Sisal/manila hemp, Paraxylene, Tallow, Carbaryl technical, Tetracycline HCL, Poly filament yarn,
Ampicil trihyd, Art silk yarn, Chloram powder, Pot. Chloride, Soya bean oil, DMT, ME glycol,
Cement, Sugar, White printing paper, Non-ferrous metals, Asbestos fibre, Antimony metals,
Mercury and AG fluorspar.
The following items have been canalized for export (subject to changes from time to time)
Sugar, Semi-processed leather, Castor oil, Footwear leather, Cement and clinker, Rice basmati,
Shellac/lac, Opium crude, Salt, Lemongrass oil, Canvas/ Plastic footwear, Molasses, Groundnut
extractions, Barytes, Chrome ore, Silimanite and Processed mica.

Exports from India


STC exports a diverse range of items to a number of destinations throughout the world. Exports by
STC vary from traditional agricultural commodities to sophisticated manufactured products.
Besides, negotiating, contracting and shipping, STC seeks to introduce new products, explore new
markets and undertake wide ranging ancillary functions such as product development, financing,
quality control and import of machinery and raw materials for export production.
STC makes use of its world-wide connections, abundant experience, up-to-day information about
the market trends and long term perspective on various commodities to ensure competitive prices,
right quality and adherence to delivery schedules to the buyers abroad.

Imports into India


STC imports a number of essential commodities to cover the domestic shortfalls and hold the
price line. STC serves the national objective by arranging timely imports at most competitive
prices. In the process, the Corporation makes best use of its strength in handling bulk imports, vast
infrastructure and above all an experience of over four decades in fulfilling the needs of the
industry.

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Future of STCs
With the Government's new economic policy taking shape, it is now evident that canalization,
except of very few sensitive commodities, will not be there in the country's export-import policy.
This, to a large extent, has already eroded the base and profitability of the State Trading
enterprises-a trend which will get strengthened in the coming years. These organisations will,
therefore, have to redefine their role and create capacity to emerge as global traders without the
support of any monopoly business on the Government account. Both MMTC and STC have
initiated measures in this direction but these have not become very successful. For example, while
canalized exports constituted per cent of MMTC's total exports in 1991-92, this increased to 59
per cent in 1995-96. However, in the case of STC, although is total turnover during 1995-96
amounted to Rs. 1,685 crores as compared to Rs. 1,861 crores during the previous year, the noncanalized turnover increased by 5 per cent from Rs. 847 crores in 1994-95 to Rs. 892 crores in
1995-96.
With a view to developing captive sources of supply for exports,. the STC has entered into a
number of joint ventures. It has also set up warehouses overseas for developing exports on a
sustained basis. The MMTC has also decided to set up joint ventures in various fields of its
activities.

5.24 Major State trading organizations in India


Handicraft and handloom Exports Corporation of India Ltd. (HHEC)
The Projects and Equipment Corporation of India Ltd. (PEC)
MMTC Ltd.
Mica Trading Corporation of India Ltd. (MITCO)
Spices Trading Corporation Ltd.
Thus over the years the turnover of the STC has increased manifold. The increase in exports has
been significant after 1971-72. They reached the maximum of Rs. 796 crores in 1983-84 after
which there has been a decline. As a result of efforts made by STC to promote non-canalized
trade, an all time high export turnover of Rs 806 crores was achieved in 1994-95. On the other
hand, there was almost a continuous increase in imports till 1984-85. Imports declined as
canalization policy changed.
One important point to be noted is that in imports, the percentage of canalized items is far higher
than the percentage of non-canalized items. The percentage of canalized items varied between 74
and 94 in exports and between 72 and 97 in imports during the period 1972-73 to 1976-77. This is
because the STC's efforts are mostly guided by the policies of the Government of India from time
to time and it is left with limited scope for showing its initiative in these areas. But in recent years,
the percentage of canalized items has gone down in exports, but in imports, canalized items still
predominate.

Products
Over a period, the products handled by STC have also shown an increase. STC-The Merchant of
India, an STC publication, refers to 17 agricultural commodities, 8 consumer products, 15 items
of army software, 3 items of construction material, 6 major and a number of miscellaneous
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engineering items, 10 items of fresh and processed foods, 7 items of leather, 3 items of meat and
marine products, 19 items of textiles and garments, alcohol, sugar, molasses and castor oil. The
import items include edible oil (6 items), cement, explosives, and natural. Rubber, standard and
glazed newsprint and white printing paper
The major items of export in 1994-95 were cereals, coffee, cashew kernels, leather, drugs and
chemicals, engineering and construction material, sugar, textiles and garments. The major items of
imports were edible oils and sugar.
The STC has developed a sound infrastructure for development of exports in the form of 17
branches in India and 17 overseas offices and a large force of trained marketing personnel.
STC's Indian branches play a vital role in port clearance, storage, movement and distribution of
imported items, in addition to procurement and shipment operations for export items. The foreign
branches provide valuable support in identification of new products and markets, assessment of
market potential, quality and packaging needs, preparation of new product development strategy
and assistance in carrying out negotiations for import and export.

Handicraft & Handloom Exports Corporation of India Ltd. (HHEC)


The Handicraft and Handloom Exports Corporation of India Ltd. (HHEC) was set up in 1962. It
undertakes the export of handicrafts (including woolen carpets), handloom products (inducting
ready-to-wear garments) and gold jewellery. The HHEC is a wholly owned subsidiary of the STC.
It acts as a supplementary agency to provide private sector agencies participating in the exports of
handicrafts and handloom products. In 1976 the HHEC has started its wholly owned subsidiary
called the Central Cottage Industries Corporation of India (CCIC). It has also established
showrooms at New York, Boston, Paris and Tokyo.

Main Functions of Handicraft & handlooms Exports Corporation of India


The HHEC studies consumer preferences abroad and introduces new products with special
attention to quality
It provides information and financial facilities in the form of loans to those engaged in the
manufacturing of handicrafts and handloom products for exports
It participates in the trade fairs and exhibitions abroad and also arranges visits of foreign trade
delegations
Its "Sonar" retail outlets offer to public a variety of handicrafts not usually available in the
market
It is doing good business in the USA and West European markets as regards handicrafts and
handloom goods

Project and Equipment Corporation of India Ltd. (PEC)


The Projects and Equipment Corporation of India (PEC) was formed in April 1971 as a wholly
owned subsidiary of the STC. It took over the Railway Equipment and Engineering Division of the
STC.

Main Objectives of Project & Equipment of India Ltd


To boost the export of engineering and railway equipment in established markets
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To boost the exports of turnkey projects in the field of railway systems, public utilities and
industrial plants
To penetrate new markets
To promote the export of non-traditional and new products

Mineral and Metal Trading Corporation


MMTC is an independent corporation, set up in October 1963 in the public sector by transferring
to it all activities of STC relating to trade in minerals and metals. MMTC was set up by the
Government as a canalizing agency for export and import of minerals, metals and fertilizers, over
the years the Corporation has been discharging the service responsibility efficiently by imbibing
confidence in the customer community.
Simultaneously with this responding to the imperative need for generating foreign exchange to this,
responding to the imperative need for generating foreign exchange to bridge the widening trade
gap, the corporation started channelizing its organizational and marketing acumen for development
of exports in non canalized areas. The results have been highly impressive. MMTCs socialized
exports which were a meager Rs. 40 million in 1983-84 registered accelerated growth and
increased more than 125 folds to Rs. 5250million in 1989-90. Corporations total exports have
crossed the 10,000 million rupee mark.
MMTCs total turnover during the magical mark was Rs. 50,000 million. With the bonus issue, the
original capital of Rs. 30 million contributed by the government have now grown to Rs. 500 million
and net worth to Rs. 2,828 million. It is the first international trading company of India to be given
the coveted status 'Super Star Trading House' and it is the first Public Sector Enterprise to be
accorded the status of 'Gold Super Star Trading House' for long standing contribution to export.

Activities and Services


Exports of primary and manufactured products.
Import of Industrial commodities.
Trade and counter trade.
Agents and representatives for domestic produces.
Domestic trade services.
Investments in joint ventures.

Trading Groups
Minerals Group: mineral based products.
Metals Group: ferrous and non-ferrous metals and metal-based products.
Fertilizers Group: fertilizer raw material, intermediates and finished fertilizers.
Export Trade Group: light engineering products, gems and jewellery, handicrafts, agro
products and counter trade.
MMTCs imports have been steadily rising. From a level of Rs. 210,000 million in 1985 86,
imports have risen to Rs. 350,000 million in 1989 90. The intensity of exports has also been
steadily rising. There is however, a broad measure of agreement that imports do not offer any
substantial scope for pruning even in the face of severe balance of payments pressure. Most of
MMTCs imports are essential imports required for agriculture or industrial growth. A fair
proportion of imports are directly related to exports and another significant proportion pertains to
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capital goods imports. In the circumstances, the only meaningful solution available to MMTC is to
meet the challenge of balance of payments crisis and to plan for major thrust in exports.

Mica
Mica Trading Corporation of India Ltd. (MITCO)
During 1989 90, MITCO achieved record turnover of Rs. 322.85 million. Its total exports of
mica was Rs. 312.90 million highest ever registering an increase of about 28% over the previous
year export of Rs. 245.10 million. Export to General Currency Area increased by 36% from Rs.
125.50 million during 1988 89 to Rs. 170.13 million in 1989 90. For the RPA countries the
growth rate was about 19% with exports increasing from Rs. 118.92 million during 1988 89 to Rs.
141.82 million in 1989 90.
The sales turnover of mica products during 1989 90, however, stagnated around the previous
year level of Rs. 15 million due to continued teething problems in marketing of mica paper.
Report of mica paper increased marginally from Rs. 7.3 million in 1988 89 to Rs. 7.8 million
during 1989 90. Cost disadvantage vis a vis the long established competitors in the developed
countries was the major obstacle in boosting export of this product. Efforts are being made to
overcome these problems through change in marketing strategy. With the commissioning of the
first phase of the Insulating Materials Project it has become possible to convert mica paper into
heater micanite sheets for which there is good demand. Samples of heater micanite sheets have
been sent to the prospective buyers for evaluation. Second phase of the Insulating Material Project
is expected to be completed by the end of 1990.
The proposed R & D Centre by MITCO has been registered as an approved centre by the
Department of Science & Technology and further steps are being taken for its implementation.
The government has merged MITCO with its holding company MMTC Ltd.

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Self Assessment Questions


Q1. In India, exports and Imports come under the purview of
a)
b)
c)
d)

Ministry of finance
Ministry of Commerce
Ministry of External Affairs
Ministry of Home Affairs

Q2. The main purpose of canalization of exports is


a) To reap the advantage of bulk buying
b) To mop up any excess profit which the private sector firms might enjoy in import business
c) To ensure proper internal distribution of the imported items and to maintain stable
domestic price level
d) All of the above
Q3. The following are the major STCs of India
a)
b)
c)
d)

Handicraft and handloom Exports Corporation of India Ltd. (HHEC).


The Projects and Equipment Corporation of India Ltd. (PEC).
MMTC Ltd.
All of the above

Q4. The Board of Trade is headed by


a)
b)
c)
d)

DGFT
Export Minister
Shipping Manager
Ministry of Commerce

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6. EXPORT DOCUMENTATION
Correct documentation is critical to successful exporting. It has been found that many exporters
overlook the importance of documentation prior to commencing the business of exporting. Failure
in the understanding of export documentation requirements can have disastrous effects for the
business, like
non clearance by customs prior to export
non entry into the importing country, or worst of all
non-payment with no recourse for goods or services
A successful exporter should know these requirements of export
Government regulations affecting the goods he intends to export. (ECN requirements permit
requirements, inspection requirements and others).
The International Terms of Trade (Incoterms 2000) and the obligations under the chosen
Incoterm of the buyer and seller. Depending on the Incoterm used it may only be necessary to
complete a commercial invoice and packing list, or it could be that other documents are
required for sending to freight forwarders or shipping agents to obtain Bills of Lading.
Need to prepare Insurance Certificates or Permits. Learn at what point the risk will pass from
exporter to the buyer and how to ensure that exporter fulfill all his obligations under the
respective Incoterm for this to happen.
The different methods of payment available to ensure exporter receives full price for the
goods.
The exporter should know the risks associated with each method of payment as well as how to
minimize these risks. Because the documentation requirements vary according to the selected
method of payment, he should learn to identify and accurately complete the necessary
documentation requirements for each method to ensure prompt and effective payment. The
requirements for a commercial invoice or packing list to complete the various documents to
comply with a documentary credit. When is it recommended to have insurance to protect the
exporter and when is this not necessary?
Which documents are required for sea freight and those required for airfreight, the
information required for both, and how this can differ.
Export Documentation and Incoterms is a recommended pre-requisite to E-Business for
Exporting.

Importance of Documents
Documentation is the engine of exports in global trade. Documentation facilitates the movement
of freight, transfer of title, processing of payment, and customs clearance. Without documentation,
the shipment is at a standstill. Even with the continuing advances in technology playing a greater
role in international business, documentation is still required by all parties involved in global trade.
On an average, customs authorities worldwide physically inspect only 4 to 8 percent of the cargo
that moves through their borders. There are some exceptions, such as Saudi Arabia, but as a
general rule, the local customs authorities do not physically inspect most import shipments.
Customs authorities control the merchandise crossing the border and entering into commerce
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through the documentation provided by the importer and the importers customhouse broker.
Importers receive their import documentation from the exporter, thereby making documentation
the engine that moves the freight through the borders. We cannot stress enough that Export
Documents are Import Documents. In India, exporters create their documentation at the time the
freight is being exported. For a typical export shipment, the only export document actually
required by the Authorities is the Shippers Export Declaration (SED) or a validated Export
License. The other documentation created such as the commercial invoice, packing list,
certificate of origin, health and sanitary certificate, bill of lading, certificate of conformance, and
certificate of analysis are all for the account of the importer to meet the customs clearance
requirements in their country, thereby making export documentation into import documents.
Customs clearance and required import documentation are governed by local laws and vary from
country to country. What Korean customs may need to clear a pharmaceutical from India is very
different from what customs in Brazil, Nigeria or Germany may require. To the Indian exporter
this means it is crucial to have more than one set of criteria for our export documentation needs.
The exporter must implement a standard operating procedure (SOP). This SOP must be flexible,
particularly for those exporters that ship to numerous destinations. This flexibility allows the
exporter to meet and identify the specific documentation requirements for each country to which it
is exporting. Here are the factors that can vary significantly depending on the country to which he
is shipping
Number of copies
Notarization
Legalization/consularization
Language
Originals vs. copies
Format of documentation
Valuation
Commodity descriptions
Product labeling
Other government agency requirements
Black ink/blue ink
Standard operating procedures are somewhat arduous to create. However, once the standard is
created, it will only require updating. Through the utilization of a database (and there are many
available to choose from) a company can electronically store the documentation requirements for
each country. Once a shipment is packed and ready for export to a specific country, the document
requirements can be retrieved from the database with all of the nuances in place that are unique
for the particular destination. Import shipments accompanied by incomplete documentation are
held in storage areas until such time that proper documents are presented to authorities. These
delays can be costly in terms of storage fees. The very nature of these time delays can expose the
shipment to other factors such as bad weather, theft, damage, and/or loss. Additionally, incomplete
documentation moves the importer into a reactive position with the local customs authorities. In
many countries, the importer is responsible for all declarations made to customs. No importer
wants to have customs reject their shipment due to incomplete documentation. Repeated offenses
may cause customs to put a black mark against the importer. Your buyers measure of you as a
long-term supplier will be dictated by the quality of your documentation capabilities. Your overseas
customers will favorably receive complete and accurate documentation. Their customs clearance
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headaches will have been eased, their shipment delivered timely and safely. Another critical factor
in understanding the importance of export documentation is the role it plays in export compliance
management. Export documentation advise the government agencies that oversee it, should
include
Correct valuation
Correct classification
Accurate of written statements and affirmations
Verified license requirements
Correct SED information
Accurate reporting of Denied Party status
Legitimate claim of export readiness
The bottom of the Shippers Export Declaration contains the statement I certify that all
statements made and all information contained herein is true and correct. I understand that civil
and criminal penalties may be imposed for making false or fraudulent statements herein. The
individual signing this document, even though it is on behalf of his or her employer must be
knowledgeable of the export regulations, as the signer can be held liable for the accuracy of the
documentation. It is in every exporters best interest to make sure that export documentation is
done correctly. It will not only keep the customer satisfied, it will also keep you out of hot water
with the other government agencies.
Some important documents in the foreign trade are as follows

ProPro-forma Invoice
A pro forma invoice is much the same as a commercial invoice which, when used in international
trade, represents the details of an international sale to customs authorities. A pro forma invoice is
presented in the place of a commercial invoice when there is no sale between the sender and the
importer, or if the terms of the sale between the seller and the buyer are such that a commercial
invoice is not yet available at the time of the international shipment. A pro forma invoice is
required to state the same facts that the commercial invoice would and the content is prescribed by
the governments who are a party to the transaction.

Packing List
The packing list is a consolidated statement in a prescribed format, detailing how the goods have
been packed. It is informative and itemizes the material in each individual package, such as a box
or a carton. The packing list is an extension of the commercial invoice; as such it looks like a
commercial invoice. The exporter or his/her agent---the customs broker or the freight forwarderreserves the shipping space based on the gross weight or the measurement shown in the packing
list. Customs uses the packing list as a check-list to verify the outgoing cargo (in exporting) and the
incoming cargo (in importing). The importer uses the packing list to inventory the incoming
consignment.

Commercial Invoice
Invoice
A commercial invoice is a document used in foreign trade. It is used as a customs declaration
provided by the person or corporation that is exporting an item across international borders.
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Although there is no standard format, the document must include a few specific pieces of
information such as the parties involved in the shipping transaction, the goods being transported,
the country of manufacture, and the codes for those goods. A commercial invoice must also
include a statement certifying that the invoice is true, and a signature.
A commercial invoice is used to calculate tariffs, international commercial terms (like the Cost in a
CIF) and is commonly used for customs purposes.

Certificate of Origin
A Certificate of Origin (often abbreviated to CO or COO) is a document used in international
trade. It traditionally states from what country the shipped goods originate, but "originate" in a CO
does not mean the country the goods are shipped from, but the country where the goods are
actually made. A Certificate of Origin is issued by the local chambers of commerce
A preferential certificate of origin is a document attesting that goods in a particular shipment are of
a certain origin under the definitions of a particular bilateral or multilateral free trade agreement
(FTA). This certificate is required by a country's customs authority in deciding whether the imports
should benefit from preferential treatment in accordance with special trading areas or customs
unions such as the European Union or the North American Free Trade Agreement (NAFTA) or
before anti-dumping taxes are enforced.
The definition of "Country of Origin" and "Preferential Origin" are different. The European Union
for example generally determines the (non-preferential) origin country by the location of which the
last major manufacturing stage took place in the products production (in legal terms: "last
substantial transformation"). Whether a product has preferential origin depends on the rules of any
particular FTA being applied, these rules can be value based or tariff shift based. The FTA rules
are commonly called "Origin Protocols". The certificate of origin must be signed by the exporter,
and, for a small number of countries, also validated by a Chamber of Commerce or local consulate
of the destination country and notarized.

Shipping Bill/Bill of Entry


Shipping bill is required for seeking permission of customs to export goods by sea/air. It contains
description of export goods, number and kind of packages, shipping marks and numbers, value of
goods, the name of vessel, the country of destination etc.
Bill of entry is needed by importers for customs clearance and later to bank for verification.

AREARE-I Form
This form is an application for the removal of excisable goods from the factory premises, for
export purposes. For example, if you are exporting a product which doesnt have an excise, you
dont have to fill this form.
The form has multiple copies, which are distributed to different authorities, including Customs,
excise, etc. Earlier this form was known as AR 4

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Mates receipt
After the cargo is cleared and handed over to the shipping company, Mates receipt is issued by the
captain of the ship. It contains the name of the vessel, shipping line, port of loading, port of
discharge, shipping marks and numbers, packing details, description of goods, gross weight,
container number, and seal number.

Exchange Declaration form (GR/SDF Form)


The Reserve Bank of India has a prescribed GR form (SDF), a PP form and SOFTEX forms to
declare the export transactions in order to monitor the foreign exchange. The GR form contains
Name & address of exporter and value of goods
Name and address of the authorized dealer through whom proceeds of exports have been or
will be realized.
Details of commission and discount due to foreign agent or buyer
The full export value of goods

Distribution of copies of GR Form


GR forms are completed in duplicate and need to be submitted to the customs at the time of
shipment
After verification of goods and the value of goods, the GR form will be retained by the customs
to be submitted to the RBI
One of copy of GR form is obtained by the exporter from the concerned clearing agent.
Exporter is obliged to give the duplicate copy of GR in less than 21 days from the date of
shipment, to his authorized dealer (banker)

Statutory Declaration Form


Since customs department are getting computerized, to meet the requirement of Electronic Data
Interchange, Statutory Declaration Form (SDF) is replacing GR form slowly. SDF carries the
same provision as GR and is expected to replace GR form soon.

Post Parcel Form (PP)


PP form is used when goods are exported by post. It needs to be filled by the exporter and has to
be first submitted to the banker for his necessary counter signature. It needs to be filled in 3
copies. The bank returns the PP form to the exporter for submitting it to the post office along with
the parcel. The post office forwards a copy to the RBI after dispatch of goods. The other copy
goes to the authorized dealer within 21 days, to whom the exporter submits for collection.

SOFTEX Forms
All exports of software/audio/video/television software is declared on SOFTEX form. The
SOFTEX form in triplicate is submitted to the designated official of Department of Electronics of
Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade
Zones (FTZs) or Export Processing Zones (EPZs).
After signing by the official, one copy is sent to RBI, one retained by the official, and one given to
the exporter

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Bill of exchange
exchange
It is an instrument in writing, containing an order, signed by the maker, directing a certain person
to pay a certain sum of money only to the order of a person to bearer of the instrument.
It is commonly known as a draft. The bill of exchange is a negotiable instrument. A negotiable
instrument is a document guaranteeing the payment of a specific amount of money, either on
demand, or at a set time. According to the Negotiable Instruments Act, 1881 in India there are just
three types of negotiable instruments i.e., promissory note, bill of exchange and cheque.
Types of Bills
Bills of exchange

Sight Draft
When the importer (drawee) makes payment immediately upon presentation of the draft, it is
called sight draft. The corresponding term of payment is referred to as Delivery against Payment
(D/P)

Usance Draft
Used when exporter gives credit to the importer. A draft may be drawn as per period of credit i.e.
30 days/60 days, after it is presented to the importer. On due date, the payment will be made to
the bank who then forwards it to the exporters bank.
When payment is received in advance, no bill of exchange is required.

Inspection Certificate
Inspection certificate is required by some countries to get the specifications of goods being shipped
and is normally given by a government agency or some independent testing organizations.

Bill of Lading
A bill of lading (BL - sometimes referred to as BOL or B/L) is a document issued by a carrier to a
shipper acknowledging that specified goods have been received on board as cargo for conveyance
to a named place for delivery to the consignee who is usually identified. A through bill of lading
involves the use of at least two different modes of transport from road, rail, air, and sea. The term
derives from the verb "to lade" which means to load a cargo onto a ship or other form of
transportation. A bill of lading can be used as a traded object.
B/L is generally made out in sets of three originals. All originals are duly signed by the master of
the ship or the agent of the shipping company and all the originals are equally valid for taking the
delivery of the goods.
B/L is the legal document for any dispute resolution and contains the following information
Name of the shipping company
Flag of nationality
Shipper's name
Order and notify party
Description of goods
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Gross/net/tare weight
Freight rate/measurements and weight of goods/total freight

Airway Bill
Air Waybill (AWB) or air consignment note refers to a receipt issued by an international airline
for goods and an evidence of the contract of carriage, but it is not a document of title to the goods.
Hence, the AWB is non-negotiable.
The first three letters of the Airway Bill Number normally represents the airline code. For
Example: 176 for emirates, 125 for British Airways etc.
There are several purposes that an air waybill serves, but its main functions are
Contract of Carriage. Behind every original of the AWB are conditions of contract for carriage
Evidence of Receipt of Goods

Insurance Certificate
Insurance certificate is to assure the consignee that goods will be covered for loss or damage to the
cargo during transit.

Consular Invoice
Consular invoice is a document required by certain countries, that needs to be submitted to the
embassy of the concerned country.
It is also known as certificate of origin and is required to be signed by the official in the embassy of
the importing country, to enable the importers country to collect accurate and authenticated
information about the value, volume, quantity, source etc of the import for assessing import duties
and for other statistical purposes.

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Self Assessment Questions


Q1. The first three digits of the AWB represent a code that identifies
a)
b)
c)
d)

The country of origin


Name of the exporter
Name of the Air Carrier
None of the above

Q2. A document that is receipt for goods delivered to the common carrier for transportation, a
contract for the services rendered by the carriers, and a document of title is known as a/an
a)
b)
c)
d)

Export Licence
Commercial Invoice
Bill of Lading
Consular Invoice

Q3. Extra Copies of bills of lading marked as non negotiable copy


a)
b)
c)
d)

Cannot be used for taking delivery of goods


Can be used to take delivery of goods
May be used to take delivery of goods
None of the above

Q4. What is the time duration in which an Indian exporter is expected to realize export proceeds?
a)
b)
c)
d)

6 months from the date of receipt of purchase order/letter of credit


6 months from the date of dispatch of goods from the factory
6 months from the date of shipment
6 months from the date of receipt of goods by the overseas buyer

Q5. Which of the following statement is TRUE?


a)
b)
c)
d)

Excise duty and sales tax are both exempted for export goods
Only excise duty is exempted for export goods
Only sales tax is exempted on export goods
None of the above

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7. PAYMENT TERMS
While doing business, an exporter often extends credit to an importer, which increases business
possibilities, but also increases risk of payment. Receiving the entire payment, in due time is the
foremost concern in exporters mind and the level of risk in various payment terms is the major
consideration.
Following are the recognized methods of effecting payments under International Trade
Payment in advance
Letter of Credit (Import LC)
Bill of Exchange
Open Account

7.1 Payment in Advance


With cash-in-advance payment terms, the exporter can avoid credit risk because payment is
received before the ownership of the goods is transferred. Wire transfers and credit cards are the
most commonly used cash-in-advance options available to exporters. However, requiring payment
in advance is the least attractive option for the buyer, because it creates cash-flow problems.
Foreign buyers are also concerned that the goods may not be sent if payment is made in advance.
Thus, exporters who insist on this payment method as their sole manner of doing business may
lose to competitors who offer more attractive payment terms.

7.2 Letter of Credit


Letters of credit (LCs) are one of the most secure instruments available to international traders. An
LC is a commitment by a bank on behalf of the buyer that payment will be made to the exporter,
provided that the terms and conditions stated in the LC have been met, as verified through the
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presentation of all required documents. The buyer pays his or her bank to render this service. An
LC is useful when reliable credit information about a foreign buyer is difficult to obtain, but the
exporter is satisfied with the creditworthiness of the buyers foreign bank. An LC also protects the
buyer because no payment obligation arises until the goods have been shipped or delivered as
promised.
Payment by an LC is made on the basis of documents and doesnt take into account the physical
condition of the goods. All terms of payments should be clearly specified in the LC in order to
avoid confusion and dispute in payment. Bank charges a small fee for the LC based on percentage
of the amount to be paid, and it is usually borne by the importer.
A modification to the LC is called an amendment, and the bank charges some fee for that as well.

Types of LCs
LCs
Revocable LC may be cancelled anytime without a prior notice to the beneficiary
Irrevocable LC cannot be revoked or amended without the consent of all the parties. A silent
LC is assumed to be an irrevocable LC
Revolving LC the amount under the revolving LC can revolve in relation to time or value. It
takes care of goods to be delivered in installments or intervals
Transferable LC in cases where the seller or beneficiary is not the actual producer of goods,
seller uses transferable LC, and on receipt of the same, will instruct transfer of funds to actual
supplier
Red Clause LC- contains a clause providing for payment in advance for purchasing raw
materials / processing and / a packing of goods enabling the beneficiary to avail advance
Green Clause LC advance is given only against a warehouse receipt given by the beneficiary

7.3 Documentary Collections


A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of a
payment to the remitting bank (exporters bank), which sends documents to a collecting bank
(importers bank), along with instructions for payment. Funds are received from the importer and
remitted to the exporter through the banks involved in the collection in exchange for those
documents. D/Cs involve using a draft that requires the importer to pay the face amount either at
sight (document against payment) or on a specified date (document against acceptance). The draft
gives instructions that specify the documents required for the transfer of title to the goods.
Although banks do act as facilitators for their clients, D/Cs offer no verification process and limited
recourse in the event of non-payment. Drafts are generally less expensive than LCs. A draft is also
called a bill of exchange.

Sight Bill
A sight bill of exchange is used when the exporter wishes to get the payment before the importer
collects the goods from the port. The corresponding term of payment is Delivery Against Payment
(D/P).

Usance Bill (Time Draft)


A Usance bill of exchange is used when the exporter extends credit and the facility to use the
goods to the buyer. The draft states that payment is due by a specific time after the buyer accepts
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the time draft and receives the goods (e.g. 30 days of acceptance). By signing and writing
accepted on the bill, the importer is formally obligated to pay within the slated time. The
corresponding payment term is Delivery against Acceptance (D/A)

7.4 Open Account


An open account transaction is a sale where the goods are shipped and delivered before payment
is due, which is usually in 30 to 90 days. Obviously, this option is the most advantageous option to
the importer in terms of cash flow and cost, but it is consequently the highest risk option for an
exporter. Because of intense competition in export markets, foreign buyers often press exporters
for open account terms since the extension of credit by the seller to the buyer is more common
abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their
competitors. However, the exporter can offer competitive open account terms while substantially
mitigating the risk of non-payment by using of one or more of the appropriate trade finance
techniques, such as export credit insurance.

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Self Assessment Questions


Q1. The character of a Letter of Credit is
a)
b)
c)
d)

It is undertaking of a bank
It is undertaking to make a payment
It is undertaking given on behalf of the person
All of the above

Q2. The most widely used mode of payment by importers is


a)
b)
c)
d)

Payment by letter of credit


Deferred payment
Cash in advance
Documentary collection

Q3. What is the time duration in which an Indian exporter is expected to realize export proceeds?
a)
b)
c)
d)

6 months from the date of receipt of purchase order/letter of credit


6 months from the date of dispatch of goods from the factory
6 months from the date of shipment
6 months from the date of receipt of goods by the overseas buyer

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8. INCOTERMS
International Commercial Terms, known as INCOTERMs, are a series of international sales
terms widely used and accepted throughout the world. They divide transaction costs and
responsibilities between a buyer and a seller.
Incoterms are connected to the steps in the delivery of the products from the seller to the buyer,
such a carriage of products, export and import clearance responsibilities, who pays for the which
cost, and who faces the risk for the products at different locations in the transport process.
Incoterms are always linked with geographical locations.
Incoterms were devised and published by the International Chamber of Commerce (ICC) and
endorsed by the United Nations Commission on International Trade Law (UNCITRAL)
The four basic groups of INCOTERM are as follows
E Terms
F Terms
C Terms
D Terms

The goods are placed at the disposal of the buyer at the sellers
premises / factory
The buyer is responsible for the cost and risk of the main
international carriage
The seller pays for the main international carriage, but does not bear
the risks during that carriage
The seller bears all costs and risks up to the delivery point atr the
agreed destination, which may be in buyers country or even at the
buyers premises

The various Incoterms are as follows


EXW
FCA

Ex Works
Free Carrier

FAS

Free Alongside
Ship

FOB

Free On Board

CFR

Cost and Freight

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The seller makes the goods available at this premises


The seller hands over the goods, cleared for exports, into
the custody of the first carrier (named by the buyer) at the
named place, and is applicable for all modes of
transportation
The seller must place the goods alongside the ship at the
named port, cleared for exports. Suitable for maritime
export only
The seller must load the goods on board the ship
nominated by the buyer, cost and risk being divided at
ships rail. The seller must clear the goods for export.
Maritime transport only
The seller must pay the costs and freight to bring the goods
to the port of destination. However, risk is transferred to
the buyer once the goods have crossed the ships rail.
Maritime transport only

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CIF

CPT

CIP

DAF

DES
DEQ

DDU

DDP

Certified Export Import (Foreign Trade) Professional

Cost, Insurance
and Freight

Exactly the same as CFR except the seller must in addition


procure and pay for insurance for the buyer. Maritime
transport only
Carriage Paid To
The general/containerized / multimodal equivalent of CFR.
The seller pays for carriage to the named port of
destination, but risk passes when the goods are handed
over to the first carrier.
Carriage and
The containerized transport/multimodal equivalent of CIF.
Insurance Paid To Seller pays for carriage and insurance to the named
destination point, but risk passes when the goods are
handed over to the first carrier.
Delivered at
The seller makes the goods available, cleared for export, at
Frontier
the named place on the frontier. Suitable for rail/road
transport
Delivered Ex Ship The seller makes the goods available to the buyer on board
the ship at the port of destination, uncleared for import
Delivered Ex Quay One step further than DES the goods must be unloaded
onto the quay at the port of destination, and import
clearance must be obtained by the seller
Delivered Duty
The seller delivers the goods all the way to the named
Unpaid
place in the country of destination. However, the buyer
must clear the goods for import and pay the necessary
duties
Delivery Duty Paid Maximum obligation to the seller seller pays for all the
costs, charges and official formalities up to the destination

Certain previously used terms were dropped at the 1990 revision of Incoterms, like FOB Airport
replaced by FCA (Free Carrier) and FOR/FOT (Free on Rail/Free on Truck) replaced by FCA

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Self Assessment Questions


Q1. Which Incoterm includes the price of rail transport to port (including insurance) and getting
goods upto the ship?
a)
b)
c)
d)

Ex works
Free carrier
Free alongside ship
Free on board

Q2. Which of these accurately describe CIF?


a)
b)
c)
d)

FOB + shipping + freight + insurance


A + unloading charges
B + customs charges
C + transport to importers surroundings

Q3. Incoterms are devised and published by


a)
b)
c)
d)

International Chamber of Commerce


World Bank
World Trade Organization
United Nations

Q4. A price agreed on CIF basis


a)
b)
c)
d)

Does not include the freight charges


Includes freight charges up to the port of loading
Includes freight charges upto the port of unloading
Includes freight charges up to the importers works

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9. METHODS OF FINANCING EXPORTERS


Exporters require money from banks both a pre shipment and post shipment stage. Export finance
is offered by the bank and can be classified as pre shipment and post shipment finance

9.1 Pre Shipment Finance


Pre shipment finance may be classified as
Packing Credits
Advances against receivables from the government like duty drawbacks etc
Advances against cheques / drafts received as advance payments

Packing Credit
Pre shipment finance is generally known as packing credit
Essentially a working capital advance made available for the specific purpose of
procuring/processing/manufacturing of goods meant for exports
All advances under packing credit need to be liquidated from the export proceeds

Regulations to be complied by a commercial banker at the time of appraising an export credit


Under FEMA (Exchange Control Regulations)
Exporter should be a regular customer, bona fide exporter and have a good standing in
the market
Exporter should not be under the caution list of RBI
Under Foreign Trade Policy (2009-2014)
Exporter should have an IEC number
Goods must be freely exportable or if restrictive, should have a valid license for
allowing the export
Country with which the exporter is dealing is not under trade barrier list
Under Export Credit Guarantee Corporation (ECGC)
Party to whom the bank proposes to extend facility is not under the Specific Approval
list of ECGC
Countries to which the exporter wants to deal should not be under the restrictive cover
countries (RCC)
Limit proposed to be sanctioned should be within the discretionary limit prescribed by
ECGC per borrower for the bank
All sanctioned limits to be reported to ECGC within 30 days in the prescribed format

Disbursement of packing credit advance


Disbursing bank ensures that proper documents have been executed by the exporter
Exporter should submit following documents at the time of availing Packing credit
Formal application for releasing packing credit with the undertaking to the effect that
the exporter would ship the goods in the stipulated due date and submit the relevant
shipping documents to the bank within the time limit

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Firm order of Letter of Credit or original correspondence between the exporter and
importer
DGFT licence if the export falls under restrictive list
Bank will scrutinize application and the details submitted by the exporter. Particulars recorded
in the Packing credit register by the bank include
Name of the buyer
Commodity to be exported
Quantity
Value of export
Last date of shipment
Any other relevant term
Quantum of finance is fixed on FOB value of the contract or the LC value whichever is lower.
Advances against insurance & freight charges are considered later when the consignment is
ready
Under some cases, packing credit advance may be more than LC or contract value (e.g.
incentives by the govt to export when market prices are more or there are by products formed
during the production process like oil or oil cakes that get sold)
Disbursements are made in stages and in cheques/drafts
Packing credit advances may be given for different durations depending upon the process of
procurement, manufacturing and export, and it is banks discretion, but normally doesnt
exceed 180 days
The duration may be extended by the bank after necessary procedures, but any extension
beyond 365 days needs ECGC approvals
In view of the concessional rate of interest, banks must ensure the end use of funds is for genuine
export purposes only

Follow up on packing credit advances


Submission of stock statements
Physical inspection of stocks by the authorized dealer at regular intervals
Payment of ECGC premium on a monthly basis

Liquidation of packing credit advances


Advances are liquidated by the export proceeds. For any reason, if export doesnt take place, all
the entire advance will be recovered at commercial rate plus penal charges as decided by the bank.
An overdue report of advance should be made to the concerned regional branch/office of ECGC
in prescribed format within 30 days

Packing Credits to Sub supplier


Packing credit may be made available to the manufacturer of goods who is supplying to Export
Order Holder (EOH), if the EOH states that he has not availed any credit facility against the
concerned portion of the order. The banker to EOH may open inland LC specifying the goods to
be supplied by the sub supplier to EOH as a part of the export transaction. On the basis of such an
LC, the sub suppliers bank may grant export packing credit to the sub supplier.
Once the sub supplier makes available the goods as per inland LC terms to the EOH, his
obligation of performance under the scheme will be treated, as complied with and penal provisions
will not be applicable to him for delay if any
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Since the sub supplier is not liable for any penal provisions for the delay by EOH, the financing
bank of the sub supplier, before extending the credit facilities should make discreet enquiries to
confirm the track record of the EOH.

Packing Credit facilities to deemed exporters


Deemed exports involving supplies made to IRD/IDA/ADB or any multilateral funds and
programmes, under orders secured through global tenders for which payment will be made in free
foreign exchange are eligible for concessional rate of interest facility both at pre and post supply
stages.

Packing credit facilities for consultancy


consultancy services
In the case of consultancy services, export will not involve in physical movement of goods out of
Indian customs territory. In such cases, pre shipment finance at concessional interest rate can be
extended to the exporters to enable them to undertake preliminary arrangements such as
mobilizing technical personnel and other staff and training them.

Advances against cheques/drafts received as advance payments


If an exporter receives either a cheque or a draft representing advance payments towards future
exports, and in case if a bank advances funds against the security of such instruments, this advance
will be treated as export finance and only concessional interest rates would be charged.

9.2 Post Shipment Advance


Finance against receivables, in the form of shipping documents, is post shipment finance. Exporter
should have an IEC number and each shipment should be accompanied by prescribed declaration
(GR/SDF/PP/SOFTEX) form in which the value of the export will be declared and duly certified
by the customs authority.
Shipping documents along with relative GR form must be submitted to the authorized dealer
within 21 days from the date of shipment.
For realization of export proceeds, countries all over the world have been divided into 2 groups i.e.
Asian Clearing Union (ACU) and Non ACU countries. Exports to the group of ACU countries
(Myanmar, Bangladesh, Pakistan, Iran and Sri Lanka) should be realized in ACU dollars (US
dollars). Other than ACU countries, realization of export proceeds can be in any freely convertible
currencies.
Different type of post shipment advances
Export bills purchased/discounted
Export bills negotiated
Advance against export bills sent on collection basis
Advance against exports on consignment basis
Advance against balances not drawn
Advance against duty drawbacks

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Self Assessment Questions


Q1. Which of the following statement is TRUE?
a)
b)
c)
d)

Excise duty and sales tax are both exempted for export goods
Only excise duty is exempted for export goods
Only sales tax is exempted on export goods
None of the above

Q2. Which of these is not a form of pre shipment finance?


a)
b)
c)
d)

Advance against export bills sent on collection


Advances against incentives receivable from Government
Packing Credit
Pre shipment credit in Foreign Currency

Q3. How long can bank finance be extended beyond initial 180 days?
a)
b)
c)
d)

45 days
90 days
135 days
180 days

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10. EXPORT ASSISTANCE


The Export-Import policy 1992-97 brought about many fundamental changes -in Indias external
trade policy. It gradually laid the foundation of globalization of Indian economy by initiating
liberalization and making Indian industries to face competition from foreign MNCs. Until 1992
Indian markets were highly protected and the Indian government used to give many incentives to
the Indian exporters. But many of these incentives were withdrawn by the 1992-97 and subsequent
policies.

10.1 Importance of Export Assistance


Export promotion was accorded a very low priority during the initial programme of economic
development in India. During the 1950s and almost up to mid 1960 export-promotion was not at
all considered as an essential element in Indias economic development process. Easy and
adequate availability of external assistance from World Bank and other international agencies as
well as developed countries has provided India with more than adequate amount of foreign
exchange for financing development as well as essential imports. Hence, the urgency of earning
foreign exchange through expanding exports was not there. In addition, because of the large size of
the domestic market in India, import substitution rather than the export promotion was
considered as a more useful strategy for Indias economic development process. Similarly during
the period of the First Three Five year plans over 1950-51 to 1965--66" Indian economy was in a
formative stage. Consequently Indias capacity to export manufactures or industrial products was
extremely limited. Hence, on this account as well, India could not look at international markets
especially because of her extremely limited capacity to offer supplies of industrial products.
However after 1965-66, the aid flows to India were substantially reduced. Consequently, for the
first time India was made to depend significantly on her exports for acquiring foreign exchange to
meet her needs of essential imports. Moreover, by the second-half of 1960s, a number of
industries especially in the engineering, chemicals, leather, marine and other sectors have reached
a stage from where they were looking for an opening in international market.
Government of India had therefore, considered it as appropriate to lay emphasis on the need for
export promotion so as to enable the country to meet the need of imports. Fortunately, it received
an encouraging response from the industrial sector which was also looking for international
markets.
Over the last couple of decades export promotion has assumed critical importance in Indian
economy. Export growth has become the main determinant of economic growth in India. The
process of globalization and liberalization has further enhanced the need of strengthening the
support of export-import trade business of the country. Moreover, with the increasing burden of
debt-servicing on the one hand and the situation of aid fatigue on the other, exports have now
emerged as the only viable source of meeting the foreign exchange needs of Indian economy.
Hence, the feasibility of financing almost entirely depends upon the growth in Indian export.
Hence, export promotion has been an overriding consideration in policy formulation lately.

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Export promotion policy in India has three main segments. They are as follows
Policies for increasing Investment and production in export sector
Price-support measures for rendering exports more competitive
Measures for strengthening marketing effort by the export sector

10.2 Export Promotion Measures


Measures in
in India
The assistance extended to the Indian exporters are stated below.

Import Facilities for Exporters


Duty Free Replenishment Certificate (DFRC)
DFRC is issued to a merchant exporter or manufacturer exporter for the duty free import of inputs
such as raw materials, components, intermediates, consumables, spare parts, including packing
materials to be used for export production. Such license is given subject of the fulfillment of time
bound export obligation.

Duty Entitlement Passbook Scheme (DEPB)


Under the DEPB scheme, an exporter may apply for credit as a specified percentage of FOB value
of exports, made in freely convertible currency. The credit shall be available against such export
products and at such rates as may be specified by the Director General of Foreign Trade (DGFT)
by way of public notice issued in this behalf, for import of raw materials, intermediates,
components, parts, packaging materials, etc.

Export Promotion Capital Goods Scheme (EPCG)


EPCG scheme was introduced by the EXIM policy of 1992-97 in order to enable manufacturer
exporter to import machinery and other capital goods for export production at concessional or no
customs duties at all. This facility is subject to export obligation, i.e., the exporter is required to
guarantee exports of certain minimum value, which is in multiple of tit1e value of capital goods
imported.

Duty Exemption Schemes


Duty Drawback (DBK)
The Duty Drawback Scheme is administered by the Directorate of Drawback, Ministry of Finance.
Under this scheme, an exporter is entitled to claim
Customs duty paid on the import of raw materials, components and consumables
Central excise duty paid on indigenous raw materials, components
Consumables utilized in the manufacture of goods meant for export

Excise Duty Refund


Excise duty is a tax imposed by the central government on goods manufactured in India. This duty
is collected at source, i.e., before removal of goods from the factory premises. Export goods are
totally exempted from central excise duty. However, necessary clearance has to be obtained in one
of the following ways
Export under rebate
Export under bond
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Octroi Exemption
Octroi is a duty paid on manufactured goods, when they enter the municipal limits of a city or a
town. However, export goods are exempted from Octroi.

Fiscal Incentives
Exemption from Income Tax
In order to enable exporters to plough back their earnings and promote exports, the Government
of India has given tax exemption to exporters on export earnings under section 80 HHC provision
of the Income Tax Act. For example, for the A.Y. 2002-03, 60% of the export income is exempted
from tax. At the same time, a ten year tax holiday is provided to 100% EOUs and units in EPZs.

Sales Tax Exemption


Sales tax is a tax imposed by the State government on goods sold in or outside India. However,
exportable goods are exempted from sales tax, provided the exporter or his firm is registered with
the Sales Tax Authorities. This exemption is given on the following categories of goods
Goods exported
Goods purchased from the local market from export purpose.

Marketing Assistance
Market Development Assistance (MDA)
The government of India has set up a separate fund under the head Marketing Development
Assistance (MDA) for developing marketing abilities of Indian exporters. It is granted by the
Ministry of Commerce for export market development and research abroad. The amount granted
under MDA varies from 25% to 60% of the actual expenditure incurred.

Market Access Initiative (MAI)


Under this scheme, financial assistance is available to the export promotion councils, C industry
and trade associations and other eligible entities on the basis of the competitive merits of proposals
received in this regard for undertaking marketing studies, setting up of common showrooms,
warehousing facility, participation in sales promotion campaigns, publicity campaigns, international
trade fairs, seminars, buyers-sellers meet, etc.

Supply
Supply of Raw Materials
Industrial Raw Material Assistance Centres (IRMAC) Scheme
IRMAC is established by the government of India as subsidiary of STC. Such centres import raw
materials in bulk and supply them to the registered exporters against a valid import licence. This
enables exporters to get timely supply of raw materials at reasonable prices, IRMAC has been
further simplified- by removing the actual user clause.

Back to-Back Inland Letter of Credit


The facility of Back-to- Back Inland letter of credit was announced by the EXIM policy 1992-97
and came into effect from 1st April 1995. 13ack.to-back L/C is one, which can be opened In
favour of local suppliers of raw materials or goods so as to enable exporters to got raw materials or

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goods for export on credit basis. It is a kind of pre-shipment finance procured by the exporter for
the processing of export order.

Institutional Measures
The Government of India (GOI) has established a number of organisations to promote and
expand export trade. These organisations are
Indian Institute of Foreign Trade (11FT) to provide training facilities
Indian Institute of Packaging (lIP) to upgrade, packaging standards
Export Promotion Councils (EPCs) to undertake export promotion activities
Export Inspection Council (EIC) to upgrade quality standards
Export Credit Guarantee Corporation (ECGC) to protect exporters against payment rises
Indian Council of Arbitration (ICA) to settle and solve disputes between importers and
exporters. Apart from the above institutions, there are a number of other organisations such as
Federation of Indian Export Organization (FIEO), EXIM Bank, etc

Expansion of Production Base for Exports


The first prerequisite of export promotion policy is to ensure larger exportable surpluses. In. other
words, if a country wants to exports more, it must have more to export. It will have more to export
only if more and more is produced for export. Hence, it calls for increasing flow of production and
investment resources into the export sector.

Relaxation in Industrial
Industrial Licensing Policy/MRTP/FERA/ Foreign Collaborations
With a view to facilitate relatively easier creation/expansion of production capacities for increasing
export potential of Indian economic, necessary relaxations have been provided for in the policies
for industrial licensing, MRTP (Monopolies and Restrictive Trade practices Act) and Foreign
Exchange Regulations, etc. The Foreign Exchange Regulation Act has been liberalized and Foreign
Exchange Management (FEMA) Act, 1999 has been made operational. The rupee has been made
fully convertible for all approved external transactions. As a result, exporters of goods and services
and those who are in receipt of remittances are able to sell their foreign exchange at market
determined rates. The importers and foreign travelers are also able to buy foreign exchange at
market determined rates. Exporters have also been allowed to maintain foreign currency accounts.
There is general liberalization of remittance of foreign exchange for visits abroad, agency
commission; export claims, reduction in export value, reimbursement of expenses incurred on
dishonoured export bills, consular fees, etc. Consequently, creation of additions of production
capacities for export is liberally allowed, both in the large-scale as well as small scale sectors.
Foreign collaboration and foreign capital investment is also liberally permitted for the export
sector. 100% foreign equity has been permitted to the units in EPZ/EOU/EHTP/ STP. All these
policy measures are envisaged to go long way in facilitating easy expansion as well as technological
up gradation of export base in India through attracting larger flows of investment and other
resources.

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Liberal Import of Capital Goods


Import policy of India has made especially liberal provisions for easy import of capital goods of all
types. Accordingly, imports of machinery and equipment are allowed without import licence. In
addition special provisions have been made for import of capital-goods at a concessional rate of
import duty. Export Promotion Capital Goods (EPCG) Scheme has been introduced for liberal
import of capital goods.

Export Promotion Capital Goods Scheme


New Capital goods including computer software systems may be imported under the Export
Promotion Capital Goods (EPCG) scheme. Under this provision, capital goods including jigs,
fixtures, dies, moulds and spares upto 20% of the CIF value of the capital goods may be imported
at 5% customs duty: This import is subject to an export obligation equivalent to 5 times CIF value
of capital goods on FOB basis or 4 times the CIF value of capital goods on NFE basis to be filled
over a period of 8 years. This period is reckoned from the date of issuance of licence. Import of
capital goods shall be, subject to Actual User condition till the export obligation is completed.
Export Processing Zones (EPZ), Export-Oriented Units (EOU), Special Economic Zones (SEZs),
Electronic Hardware Technology Parks (EHTP) and Software Technology Park Units (STP) Units
undertaking to export their production of goods may be set up under Export Processing Zones
(EPZ) scheme, Export Oriented Units (EOU) scheme, Special Economic Zones (SEZs) scheme,
Electronic Hardware Technology park (EHTP) scheme or Software Technology Park (STP)
scheme. Such units may be engaged in manufacture, services, trading, development of software,
agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture,
horticulture, pesciculture, viticulture, poultry, sericulture, and granites may export all products
except prohibited items of exports. These units import all types of goods without payment of duty
including capital goods for manufacture, production or processing provided they .are not
prohibited items, Second hand. Capital goods may also be imported in accordance with the
provisions of the policy: Supplies from DTA to these units will be regarded as deemed exports.
Foreign equity upto 100% is permissible to these units. These units shall be exempted from
payment of corporate income tax for 10 years

Assured Supply of Raw Material Imports


As regards making available the supplies of imported raw materials to the export sector, the import
policy provides the scheme of Duty exemption and Duty Remission. The duty exemption scheme
enables import of inputs required for export production. The duty remission scheme enables post
export replenishment/remission of duty on inputs used in the export product.
Under duty exemption scheme, an advance licence is issued to allow import of inputs which are
physically incorporated in the export product. Advance licence is issued for duty free import of
inputs as defined in the policy subject to actual user condition.
Such licenses are exempted from payment of basic customs duty, surcharge, additional customs
duty, antidumping duty and safeguard duty, if any. Advance licence can be issued for
Physical exports
Intermediate supplies
Deemed exports
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Duty Remission Scheme consists of Duty Free Entitlement Certificate and Duty Entitlement
Passbook Scheme.

10.4 Eligibility
Eligibility for Export/Trading/Star Trading/Super Star Trading Houses
Export/Trading/Star Trading/Super Star Trading Houses have been accorded special status.
When exporters achieve the specified level of exports over a period, they may be recognized as
EH/TH/STH/SSTH. Exports made both in free foreign exchange and in Indian rupees shall be
taken into account for recognition. The objective of this scheme is to recognize them as the
respective houses with a view to building marketing infrastructure and expertise required for
export promotion. The exporters, registered with FlEO or EPC are, eligible for this purpose. The
export performance criteria may be based on either f.o.b. value of exports or net foreign exchange
earnings.

F.O.B. Criteria
The manufacturing or merchandising units, who have achieved the following targets can be
accorded the status of above mentioned Export Houses. Deemed exports are not counted for this
purpose.
Category of Houses

Average FOB value of


exports during the preceding
3 licensing years, in rupees
Rs. 15 crores
Rs. 75 crores
Rs. 375 crores
Rs. 1125 crores

Export House
Trading House
Star Trading House
Super star Trading House

FOB value of eligible export


during preceding licensing
year in rupees
Rs. 22 crores
Rs. 112 crores
Rs. 560 crores
Rs. 1680 crores

Net Foreign Exchange Earnings


Exporters have an option for obtaining the status of Export and other Houses based on the
following Net Foreign Exchange Earnings.
Category of Houses

Export House
Trading House
Star Trading House
Super star Trading House

Average net foreign exchange Net foreign exchange value of


value during the preceding 3 exports
made
during
licensing years, in rupees
preceding licensing year in
rupees
Rs. 12 crores
Rs 18 crores
Rs. 62 crores
Rs. 90 crores
Rs. 312 crores
Rs. 450 crores
Rs. 937 crores
Rs. 1350 crores

Exporters have also an option to get recognition for one year. In this case relaxation in above
earnings has been permitted. EH/TH/STH/SSTH are entitled to the following special benefits
Import Facilities
Marketing Development Assistance
Foreign Currency, Accounts
Foreign Exchange Facilities
Golden Status Certificate
Other facilities as specified in the policy
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Export Houses Status for


for Export of Services
Service providers sha1l be eligible for recognition as service Export House, International Service
Export House, International Star Service Export House International Super Star Service Export
House on achieving the performance level as below
Category

Average free
foreign exchange
earning during
the preceding
preceding
three licensing
years in rupees

Free Foreign
exchange
earning during
the preceding
licensing year in
rupees

Average NFE
earned made
during the
preceding
licensing year in
rupees

NFE earned
during the
preceding
licensing year in
rupees

4 crores

6 crores

3 crores

5 crores

20 crores

30 crores

15 crores

25 crores

100 crores

150 crores

75 crores

125 crores

300 crores

450 crores

225 crores

375 crores

Service Export
House
International
Service Export
House
International
Star Service
Export House
International
Super Star
Service Export
House

10.5 Rendering exports price competitive


The service status holders sha1l be entitled to all the facilities provided in the policy.
The pre- requisite of export promotion policy is to exports increasingly price competitive in
international market. A number of Price support measures in the form of fiscal as well as financial
incentives have therefore been provided for the export sector in India. The need for pricesupport measures in the form of export incentives arises on two accounts.
First, price levels in international markets are invariably the lowest, because of the high degree of
competition therein.
On the other hand, Indian economy has over the years emerged as an economy with low
productivity. Hence, for success full and viable export effort there is the need for incentives to
provide the price support for rendering Indias exports competitive and viable. Secondly,
incentives exports also become necessary to neutralize the domestic market -pull on Indian
exporters.
Hence, export incentives also aim at encouraging trade and industry in India to increasingly
undertake export effort on a sustained basis. Under the export promotion policy of India, various
types of incentives have been provided for a price support measures. These include
Fiscal Incentives
Financial Incentives
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Fiscal Incentives
Fiscal incentives for export promotion include
Duty drawback
Central excise rebate
Income tax exemption, on export profits

Duty Drawback
In the manufacturing of many export products imported or indigenous raw materials and
components are used on which customs or central excise duty has been paid. When the finished
products are exported in which duty paid inputs are used, a part or whole of the amount of such
duty is allowed -to be drawn back by the exporter or if is refunded to him. This results in
substantial reduction in the cost of material inputs for export-production. In other words, import
duties and central excise duties, on material inputs for export activity are allowed to be drawback
by the exporters under the incentives policy for duty drawback.
The scheme of Duty Drawback has been formulated by the Drawback Director under the Central
Board of Revenue and Customs from the Ministry of Finance. The benefit of duty drawback has
been provided on the basis of (a) all industry rates or (b) brand rates separately fixed for individual
manufacturers of the export products. The incentive of duty drawback helps reduce significantly
the material cost of export products. It is very important for countries like India, which have
simple manufactures to offer for exports which are very much influenced by the material cost.

Central Excise Rebate


Under this scheme, the Central Excise Duties on the inputs and final product or on the output
proposed for export are refunded to the exporter. It helps in further reduction in the overall cost
of production for exports. The scheme also provides for a Bond System under which the exporter
can claim outright exemption from Central Excise Duties. The scheme is operated as per Central
Excise Rules notified by the Central Excise department

Income-Tax Exemption
In order to promote exports, income tax exemption has been granted under Income Tax Act.
This exemption scheme is to be phased out over a five-year period i.e. by 2004-2005 for all
exporters other than EPZ/EOU/EHTP/STP units. The major exemptions are as follows
Part of the profits derived from export of specified goods or merchandise is deducted for the
computation of income tax
Specified amount of profits of companies engage in the business of hotel or of a tour operator
or a travel agent is deducted
There is a partial tax relief on export of computer software and for import of system. The
benefit can also be claimed by a supporting software developer from 1-4-1999
The profits from export or transfer of film VT software, TV news software, telecast rights are
partially deducted
50% of the profits from project exports is deducted in computing taxable income of the Indian
company or resident tax payer
10 years tax holidays is granted to units in FTZIEPZ and 100% EOU ending with 2010-2011
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There is a tax rebate on remuneration received on services rendered outside India and other
rebate as specified in the policy

Sales tax Exemption


There is no tax on sales made for export purpose. The exporter need not pay sales tax either on
the goods purchased from manufacturers or traders.

Financial Incentives
The major scheme of financial incentives include interest subsidy, financial assistance scheme for
agricultural, horticultural and meat exports.

Interest Subsidy
Export sector in India has also been given interest subsidy under which the working capital is made
available by the banks to the export sector at a concessional or subsidized rate of interest. Under
this scheme working capital required for pre- shipment credit as well as post shipment credit is
provided to the export sector at concessional rates of interest. This measure helps Indian exporters
to reduce the working capital cost of export operation.

Financial Assistance Scheme for Agricultural, Horticultural and Meat Exports


In order to promote the exports of agricultural, horticultural and meat products, agricultural and
processed food products, Export Development Authority (APEDA) provides financial assistance
for the following purposes
Feasibility studies, surveys, consultancy and data base up gradation
Development of infrastructure
Export promotion and market development
Packaging development
Quality control
Upgradation of meat plants
Organization building and Human Resource Development
Air freight assistance for export of horticultural products export by air
Generation of relevant research and development through research institutions.
Thus, export incentives in the form of tax- concessions or fiscal incentives, as well as financial
incentives, play major role in rendering Indian exports, competitive in the international market.
However, in view of the highly competitive nature of international market, every country in the
world makes an all out effort to increase her exports, for which various types of different fiscal and
financial incentives are provided. Thus, the practice of incentives has almost become universal,
covering both developed as well as developing countries.

10.6 Strengthening
Strengthening Export Marketing Effort
Another prerequisite of export promotion is the marketing effort. It may be noted that export is
primarily a sale transaction. Production can be converted into sale only through the marketing
effort. In other words marketing effort provides the necessary link or channel between
production and sales. Hence, success on the export front is dependent upon the marketing effort.
Export promotion policy in India therefore, pays special attention to the need for improving and
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strengthening export marketing effort. With this objective, the Government of India has
established a very comprehensive network of institutions for servicing the export sector.
In other words; an effort has been made to provide the necessary infra structure for servicing the
export sector, particularly to improve the export marketing effort. With this object in view,
Government of India has established a number of specialized institutions for providing necessary
services and assistance to individual corporate units from the export sector. Institutions established
for strengthening export marketing effort include Export Promotion Council, Commodity Boards,
Special Authorities and Industry Associations.
The primary function of these institutions is to provide the exporter with export marketing
guidance and advice as well as complete information and details covering almost all the critical
elements involved in export marketing effort at the individual corporate unit level on a continuous
basis.
In addition, separate institutions have also been established for providing technical and specialized
services to the export-sector in India. These institutions provide necessary guidance, help and
assistance to individual corporate units, especially in the field of packaging, quality control, risk
coverage, long- term credit, trade fairs and exhibitions, settlement of disputes, package service and
market information.
For supplementing the export-effort by the private sector, Govt, of India have also established a
number of Corporations in the Government sector for directly undertaking export -import activity.
Various state Governments have also established Export Corporations for promoting exports from
different states respectively.

Market Development Assistance


This assistance is provided for overall development of I overseas markets. It is provided for
sponsoring, inviting trade delegations within and outside the country, market studies, publicity,
setting up of warehouses/ showrooms, research and development, quality control, etc. MDA is
largely available to Approved Organisations, Export Houses/Consortia of Small Scale Industries,
Individual exporters or other sponsored persons. The assistance is given for air fare, daily
allowance, participation in fairs and exhibitions, etc. The assistance is disbursed by the FIEO and
Ministry of Commerce.

External Marketing Assistance Scheme for Jute


The External Marketing Assistance Scheme provides grant of market assistance at the rate of 5%
and 10% of FOB value realization on export of specified diversified products. The benefit is
available to both manufacturer- exporters and merchant exporters.

10.7 Special Economic Zones


A policy was introduced in the EXIM Policy effective from 1.4.2000 for setting up of Special
Economic Zones in the country with a view to provide an internationally competitive and hassle
free environment for exports. Units may be set up in SEZ for manufacture of goods and rendering
of services. All the import/export operations of the SEZ units will be on self certification basis. The
units in the Zone have to be a net foreign exchange earner but they shall not be subjected to any
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pre-determined value addition or minimum export performance requirements. Sales in the


Domestic Tariff Area by SEZ units shall be subject to payment of full Custom Duty and import
policy in force. Further Offshore banking units may be set up in the SEZs.
The policy provides for setting up of SEZs in the public, private, joint sector or by State
Governments. It was also envisaged that some of the existing Export Processing Zones would be
converted into Special Economic Zones. Accordingly, the Government has converted Export
Processing zones located at Kandla and Surat (Gujarat), Cochin (Kerala), Santa Cruz (MumbaiMaharashtra), Falta (West Bengal), Madras (Tamil Nadu), Visakhapatnam (Andhra Pradesh) and
Noida (Uttar Pradesh) into a Special Economic Zones. In addition, approval has been given for
setting up of 21 Special Economic Zones in various parts of the country in the private/JT sectors or
by the state.

10.8 Export Processing Zone /Export Oriented Units


Export Processing Zones are industrial estates which form enclaves from the national customs
territory of a country and are usually situated near seaports or airports. The main objectives of an
EPZ are
To earn foreign exchange
To generate employment opportunities
To facilitates transfer of technology by foreign investment and other means
To contribute to the overall development of the economy
The entire production of such a zone is normally intended for exports. Such provided with world
class infrastructural facilities. Industrial plots are generally available at concessional rate. Units in
these zones are allowed foreign equity even up to 100 percent. Domestically produced items are
also eligible for duty exemption.

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Self Assessment Questions


Q1. What is defined as an isolated, enclosed, and policed area, operated as a public utility, in or
adjacent to a port of entry, furnished with facilities for lading, unlading, handling storing,
manipulating, manufacturing, and exhibiting goods, and reshipping them by land, water, or air?
a)
b)
c)
d)

Customs Warehouse
Brokerage and Bonding Facility
Free Trade Zone
Manufacturing Facility

Q2. Which of the following is NOT the objective of levying customs duties in India?
a) To create a level playing field in Indian Markets for the international and domestic
manufacturers to compete with each other on equal and fair terms
b) To protect Indian industry from the unfair business practices adopted by the foreign
manufacturers
c) To prevent the foreign goods from entering into Indian markets
d) To collect revenues from import export trade
Q3. Which of the following is not the objective of conducting customs examination of goods?
a) To create trade barrier for export import business
b) To determine if proper documentation for customs clearance has been conducted
c) To help the government gather statistical data of all the goods imported into and exported
from the country
Q4. On which of the following components is duty drawback available?
a)
b)
c)
d)

Octroi
Sales Tax
Special Additional Duty (SAD)
Duty paid on packing material

Q5. Duty drawback on re export is not applicable under the following conditions?
a) Re exported goods are identifiable as having been imported
b) Goods are re exported within one year from date of payment of duty when they were
imported
Q6. Which one of the following obligations does a unit in an SEZ have to accept?
a)
b)
c)
d)

To export 100 percent output of the unit


To source raw material only from overseas sources
To achieve a positive net foreign exchange earning
To employ only Indian Nationals

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11. PROCESSING OF AN EXPORT


EXPORT ORDER
11.1 Nature
Nature and Format of Export Order
Processing of an export order starts with the receipt of an export order. An export order may
either in the form of export sales contract, which is concluded and incorporated in the form of a
document or in the form of evidence or an instrument evidencing the conclusion of a contract.
Simply stated, it means that there should be an agreement, which is mostly reduced in a
documentary form, between the exporter and the importer before the exporter can start making
arrangements for production or procurement of goods and their shipment.
Generally an export order may take the following forms
Pro-forma Invoice accepted and signed by the importer
Purchase Order accepted and signed by the exporter
Letter of Credit opened by the importer in favour of the exporter
A pro-forma Invoice is prepared and sent by the exporter to the importer. After accepting the
terms and conditions given in it as given in a documented contract, if any, the importer returns a
copy of this invoice to the exporter. Such a process helps in accepting the offer of the exporter by
the importer and, thus the conclusion of an export contract. In the case of long- term contract, the
exporter may be required to send pro-forma invoice for any intended shipment. Alternatively, the
export contract may require a purchase order to be sent by the importer to the exporter. If the
purchase order is in accordance with the terms and conditions of the contract, the exporter will
duly accept it.
Opening of a letter of credit is also a common method of receiving the export order. Although an
instrument of payment, the letter of credit states major terms and conditions of shipment and
enables the exporter to start processing of the export order.

11.2 Examination and Confirmation of Export Order


As soon as an export order has been received, the exporter must first acknowledge its receipt by
intimating the importer through telephone, telex, fax, etc. Though not legally necessary, this step is
helpful in creating business goodwill for the exporter. The exporter must carefully examine the
contents of the order to see that there is no discrepancy between the export order and export
contract (verbal or written). Thus, the accepted pro-forma invoice, buyers purchase order or the
letter of credit opened in favour of the exporter must be examined. Items to be examined
particularly are
Product description, including specification, style, color, packing conditions, etc
Marking and labeling requirements, if any
Terms of payment, including currency, nature of letter of credit (revocable. irrevocable,
confirmed, unconfirmed, restricted, unrestricted, etc.), and credit period, if any
Terms of shipment including choice of carrier, mode of carriage, place of delivery, date of
shipment delivery, port of shipment, Transshipment, etc
Inspection requirement including type of inspection and inspecting agency
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Insurance requirements including risk being covered and insurable value


Documents for realizing payment including the nature and number of invoices certificate of
origin, certificate of inspection, certificate of value, bill of exchange, insurance policy, transport
document and document of title, etc
Last date of negotiation of document with the bank
A new exporter who is very keen to get into the business may tend to ignore certain aspects of the
export order. It is not uncommon that he encounters difficulties while complying with the
contracted obligations. In the process, he may suffer a loss. For example, the importer may specify
inspection to be undertaken by an agency, which does not operate from India. Such a problem will
be discovered only after the goods have been manufactured. At this stage it may be difficult to
persuade the importer to change this condition. Consequently, the exporter may suffer a loss. If
there are any discrepancies in the export order, the importer must be immediately informed for its
amendment. It is only after the amended order has been received and confirmed by the exporter
that he becomes liable to fulfill his contractual obligations. It is commercially prudent to confirm
the order by sending a documentary confirmation. In certain contracts it may also be the legal
requirement. There is no specific format of this confirmatory letter and an ordinary letter would
serve the purpose.
Every export firm has devised internal procedures to suit specific requirements for ensuring
production or procurement of goods, packing, marking and labeling, and dispatching to the port
for shipment. A systematic approach to these activities could be to send a delivery note, in
duplicate to the production department. In the case of a merchant- exporter, the marketing
department may send a: similar document known as purchase order.
Specific instructions are given on the above-mentioned document to the production/procurement
department for undertaking production and transport activities. Besides mentioning the time
period within which these activities are to be completed, delivery note/purchase order may give
such details as: product specification, quantity required, packing, marking and labeling
requirement, excise clearance requirement, intimation to transport department if any. The
marketing or export department should also instruct the production/ procurement department to
retain one copy of the delivery note/ purchase order and confirm the delivery (i.e., transportation
to the port) on the duplicate copy.
The purchasing, processing manufacturing and packing of goods for exports are facilitated by the
packing credit facility given by the commercial banks in India. Under the export credit (interest
subsidy) scheme, the Reserve Bank of India enables the commercial banks to extend pre-shipment
and post shipment credit to exporters manufacturers, as well as merchant exporters.
Pre- shipment credit is given to an exporter to fianc working capital needs for purchase of raw
materials, processing them and converting them into finished goods for the purpose of exports.
This facility is accorded on the basis of either the letter of credit or the confirmed export order or
any other evidence of the order. The rate of interest charged is concessional one. Banks also grant
post- shipment credit to bridge the time- gap between the shipment of the goods and the realization
of sale proceeds.

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Packing credit advances are normally granted on secured basis, which may mean collateral security
through a third party guarantee or mortgage of immovable property. Once the goods have been
acquired they are to be hypothecated. The banks have evolved their own documentation and
procedural systems for granting the credit.
Generally, following disbursement procedure is followed
The exporter hands over the export order letter of credit to the bank, which will accept it and
affix a rubber stamp on it reading export finance granted
The bank will calculate the drawing power of the exporter on the basis of a number of factors,
including the value of export order/letter of credit
Funds will be released by debiting to the packing credit account and credit to exporters
account
Goods will generally be required to be sent through the approved transport agencies and
forwarding agents
Goods will be suitably insured while in the warehouse and in transit
On the basis of the laid down procedures, the exporter will approach the bank for the preshipment credit. This credit is granted to enable the reporter to manufacture/ procure and pack
the goods for shipment overseas.

11.3 Central Excise Clearance


The Central Excise and Salt Act of India and the related rules provide the refund of excise duty
paid. This also provides exemption from the payment of excise duty both on the final export
production and inputs used in the manufacture of export products, popularly known as rebate in
excise duty. The documents used are Invoice and AR4/ AR5 forms. As soon as goods are ready
for dispatch to the port for shipment, the production department of export firm is to apply to the
central excise authority for excise clearance of the goods.
The exporters prepare six copies of AR4/AR5 forms. The exporters are now allowed to remove
the goods for export on their own without getting the goods examined or after the examination by
the Central Excise Officers. In case of without examination, exporter submits 4 copies of 1):R4
/ARS form to the superintendent of Central Excise having Jurisdiction over the premise of the
exporter within twenty-four hours of the removal of the consignment. The Superintendent
examines the AR4/AR5 form and having being satisfied, signs the form and returns it to the
concerned persons. Sometimes the exporter desires sealing of the goods by the Central Excise
Officers so that the custom officers at the port of shipment may not examine the export goods. In
such a case, the exporter submits AR4/ AR5 forms in sixtuplicate to the superintendent of Central
Excise having jurisdiction over the premises of the exporter. The superintendent may depute an
inspector of Central Excise or may himself go for selling and examination of export cargo. After be
is satisfied, he allows the clearance of cargo.

11.4 PrePre-shipment Inspection


Government of India notifies, from time to time, a number of goods whose export is subject to
compulsory quality control or pre- shipment inspection. Consequently, the Indian customs
authorities will require the submission of an inspection certificate issued by the designated. agency
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bef6repermitting the shipment to take place. The basis of inspection is usually the importers
specification, except in the case of export of goods involving safety or health hazards, where
notified minimum standards are enforced. Inspection of export goods may be conducted under
Consignment-wise Inspection
In-process Quality Control
Self-Certification
Let us discuss consignment-wise inspection. Before the excise authorities seal packs, the process
of pre-shipment inspection must be completed. The production department is to apply to the
Export Inspection Agency for nominating an inspector for conducting examination of the export
goods. The application is to be made on a prescribed form known as Notice of Inspection and
submitted to the Agency with the following documents
A copy of the commercial invoice
Crossed cheque of demand draft as inspection fee
A copy of export contract
Importers technical specifications and/or approved sample
After the inspector has completed inspection, the Export Inspection Agency will issue the
Inspection Certificate in triplicate. The original certificate is for the customs verification. It is
submitted to the customs authorities, along with other documents, before permission to ship goods
is granted. The second copy may be sent to the buyer, if needed. The third copy is for the
exporters record.

11.5 Appointment of Clearing and Forwarding Agents


Clearing and forwarding agents, also known as freight forwarders, perform a number of functions
on behalf of the exporter. They provide specialized help in the exporters ware-house to the
importers warehouse by undertaking the procedural and documentary formalities lie helps in
packing, marking and labeling of consignment, arrangement for transport to the port arrangement
for shipment overseas, and customs clearance of cargo, procurement of transport and other
documents. However, the main function of the agent is to obtain customs clearance of goods, ship
them and procure the relevant transport document (Bill of Lading or Airway Bill). For performing
the desired functions, the exporter is required to give detailed instructions to his agent, who in turn
will charge fee for these activities. On completion of the process of clearance by the excise
authorities as well as obtaining the Inspection Certificate, the production department dispatches
the consignment to the port of shipment by either road or rail. Information to this effect is sent to
the export department by signing the Delivery Note or by preparing a Dispatch Advice along with
the following documents
Railway Receipt or Lorry Way Bill
Invoice
A R4/ A R5 form ( Original and Duplicate)
Inspection Certificate (Original)

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On receipt of these documents, the export department will appoint a clearing and forwarding agent
by signing and sending a document, generally known as Shipping Instruction Sheet or simply the
Shipping Instructions. This document contains full details of instructions of the exporter as well as
details or the consignment to be shipped. Along with this document, following documents will be
sent to the agent
Commercial Invoice (Generally 8-10 copies with at least one completed)
Customs Declaration Form in Triplicate (This is a legal requirement whereby the exporter
states that the declarations made to the customs authorities by the agent on his behalf are true)
Packing list, if needed
Original Letter of Credit/Contract
Inspection Certificate (Original)
GR Form- Original and Duplicate (it is a foreign exchange declaration form)
AR4/AR5 form (Original and Duplicate) Invoice
Railway Receipt/Lorry Way Bill

11.6 Transportation of Goods to Port of Shipment


Shipment
Transportation and movement of goods to the port for shipment involve following activities
Packing, marking and labeling of consignment
Arrangement for movement of goods either by road or by rail
An export-worthy packing helps in minimizing freight and delivery costs. It also eliminates the
possibility of the insurance companys refusal to pay a claim in the event of a loss or damage to
goods in transit. If there are specific instructions on packing in the export con-tract, these must be
followed. After the goods are packed, the packages are to be properly marked and labeled. Proper
marking helps in quick and safe transportation of goods. Marking serves the purpose of
identification of goods, handling, shipping and delivery of goods upto the importer. Labels are
either stencils or affixed on the packs which contain handling instructions. These labels are usually
in the pictorial form for easy understanding of the instructions.
After the production department has completed the excise clearance and pre-shipment inspection
formalities, the export goods are packed, marked and labeled. At the same time, the export
department takes steps to reserve space on the ship through which goods are to be sent. Shipping
space can be reserved either through the clearing and forwarding agent or freight broker who work
on behalf of the shipping company or directly from the shipping company. After the space has
been reserved, the shipping company will issue a document known as Shipping Order. This
document serves as a proof of space reservation.
Information on space reservation is given to the production department for making transport
arrangements to the port. Where the consignment is sent through a road carrier, no specific
formality is involved. The production department engages a reliable carrier and books the
consignment to the port (generally in the name of the clearing and forwarding agent).
Truck receipt is issued which is sent, along with other documents, to the clearing and forwarding
agent at the port town for taking delivery of the cargo. However, for sending cargo by rail, laid
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down procedure is to be followed for obtaining allotment of wagon on a priority basis under a
scheme of the Railway Board. According to this scheme, wagons are allotted on the priority basis
for carrying export goods to the port town for sh1pinent. Following documents are submitted to
the booking railway yard/Station.
Forwarding Note (A railway document)
Shipping Order (as proof of reservation of shipping space)
Wagon Registration Fee Receipt
After wagons have been allotted, goods are loaded, for which railways will issue Railway Receipt
(RR). This receipt, along with other documents, is sent to the clearing and forwarding agent at the
port town. At this stage, the production export department makes an application to the insurance
company for insurance cover (internal as well as overseas) and obtains insurance policy/certificate
in duplicate with appropriate risk coverage.

11.7 Port Formalities and Customs Clearance


On receipt of the documents sent by the export department, the clearing and forwarding agent
takes delivery of the cargo from the railway station or the road transport company and arranges its
storage in the warehouse. He also initiates action to obtain customs clearance and permission from
the port authorities to bring cargo into the shipment shed.
The objectives of customs control are
To ensure that the goods go out of the country after compliance with different laws concerning
export trade
To ensure authenticity of value of export goods to check over/under invoicing
To correctly assess and collect export duty, if applicable
To compile data on cargo movements
For complying with these objectives, the customs grant permission for export at two stages.
Firstly, documentary checks are made at the office of the customs (i.e. Customs House).
Secondly, physical examination of goods is made in the shipment shed to verify that the goods
being exported are the same as have been declared on the documents submitted at the Customs
House. The document on which customs give clearance for export is the Shipping Bill. The
clearing and forwarding agent is to file following documents with the Customs House
Shipping Bill (4-5 copies)
Contract correspondence leading to the contract (Original)
Letter of Credit, where applicable (Original)
Commercial Invoice (one for each of the shipping Bill)
GR Form (Original and Duplicate)
Inspection Certificate (Original)
AR 4/ AR 5 Form (Original and Duplicate)
Packing list, if needed
Any other document needed by the customs
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The Customs Appraiser/Examiner examines these documents and appraises the value having
regard to the following consideration
That the value and the quantity declared in the shipping bill is the same as in the export order or
letter of credit. That the formalities regarding exchange control, pre- shipment quality control
inspection etc. have been duly completed. After examination of documents and appraisement of
value, the Customs Examiner/Appraiser makes an endorsement on the duplicate copy of the
shipping Bill. He also gives directions to the Dock Appraiser about the extent of physical
examination of the cargo to be conducted at the Docks. All the Documents, except GR (original)
Form, the original Shipping Bill and a copy of the Commercial Invoice are returned to the
Forwarding Agent to be presented to the Dock Appraiser. After taking delivery of documents from
the Export Department, Forwarding Agent Presents the Port Trust Document to the Shed
superintendent of the port. He obtains carting order for bringing the export cargo to the transit
shed for physical examination by the Dock Appraiser and for their shipment. After bringing the
cargo into the shed he presents the following documents to the Dock Appraiser for conducting
physical examination of the cargo.
Duplicate, triplicate and export promotion copies of the shipping Bill Commercial Invoice
Packing List
AR 4 /AR 5 form (original and duplicate) and Invoice
Inspection Certificate (Original)
GR Form (Duplicate)
The Dock Appraiser after conducting physical examination records examination report and makes
Let Export endorsement on the duplicate copy of the Shipping Bill. He hands it over to the
forwarding Agent along with all other documents to be presented to the preventive officer of the
customs department who supervises the loading of cargo on board the vessel.
The preventive officer makes an endorsement Let ship on the duplicate copy of the Shipping
Bill. The duplicate copy of the Shipping Bill is then handed over to the agent of the shipping
company. This constitutes an authorization by the customs to the shipping company to accept the
cargo on the vessel. After the goods are loaded on board the vessel, the captain of the ship issues a
receipt known as Mates Receipt to the Shed Superintendent of the port. The forwarding agent
then makes a payment of the port charges and takes delivery of the Mates Receipt. He presents
the Mates Receipt first to the preventive officer who records the certificate of shipment on all the
copies of the shipping Bill, original and duplicate copies of AR4/ AR5 form. He returns the Export
promotion copy, a copy of Drawback shipping Bill and presents the Mates Receipt to the shipping
company and requests it to issue the Bill of Lading (2/3 negotiable and a few non-negotiable as
required).
Dispatch of Documents by Forwarding Agent to the Exporter After obtaining the Bill of Lading
from the shipping company, the agent sends the following documents to the exporter.
One copy of the Commercial Invoice duly attested by the customs
Export promotion copy of Shipping Bill
Drawback copy of Shipping Bill
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Full set of Clean On Board Bill of Lading together with non- negotiable copies
Original letter of credit! contract order Copies of Customs Invoice, if any
AR 4/ AR 5 (Duplicate) and Invoice
GR Form (Duplicate).

11.8 Certificate of Origin and Shipment Advice


On receipt of the above documents, the exporter makes an application to the chamber of
commerce and obtains a Certificate of Origin in duplicate. In case of export shipment to
countries offering GSP concession, the GSP Certificate of Origin will have to be procured by the
exporter from the concerned authority like Export Inspection Agency.
The exporter then sends Shipment Advice to the importer intimating the date of shipment of the
consignment by a named vessel and its expected time of arrival (ETA) at the destination port. The
following documents are also sent along with the shipping advice so that the impol1er may start
making arrangements for taking delivery of the consignments.
A non- negotiable copy of the Bill of Lading
Commercial Invoice
Packing List
Customs Invoice

11.9 Presentation of Documents to Bank


The exporter presents the following documents to the bank for negotiation/ collection
Commercial invoice (Requisite number of copies)
Certificate of Origin (two copies)
Customs Invoice (Requisite number of copies)
GR Form (Duplicate)
Packing List (requisite number of copies)
Full set of Clean-on-Board Bill of Lading (Negotiable plus Non- negotiable copies as required)
Additional copies of the Commercial Invoice for Certification by the Bank
Original Letter of Credit/Export Contract
Bank Certificate in the prescribed form in duplicate
Marine Insurance Policy/Certificate
Bill of Exchange

11.10 Claiming
Claiming Export Incentives
The process of claiming export incentives consists of

Excise Rebate
After completing the post- shipment formalities, the clearing and forwarding agent will file the
following documents with the Maritime Central Excise Collector or Jurisdictional Assistant
Collector of Central Excise for claiming the refund of excise duty or for obtaining release from
bond, as the case may be.

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AR4/ AR5 Form (Duplicate copy), which has been certified by the customs preventive officer
Non-negotiable copy of the Bill of Lading and lor shipping Bill certified by the customs
preventive officer
Additional documents to be submitted for claiming refund excise duty are - Application for
Refund in Form C and Pre-receipt

Duty Drawback
For claiming Duty Drawback, the exporters agent will submit the customs attested copy of the
Drawback Shipping Bill, along with the following documents, with the Drawback Department of
the Customs House
Drawback Claim pro forma (prescribed application form in five copies)
Bank or Customs Certified copy of Commercial Invoice
Non-negotiable copy of Bill of Lading
Any other specifically prescribed document
After finding the claim to be correct, the Drawback Department will dispatch the cheque of the
claim amount to the exporter. Alternatively, if the exporter so desires, this amount will be sent to
the exporters bank for being credited to his account with intimation to the exporter.

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Self Assessment Questions


Q1. The exporter gets his payment as soon as he/she
a)
b)
c)
d)

Books the consignment


Ships the goods
Ships the goods and produces necessary documents in compliance
When the consignment is received by the importer

Q2. ARE form stands for?


a)
b)
c)
d)

Application for removal of excisable goods


Application for receipt of excisable goods
Assistance for removal of excisable goods
Application for radial expectancy goods

Q3. Which of the following is the purpose for demanding Certificate of Origin for customs
clearance?
a)
b)
c)
d)

To know the port of dispatch of goods


To assess the value of the goods
To know if the country is member of ATA Carnet
To claim preferential duty

Q4. Which of the following is required for duty free clearance of import cargo?
a)
b)
c)
d)

Copy of letter of credit / demand draft


A bond with bank guarantee
Copy of industrial licence
Product Catalogues/ samples

Q5. Which of the following is not the objective of conducting customs examination of goods?
a) To create trade barriers for the export import business
b) To determine if proper documentation for customs clearance has been conducted
c) To help the government gather statistical data of all the goods imported into and exported
out of the country

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12. PRODUCT DEVELOPMENT FOR EXPORTS


12.1 Product Development
Product development is the process by which ideas or concepts are transformed into viable and
marketable products and services. The product development process is dynamic, always moving,
changing, and responding to feedback; never static.

12.2 Planning for product development


As an entrepreneur, your products are the most powerful statement of you, your company and
business
The key issue is that you need consumers to associate your products, company and business
with good quality and good value for money (so that they will buy again); therefore, it is
essential that you understand how to develop great products from your ideas
Successful product development requires the commitment of resources as an investment in
future returns. Planning helps to identify what resources are needed and when, so that even the
smallest of enterprises can launch new products successfully to attract buyers, while
maintaining the core business

12.3 Sourcing new ideas


The starting point for new products can be expanding an existing line, new materials, new
production techniques, inspiration from nature, cultural heritage, travel, books and magazines,
discussions with buyers and even conversations with family and friends.

12.4 The product development process


Beginning with new ideas in the form of concepts, a series of activities is undertaken, beginning
with market research and progressing to planning, sample development, copyright and registration
of intellectual property, production planning and finally market launch. Feedback from market
launch is then input into the generation of new ideas, in an ongoing process of continuous
improvement. Market Research involves the identification of who will be the potential customer
for a new product idea. It includes a range of enquiries aimed at understanding the dynamics of the
industry within which your product is placed, such as
What are the demographic characteristics (number of potential customers, age, disposable
income, lifestyle characteristics, cultural preferences, purchasing patterns, etc.) of the market?
Who are the key players?
What margins may be applied to wholesale pricing?
Which products are most successful?
Why do customers buy?
What are the current trends in the market?
What conditions (e.g. regulations, border controls, duties and taxes) apply to market access?
Product Planning involves the further refinement of ideas based on market research. At this stage
decisions are made about possible product ranges, sizes, aesthetics (shape, pattern, colour, etc.) as
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well as requirements for materials including packaging, equipment and technology. The feasibility
of producing each item is assessed.
Development of Samples is based on an initial indication of feasibility. The process of generating
these prototypes allows for important practical assessments including the identification of suppliers,
configuring of the production process, identifying capacity and capability, product testing in the
market and costing in relation to projected market demand.
Copyright and Intellectual Property (IP) Registration conveys legal recognition of ownership and
protection of ideas. Legal protection through copyright, patents and trademarks should be sought
before ideas are shown to anyone. This protection makes ideas more attractive for potential
licensing.
Production Planning involves sourcing of adequate raw materials and packaging components,
identifying and assigning the skills required to specific tasks, preparing a schedule of items to be
produced over a period of time (weeks/ months) and establishing preparation and assembly lines
for production based on a breakdown of the individual operations required.
Market Launch activities promote the product to potential customers, who may be businesses or
individuals. These events are designed to entice new and existing customers to purchase the
companys offerings but are also valuable opportunities to obtain customer feedback. Trade shows
provide ideal opportunities to launch new products to the market, as there is generally a
concentration of potential buyers in attendance; seeking new products and experiences.

Key Product Attributes


The major product attributes which influence buying decisions by both buyers and consumers are
design, quality and price. Other related attributes which influence buying decisions are
Affordability and perception of value
Branding and Lifestyle orientation
Ease of shipping
Exclusivity
Packaging and presentation
Perception of durability
Product functionality and desirability
Product options- multiple sizes, colours, price bands, styling, etc.
Labour and environmental conditions under which the product was made

Understanding Market Requirements


Products seeking market entry may encounter several levels of market requirements, i.e.
mandatory regulations and legislation applied to goods sold to consumers. At the distribution level,
each channel (wholesalers, importers, e-commerce) may have specific requirements for packaging,
labeling and packing and the legal framework for distribution may influence the terms for engaging
distributors.

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It is best to identify market requirements as far in advance of the intention to export as possible,
since these may influence the purchase of supplies of raw materials (e.g. lead-free glazes, flame
retardant fabrics or packaging) through suppliers. Support services in terms of testing and/or
certification may also be required.
The European Commission maintains an extensive Helpdesk for Developing Countries website at
http://exporthelp.europa.eu/. The site archives market requirements, rules of origin, applicable
import tariffs and Customs documentation required for the European market.
Information on United States Market requirements for highly regulated products including food,
cosmetics and preparations of plant material, may be obtained from the United States Food and
Drug Administration online at http://www.fda.gov/.

12.5
12.5 Market Research
Here are some simple methods which can be used to do quick and meaningful market research
Talk to your current buyers about changing buying patterns and products which are needed to
fill gaps in the market
Use the Internet and/or directories to research market profiles, culture, economic conditions,
pricing of competing products, similar products manufactured locally in target market and
potential trading partners in new target markets
Define your company's industry (e.g. giftware, furniture, fashion or accessories) and refer to
industry publications (including free/on-line publications available by signing up) for trends,
cultural, legal, technology and global issues
Contact Chambers of Commerce and Business Associations in the target market for
information on local enterprises who could be buyers/importers and partner organizations
Join your local exporters' association, Chamber of Commerce or industry association to be
informed on activities planned by them
When visiting the target market for a trade show or business activity, pay attention to telephone
and business directories (many are now posted on the Internet), magazines and even tourist
guides, which may provide information on the country and potential buyers.
Register to join mailing lists for free publications offered by various organizations

Looking at tastes and trends


In addition to buying products for their use or value, consumers buy products for the feelings and
lifestyle experiences they inspire. It is important to present products in collections (that offer
choice) and to introduce themes in the collections which can connect with experiences which are
desired by consumers.
It is generally accepted that fashion trends in the European market are at least six months ahead of
the American market.

12.6
12.6 Successful product planning
Trade shows are a great opportunity to introduce new products and get feedback from the market.
Create an annual calendar trade shows and marketing events and a timetable for new product
launches; considering the 3 to 5 month cycle for production to distribution
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Develop concepts based on research (who is the customer and what is his/her profile?)
Create samples to test idea feasibility and generate costing
Prepare promotional material, packaging and labeling with photographs and brief on products
inspiration, materials and size for buyers
Develop a production plan and order supplies according to timetable for launches

Branding
Brands are more than names of individuals and companies or logos
Brands offer assurances to consumers of product quality and value
They connect emotionally with consumers and inspire feelings about values and experiences
In modern economies, registered brands have economic value and due to the existence of
international copyright laws, can legally be defended from copycats

Trademarks
Trademarks are consumer shorthand for the unique characteristics of a particular brand. They
may be a single word, letter, numeral, drawing (logo), symbol, three- dimensional sign (including
shape and packaging of goods), audible sign (musical / vocal sound), fragrance, or colour, used as a
distinguishing feature that identifies the product. Trademarks may also combine several of these
individual characteristics.
A trademark provides protection to the owner of the mark by conferring exclusive rights to use
it to identify goods or services or to authorize another to use it in return for payment.
Trademarks are distinctive signs used to identify goods or services as those produced or
provided by a specific person or enterprise. They protect a company's investments in its goods
and services; because the trademark system helps consumers to identify that a product or
service is produced by its owners
A collective mark is a type of trademark owned by an association; whose members use it
identify them with a certain level of quality and other requirements set by the association
Certification marks are not confined to any membership, but are given for compliance with
defined standards

Copyright
Copyright
Copyright is a legal protection extended to creators for their literary and artistic works
Copyright protects the original expression of ideas, not the ideas themselves
The requirements of copyright are that works must be original and fixed in a tangible
medium of expression
Copyright protection is free and automatic as soon as works are created and may be assigned
by using the symbol

Intellectual Property Issues


When entering a new market, check that brand(s), logos and/or trademarks are unique and are not
already being used by a local business, since the local business may have an advantage of prior
use in the market, within similar categories of product. Registered logos, trademarks and business
names can usually be checked through a government's Companies Registry.
Ensure that products reflect the quality and value of your brand
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Display your logo, trademarks and brand name prominently on booth signage for trade shows,
labels and packaging
Remember Copyright can be assigned to an artist through use of the symbol on artwork
Develop a close dialogue and business relationship with buyers that will lead to brand loyalty

Building an export brand


Define Core Values of the business and brand
Develop a brand strategy based on the five P's (Product, Price, Promotion, Place, People)
Based on market research, values and strategy select a name
Create a logo/ trademark concept which aims to communicate
Seek advice from the local Companies Register or Copyright Office on registering the
trademark rights

12.7
12.7 Packing and packaging
One of the main tasks facing any exporter is to make sure that goods reach their buyers and their
final consumers in perfect condition. The key is to get export packaging and labeling right. There
is a huge range of packaging options - from cartons and drums to wooden pallets and metal
containers. As well as making sure goods are securely packaged, one also should check that they're
appropriately marked or labeled to ensure they're handled properly while in transit.

Export Packaging
Export packaging is also often referred to as transport packaging, which is one of three main types
of packaging that are likely to be needed for exported goods.
Transport or export packaging is the outermost layer of packaging and is designed to protect
goods during transit. Examples include wooden crates, metal drums and plastic shrinkwrapping
Outer packaging is an intermediate layer of packaging, which often also serves a retailpromotion purpose. An example would be a box containing multiple units that doubles as a
retail display fixture and can be placed directly on a shop shelf, as is common with many
convenience foods
Sales packaging is the immediate layer of packaging around goods - the packaging that remains
when the goods reach their end-user. Examples include the bottles in which beverages are
contained, or the boxes many electronics items are sold in. Sales packaging often also serves a
marketing purpose by containing prominent branding images and information.

Export packaging options


The main types of export packaging include
Loose or unpacked - a common option for large items such as heavy vehicles. Making sure
they're stowed securely is more important than adding a layer of protective packaging
Boxes or crates - one of the most prevalent options. They are often stacked on pallets and
shrink-wrapped for stability. Less durability is required if goods are also containerized
Drums usually made of metal or plastic - commonly used for transporting liquids and powders
or goods that need to be kept dry

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Wrapping - often used with goods stacked on pallets, wrapping - such as shrink wrap or foil both adds to stability and protects goods
Pallets - allow smaller packing units such as boxes and cartons to be grouped together. They
allow easy mechanical transporting (e.g. forklift trucks), which eases the process of loading,
unloading and warehousing

Containers and break-bulk


For logistical efficiency, containers are used to transport most export consignments. Containers are
standardized metal boxes, often measuring 6 metres long and 2.4 metres deep/wide. The goods
inside might still need packaging, but the container offers added protection, and increased security
from theft.
The term 'break-bulk' refers to goods carried as general cargo, rather than in containers. This
increases the risk of damage during transit, so make sure adequate dunnage is used. Dunnage is
protective material placed around the goods to prevent damage from movement, moisture or other
causes.

Factors to consider when choosing export packaging


Factors that will influence packaging decisions are explained below.
Protection
Avoiding damage to goods is the main purpose of export packaging. One of the reasons that
containers and pallets have become so standard is that they combine efficiency with excellent cargo
protection.
Security
The exporter must take steps to prevent goods from being stolen or tampered with.
Containerization helps with this, and using container seals makes tampering even less likely.
Shrink-wrapping and secure straps also act as deterrents. Export packaging should be kept as plain
as possible - providing details of the contents, e.g. brand names, encourages theft.
Mode of transport
Bulk ocean shipments of liquids, grain and ores don't need any packaging. And goods transported
by air generally need less protective packaging than those sent by ship.
Cost
It's a false economy to try to cut costs by using sub-standard packaging. The standard options (e.g.
cartons grouped on pallets and then loaded into containers) have become the standard because
they're reliable. Unless goods require special care, one is unlikely to gain much by opting for
above-standard packaging. You can buy, lease, or hire most types of packaging (e.g. shrink wrap,
pallets or containers), so it makes sense to shop around.
You can also commission custom-made packaging, and hire a packing firm per consignment to
make sure your goods are packaged correctly, which may work out less expensive.

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Waste legislation
Many markets abroad have waste regulations that favour packaging which can be easily recycled or
has a minimal impact on the environment when disposed of. In many export markets, there are
stricter rules on packaging waste and collection, e.g the 'green dot system' in Germany.
Exporter must comply with The Packaging (Essential Requirements) Regulations that aim to
minimize the amount of waste packaging businesses generate and ensure that packaging can be
reused, recovered or recycled.
Wood packaging requirements
International regulations and wood packaging standards exist to control the spread of forest pests
and timber diseases. Exporter may also need an import licence from his destination country to
import packaging that is made of, or contains wood.
Dangerous goods
Regulations for dangerous goods are very specific on acceptable inner and outer packaging.

Details of the export packaging


Information and labeling - certain information has to be clearly marked on the export packages
Rules in local export markets - check that consignments comply with local regulations. Certain
markings may be required and in some countries certain packaging materials. Example- straw
filling, are prohibited
Load securing - even adapted packaging has a limit to the vibrations it can withstand before it
collapses. Make sure the packaging can be secured in its container and/or vehicle
Restrictions on wood packaging - certain countries require wood packaging to be marked and
accompanied by a wood packaging certificate
Packaging waste the exporter has a legal duty to minimize the weight and volume of the
packaging you use. Heavy users of packaging also have to register with the Environment
Agency and become accredited as exporters. In many export markets, there are stricter rules
on packaging waste and collection, such as the 'green dot system' in Germany
Hazardous goods - any exports of dangerous goods will have to be safely packaged and clearly
marked and labeled. The rules vary slightly depending on which mode of transport the
exporter is using
Insurance the transport insurance cover may be adversely affected if it can be shown that the
goods were damaged due to poor packaging
Contracts - to avoid disputes in case goods are damaged in transit, consider including
packaging specifications in contracts with buyers

What to mark on the package for export


This page explains how to complete packaging labels and other labeling factors.
Required information can be marked directly on packages or the exporter can use adhesive labels,
which are often more legible. Ensure markings or labels are durable and water-resistant.

Identification marks
Every package in the consignment should be clearly identifiable. Ensure the following details are
provided

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The country of origin - if necessary, also on the goods themselves


Destination - the port or other place of destination is sufficient, rather than a full address check for places with the same name elsewhere in the world and make it clear where goods are
destined for
Seller's name and order number
Sequential number of each package and the total packages in the consignment, e.g. 'Package 7
of 20'
The size of the case if there are multiple boxes or containers
Weight and volume
Special handling instructions
Hazardous goods
Make sure that the markings are clearly visible. Packages may have goods stacked around them so
include handling instructions or labels on multiple faces. Packages containing hazardous goods
must be clearly marked

Handling instructions
A set of internationally recognized symbols is used to indicate how cargo handlers should handle
packages. For instance,
A picture of a wine glass indicates fragile goods
Sets of cross-hairs on two sides indicate centre of gravity

Other packaging information


Labels should provide details of package weight and dimensions. It's usually necessary to mark on
the packages- the country of origin. Check regulations in the destination country. Different export
markets can require the country of origin to be marked in different ways.
Packages should appear as anonymous as possible - don't mark them with brand names or any
indication that there might be valuable goods inside. This will only increase the likelihood of
tampering or theft during transportation.

Specifications based on Consumers


Packaging for industrial consumer is influenced by
Unit Size
Inspection/ Q.C. requirement
Inventory Management Systems
Storage
Handling
Internal Distribution
Redistribution
Regulations

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Packaging for a trader (Wholesale, retail, shop, and departmental store) is influenced by
Unit Size
Intermediate Pack Size
Bulk Pack Size
Unit Load handling
Storage
Redistribution
Inventory Control
Display
Packaging for a defense consumer is influenced by
Long term inventory
Safety level beyond normal shelf life
Guaranteed performance
Distribution systems
Inspection/Q.C. Systems
Standards
The packaging for household consumer is influenced by
Positioning
Convenience
Quantity/pack size
Value
Regulations
Consumer protection
Environment protection
Packaging, while takes into account all of the above factors, is not a work of art. Packaging is
expected to communicate a favorable association of the content and a desirable connotation
motivating consumer to buy. Confidence in the product can be generated by the pack design and
graphic design. The Communication capability is conditioned by
The name of the product
The theme
The illustration
Typography
Colour Scheme
Pack Shape/styling
Overall execution surface, substrate, technology, treatment
Packaging involves products into a shipping box or carton to maximize protection from damage.
The key issues to keep in mind are: breakage, weight, moisture and additional shipping costs.

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No matter how lovely the products, buyers will not appreciate receiving them broken
Remember that excess packing leads to extra weight and by extension
Products can be damaged in shipping by rough handling or bad weather
Damage can also happen from movement of items within the box or pressure from stacking on
the outside of the box
To avoid damage include protective wrapping around individual fragile items, pack items snugly to
avoid movement and use strong, durable boxes.
To select packing materials, consider type and value of products, mode of transportation (i.e. air or
sea) and the weather likely to be encountered during the journey. Where cardboard boxes become
wet, their structure strength is reduced; therefore avoid overloading individual boxes and consider
surface protection for individual products to repel moisture as well as cardboard inserts to support
and protect the products packed inside. Packing can be used as a self promotion tool. Attractive,
sturdy, corrugated boxes to which sticky labels can be easily attached are highly recommended.
Appropriate printed markings depending on the type of product enclosed and include: keep dry,
this way up and fragile.
Dimensions of the package should support easy handling and it is recommended that weight
should not exceed 25kg per carton. Standardizing the size of shipping boxes used reduces cost
and allows for efficient stacking on pallets while in transit, thereby reducing the likelihood of
damage in handling
Remember to check if environmental regulations concerning packing exist in the target market
and to discuss preferences for packing with buyers
Packaging (as distinct from packing) refers to the design and method of enclosing the product to
provide for the following functions
Protection, preservation and containment of product during transportation
Breakdown of product into saleable units and increase consumer access
Conveyance of a message to the buyer and consumer through styling and provision of
information, by means of marking and labeling
Selection of packaging is one of the most significant decisions which any exporter is required to
make. Producers must consider
Technical aspects such as printing, strength of protective materials, resistance to moisture, dust,
vibration and shock
Aesthetic aspects such as shape, patterns, materials, colours
Economic aspects such as costs, re-usability, recyclability

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Self Assessment Questions


Q1. The functions of packaging are
a) Protection, preservation and containment of product during transportation
b) Breakdown of product into saleable units and increase consumer access
c) Conveyance of a message to the buyer and consumer through styling and provision of
information, by means of marking and labeling.
d) All of the above
Q2. If a copyright notice is present, does that mean you can copy as much as you want?
a) Yes
b) No

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13. EXPORT MARKETING


13.1 Export Readiness
The demands of the export process can place a strain on small exporters who are not willing to
make the necessary investments in product adaptation, market promotion, follow up and creation
of strategic alliances which are required to sustain initial success in market penetration. If possible,
before entering into export arrangements in new markets, the company should conduct a selfevaluation exercise to determine its export goals and the necessary investments which are likely to
be required to achieve them. Major evaluation areas include
Motivational Factors- why does my company want to export and what objectives will be
achieved?
Organizational Factors- Is my company sufficiently organized to commit to sustainable export?
Market considerations- Does my business have what it takes to succeed in regional/
international markets?
Product considerations- Is my product sufficiently developed to be well received
Although export can be more complicated, risky and expensive than selling in the domestic
market, the main reasons why small companies choose to export include
Higher sales and profits
The local market is small in size or saturated and does not allow for much growth
The desire to earn foreign currency
A need to sell overproduction
Utilization of excess production capacity
Access to strategic partnerships and alliances
The desire to spread the costs of production and product development over more units sold to
decrease unit costs and increase competitiveness

13.2 Identifying the right markets


The key issues for the entrepreneur in exploring new export market opportunities are the ability to
gain market access and to maintain competitiveness. Market entry begins with market research to
determine market access conditions and potential levels of competitiveness. Researching market
access conditions include the following activities
Access market profiles and target information on relevant opportunities for your company
Identify national and international regulatory standards for specific products
Identify existing trade agreements and determine whether they offer any possible advantage
Assess the competition in the market
Assess the culture of business- how is marketing and distribution of your product handled?
Identify possible quotas, duties and taxes
Assess possibilities for product differentiation to deal with consumer preferences and culture

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13.3 Market Entry for Exports


Recruitment of agents
Appointment of distributors
Joint venture arrangements
Retail
E-Commerce
Licensing
Recruitment of agents allows an enterprise to expand the geographic reach of its product and
service offerings, by appointing representatives to promote the business and generate additional
orders. The key issues to consider in recruitment are the image and reputation of the potential
agent, access to sales channels and levels of commission fees required.
Appointment of distributors allows an enterprise to expand the geographic reach of its product and
service offerings and economize on shipping and promotional costs, by partnering with other
enterprises located in the target market on marketing and sales initiatives. Distribution agreements
are typically based on the existence of a well developed brand image and values. The key issues to
consider in appointment are the experience of the distributor with moving similar product lines,
access to desired sales channels and levels of margins applied to wholesale prices.
Joint venture arrangements are strategic alliances between firms based on joint investments of
finance or other resources. Through these partnerships expertise, technology, intellectual property
and finance may typically be acquired to enhance market entry and ultimately profits.
Retail establishment of wholly or partially owned store outlets is one option for gaining a presence
in an overseas market. Retail is a specialized business, requiring knowledge of the local business
environment, legislation including labour laws and licensing requirements, regulations as well as
common purchasing practices based on culture.
E-Commerce or electronic commerce involves establishing a global presence through a website on
the world-wide Web (Internet). Based on the interconnectivity of millions of personal computers,
the Internet provides the potential of 24 hour access to millions of potential customers,
everywhere in the world. Sites may function as virtual product catalogues, or be fully enabled to
process electronic payments for purchases.
Licensing refers to the practice of authorization by owners of intellectual property rights, such as
patents, trademarks, industrial designs and others, to allow users of these rights to make
commercial use of the property, under specific conditions in return for agreed compensation.
Distinction is made between brand licensing and image licensing as different forms of licensing;
which relate to brand names and images respectively. A license fee can take several forms,
including a one-time fee, a periodical payment as a fixed amount (each year) and a percentage of
the profits or turnover of the licensed product.

13.4 Assessing Export Competitiveness


Competitiveness involves an enterprise or industry developing and then maintaining an advantage
over other enterprises in the same market space. Improving competitiveness is a function of
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increasing efficiency, improving quality, pursuing product differentiation, influencing demand or a


combination of these individual strategies. Most SMEs do not have sufficient bargaining power
with buyers in the market to influence demand. Questions to be explored in assessing enterprise
competitiveness include
What are my production costs and methods? What is the relationship between methods and
costs?
Will changes be required to sourcing of inputs in order to compete effectively?
Will my company need to undertake Business Upgrading* to achieve productivity and efficient
production costs? (*introduction of technology, staff development, other investments)
How will I/ we finance appropriate market promotion?
How will I/ we handle the need for constant innovation?
Is seeking entry to this market the most efficient use of available resources? (Human, financial,
etc.)
How will I/ we handle the need to undertake appropriate business planning and assessment of
risks?
What linkages should I/ we form with other companies and institutions?
In what directions do I /we expect to achieve growth in the overall business through export?
(e.g. new markets, new products, additional sales) What are the implications for costs and
organizational structure and functions?
What support services will I/we need to access through local, regional and/or international
agencies?

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Self Assessment Questions


Q1.A foreign merchant who purchases the products from the manufacturer and sells them at a
profit is called a
a)
b)
c)
d)

Customs agent
Distributor
Sales representative
Commission agent

Q2. In _________ the exporter sells goods directly to or through an independent domestic
intermediary in the exporters home country that exports the products to foreign markets.
a)
b)
c)
d)

Direct Selling
Indirect Selling
Multilevel Marketing
Global Resource Planning

Q3. All of the following are major type of indirect intermediaries except
a)
b)
c)
d)

The export management company


The export trading company
Export agents
Distributors

Q4. The goals of international marketing are to


a)
b)
c)
d)

Eliminate competition in international markets


Gain market share and increase profits
Create and retain customers in international markets
Expand business activities abroad

Q5. An arrangement in which one company allows another company to use its name, products,
patents, brands, trademarks, raw materials, and/or production processes in exchange for a royalty
is called
a)
b)
c)
d)

Licensing
Joint Venture
Direct Investment
Trading Company

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14. FOREX AND RISK MANAGEMENT


MANAGEMENT
14.1 What is Foreign Exchange?
Foreign exchange is the conversion of one currency into another. It is an integral part of the world
financial system. Without foreign exchange, many aspects of our daily life which we take for
granted would not exist.

Why is foreign exchange important to us?


Think of your daily life. When you go into a shop and buy something which is made abroad,
whether it is as Swiss watch, some American electronic product, a Japanese television set or a
German motor car, you cause a foreign exchange transaction to take place. How do you pay for
them? In your home currency of course, but does the producer of the goods get paid in your
home currency? No, he is paid in his own currency. In between, a transaction has to occur that
converts your currency into the currency of the producer. That transaction is undertaken in the
foreign exchange market.
Let us use some Indian handicrafts sold in the United States as an example. There are two ways in
which the businessmen who sell handicrafts in the USA can pay the handicraft supplier who lives
in India.
The first way is to send US dollars to India. The Indian supplier, however, wont be able to spend
these in his own country. He would have to exchange them for Indian rupees. In this case, the
Indian supplier and his banker complete a foreign exchange transaction. Each will take one kind of
national money and give the other.
There is another way of paying. The Indian supplier may ask the American businessman to pay in
Indian rupees. In this case, he invoices the buyer in Indian rupees. The buyer has to go to his bank
in the United States to exchange some US dollars into Indian rupees and then send these to India.
The foreign exchange deal is done between the buyer and his bank in the United States.
Whether the foreign exchange deal is done in India or in the United States, does not affect the
basic nature of a transaction. If a business transaction involving money has been concluded
between residents of different currency areas, it necessarily involves a foreign exchange deal. A
foreign exchange deal is merely an exchanging of one currency for another.
However, there is one major difference between a foreign exchange transaction and a normal trade
transaction. Usually we exchange money for goods or goods for money. But in foreign exchange
money is exchanged for money.
In international trade, companies undertake normal business transactions. They buy, sell, borrow
and lend. However, in selling and buying, they undertake transactions which cross international
boundaries. So if one company sells goods to an overseas buyer and expects payment in his own
currency, the buyer must pay the seller in what, to him, is a foreign currency. The local currency of
one trader is a foreign currency to the other in international trade. So if the Indian seller in the
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above example receives the US dollars, to him this is a foreign currency. He must do something
with this foreign currency.
He may maintain a foreign currency account with his bank in the currency of payment if he
expects regular receipts in that currency. For example, the Indian seller may maintain a US
dollar currency account with his bank to meet the regular receipts in that currency. This would
also enable him to make regular payments in that currency. So by keeping a currency account
he may avoid having to buy and sell foreign currency every time he makes a sale or purchase in
that currency
The Indian Seller in the above example can ask his bank to hold on to the foreign currency
received. He may perhaps invest it in an interest bearing account until it is required to make a
payment in the future
Whether the foreign exchange deal is done in the local currency of the Indian seller or in the
foreign currency, it involves the need for foreign exchange in international trade.

What is a foreign Exchange market?


Do you remember the first time you visited a bazaar or a vegetable market? Have you ever been in
the Treasury Room of a big bank? The experience is likely to amuse you and you will find a lot
common in both the places. In the dealing room or treasury floor of a bank, traders are just
making a market in foreign exchange, pieces of paper denominated in foreign currencies. It
doesnt matter that at a vegetable market, buyers and sellers face one another in a given physical
place, whereas in the foreign exchange trading room all transactions are made via the telephone or
computers throughout a geographical area that covers the world.
The foreign exchange market is the market in which currencies of different countries are traded. It
is here that buyers and sellers trade in different currencies in the same way goods and services are
sold. It is here in the foreign exchange market that the exchange rate is determined.
Foreign exchange is traded at the retail level in many banks and firms specializing in that business.
Organized markets in New York, Tokyo, London, Zurich, Dubai, Singapore etc, trade hundreds
of billions of US dollars worth of currencies each day.

14.2 Foreign Exchange as a Financial Market


Currency exchange is very attractive for both the corporate and individual traders who make
money in the foreign exchange markets.
The following features make this market different as compared to all other sectors of the world
financial system
Heightened sensibility to a large and continuously changing number of factors
Accessibility to all traders in the major currencies
Guaranteed quantity and liquidity of the major currencies
Increased consideration for several currencies, round-the clock
Business hours which enable traders to deal after normal hours or anytime
National holidays in their country finding markets abroad open and
Extremely high efficiency relative to other financial markets
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The Foreign Exchange market, commonly referred as FOREX, is where banks, investors and
speculators exchange one currency to another. It is also the largest financial market in the world.
The US stock market may trade $10 billion in one day, whereas the Forex market will trade up to
$2 trillion in one single day.
The Forex market is an open 24 hours a day. This market follows the sun around the world,
moving from the major banking centres of the United States to Australia and New Zealand to the
Far East, to Europe and finally back to the Unites States.
The Forex market is not centralized, like in currency futures or stock markets. Trading occurs over
computers and telephones at thousands of locations worldwide.
Until now, professional traders from major international commercial and investment banks have
dominated the FX market. Other market participants range from large multinational corporations,
global money managers, registered dealers, international money brokers, and futures and options
traders, to private speculators.
There are three main reasons to participate in the FX market
One is to facilitate an actual transaction, whereby international corporations convert profits
made in foreign currencies into their domestic currency
Corporate treasurers and money managers also enter the FX market in order to hedge against
unwanted exposure to future price movements in the currency market
The third and more popular reason is speculation for profit. In fact, today it is estimated that
less than 5% of all trading on the FX market is actually facilitating a true commercial
transaction

14.3 Foreign Exchange is an OTC Market (Over The Counter)


Counter)
The FX market is considered an Over The Counter (OTC) or Interbank market, due to the fact
that transactions are conducted between two counterparts over the telephone or via an electronic
network. Trading is not centralized on an exchange, as with the stock and futures markets. A true
24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the
business day begins in each financial center, first to Tokyo, London, and New York. The market
is open continuously except for weekends. Unlike any other financial market, investors can
respond to currency fluctuations caused by economic, social and political events at the time they
occur - day or night.
Foreign exchange trading is generally conducted in a decentralized manner, with the exceptions of
currency futures and options.
Foreign exchange has experienced spectacular growth in volume ever since currencies were
allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it
increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and
stabilized at around $1.5 trillion by the year 2000. According to the Bank of International
Settlements, as of April 2010, average daily turnover in global foreign exchange markets is
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estimated at $3.98 trillion, a growth of approximately 20% over the $ 3.21 trillion daily volume as
of April 2007.
The $3.98 trillion breakdown is as follows
$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$250 billion in options and other products
Trading in London accounted for 36.7% of the total, making London by far the most important
global centre for foreign exchange trading. In second and third places respectively, trading in New
York City accounted for 17.9% and Tokyo accounted for 6.2%.
Most developed countries permit the trading of FX derivative products (like currency futures and
options on currency futures) on their exchanges. All these developed countries already have fully
convertible capital accounts. A number of emerging countries do not permit FX derivative
products on their exchanges in view of controls on the capital accounts. The use of foreign
exchange derivatives is growing in many emerging economies. Countries such as Korea, South
Africa, and India have established currency futures exchanges, despite having some controls on the
capital account.
Main factors that influence this spectacular growth in volume is indicated below.

Interest Rate Volatility


Economic internationalization generated a significant impact on interest rates as well. Economics
became much more interrelated and that exacerbated the need to change interest rates faster.
Interest rates are generally changed in order to adjust the growth in the economy, and interest rate
differentials have a substantial impact on exchange rates.

Business Internationalization
In recent decades the business world the competition has intensified, triggering a worldwide hunt
for more markets and cheaper raw materials and labor. The pace of economic internationalization
picked up even more in the 1990s, due to the fall of Communism in Europe and to up-and-down
economic and financial development in both Southeast Asia and South America. These changes
have been positive toward foreign exchange, since more transactional layers were added.

Increasing of Corporate Interest


A successful performance of a product or service overseas may be pulled down from the profit
point of view by adverse foreign exchange conditions and vice versa. An accurate handling of the
foreign exchange may enhance the overall international performance of a product or service.
Proper handling of foreign exchange generally adds substantially to the rate of return. Therefore,
interest in foreign exchange has increased in the past decade. Many corporations are using
currencies not only for hedging, but also for capitalizing on opportunities that exist solely in the
currency markets.

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Increasing of Traders Sophistication


Advances in technology, computer software, and telecommunications and increased experience
have increased the level of traders' sophistication. This enhanced traders' confidence in their ability
to both generate profits and properly handle the exchange risks. Therefore, trading sophistication
led toward volume increase.

Developments in Telecommunications
The introduction of automated dealing systems in the 1980s, of matching systems in the early
1990s, and of Internet trading in the late 1990s completely altered the way foreign exchange was
conducted. The dealing systems are online computer systems that link banks on a one-to-one
basis, while matching systems are electronic brokers. They are reliable and much faster, allowing
traders to conduct more simultaneous trades. They are also safer, as traders are able to see the
deals that they execute. The dealing systems had a major role in expanding the foreign exchange
business due to their reliability, speed, and safety.

Computer and Programming development


Computers play a significant role at many stages of conducting foreign exchange. In addition to the
dealing systems, matching systems simultaneously connect all traders around the world,
electronically duplicating the brokers' market. The new office systems provide full accounting
coverage, ticket writing, back office processing, and risk management implementation at a fraction
of their previous cost. Advanced software makes it possible to generate all types of charts, augment
them with sophisticated technical studies, and put them at traders' fingertips on a continuous basis
at a rather limited cost.

14.4 Rates of Exchange


In foreign exchange dealings, banks mainly buy and sell foreign currencies. When banks buy and
sell foreign currency, they will quote a price to customers just like shops dealing with television sets
or jewelry. The price of one currency expressed in terms of another currency is called an exchange
rate.
Exchange rates
GBP 1= USD 1.6012
USD 1= CAD 1.0195

14.5 Primary and Counter Currency


In every exchange rate quotation there are two currencies. The currency being priced is known as
the primary currency. The exchange rate is usually quoted so that one unit of the primary currency
is expressed in terms of a variable number of units of the other currency. The other currency is
known as the counter currency.
In the exchange rate quotation GBP 1 = 1.6012, the primary currency being priced is the pound
sterling. One pound is expressed as 1.6012 units of the US dollar. The pound is the primary
currency and the dollar the counter currency.

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In the exchange rate quotation USD 1 = CAD 1.0195, the USD dollar is the primary currency and
the Canadian dollar is the counter currency. The US dollar is priced in Canadian Dollar terms.
In one case the US dollar is the counter currency and in another it is the primary currency. There
is no fixed convention which indicates which currency should be the primary currency. The
primary currency is normally one unit in the exchange quotation.
In the days when the pound sterling was the principal world currency, it was customary for the
Commonwealth currencies to be quoted as primary currency. With the rise to prominence of the
US economy, most exchange rates are now generally quoted with the US dollar as the primary
currency. However, the old convention still applies for several of the former Commonwealth
currencies.
The convention that is followed is
EUR
GBP
AUD
NZD
USD
JPY/CAD/CHF and all other currencies
So the currency at the top is generally taken as the primary currency and the currency that follows
is the counter currency. So, conventionally, we would make a quote in EUR/GBP and not
GBP/EUR. Similarly we would make a quote as GBP/USD, NZD/USD, GBP/NZD, USD/INR,
where the first is the primary currency.

14.6 Market Maker and Market Taker


There are two parties to a quotation, the market maker and the market taker. The market maker is
the bank that quotes the price. The market taker is the bank that calls to ask the market maker for
price. Having been quoted the price, the market taker accepts it, in which case a deal is contracted,
or rejects it, in which case no transaction occurs.
In the quotation USD/JPY 82.50 - 82.54
1 USD = 82.50 the rate at which the market maker buys 1 USD and sells 82.50 JPY
1 USD = 82.54 the rate at which the market maker sells 1USD and buys 82.54 JPY
USD is the primary currency and JPY is the counter currency.

14.7 Bid/Offer Rate


The market maker is willing to buy the Primary currency at the first price i.e. 82.50, which is called
the Bid rate. On the other hand, the market maker is willing to sell the Primary currency at the
second price i.e. 82.54 which is known as the Offer rate.

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Therefore the Bid rate is always lower than the Offer rate, because the bank (market maker)
always wants to make a profit.
The market taker performs the opposite side of the transaction to the market maker. If the market
maker buys USD then the market taker sells USD, and if the market maker sells USD, then the
market taker buys USD.
If the market taker wishes to buy USD from the market maker, it must buy USD at its offer
rate (i.e. selling rate) of 82.54
If the market taker wishes to sell USD from the market maker, it must sell USD at its bid price
(i.e. buying rate) of 82.50
An alternative definition of bid rate would be the rate at which the market taker can sell the
primary currency. Similarly, an alternative definition of the offer rate would be the rate at which
the market taker can buy primary currency.

14.8 Middle Rate


The newspapers frequently give news of the rate of exchange between different currencies, e.g. 1
USD = 44.56 INR, which means that you have to give 44.56 INR to buy 1 USD. This would be
middle rate. It is between the rate at which banks are selling USD dollars in exchange for INR and
the rate which banks are buying USD dollars for INR.
Middle rate gives a rough indication to the public of how many INR are required to buy 1 USD.

14.9 Cross Rates


A cross rate of exchange is an exchange rate between two currencies which is calculated using a
third common currency. This third currency is usually USD.
Example: Calculate Cross Rate of EUR/GBP with the following given rates

GBP/USD = 1.6010 1.6020


EUR/USD = 1.3665 - 1.3675
Bid Rate of EUR/GBP = Rate at which the bank buys EUR and sells GBP
i.e. bank buys EUR/USD at 1.3665 and sells GBP/USD at 1.6020.
Therefore bid rate of EUR/GBP would be 1.3665/1.6020 i.e. 0.8530.
Offer Rate of EUR/GBP = Rate at which the bank sells EUR and buys GBP
i.e. bank sells EUR/USD at 1.3675 and buys GBP/USD at 1.6010.
Therefore the offer rate of EUR/GBP would be 1.3675/1.6010 i.e. 0.8541

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14.10 Factors affecting exchange rate fluctuations


Fluctuations in exchange rates are usually caused by actual monetary flows as well as by
expectations of changes in monetary flows caused by changes in gross domestic product (GDP)
growth, inflation (purchasing power parity theory), interest rates (interest rate parity, domestic and
International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals
and other macroeconomic conditions. Major news is released publicly, often on scheduled dates;
so many people have access to the same news at the same time. However, the large banks have an
important advantage; they can see their customers order flow.
Currencies are traded against one another. Each currency pair thus constitutes an individual
trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the
ISO 4217 international three letter code of the currencies involved. The first currency (XXX) is
the primary currency that is quoted relative to the second currency (YYY), called the counter
currency. For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro
expressed in US dollars, meaning 1 euro = 1.5465 dollars. The factors affecting XXX will affect
both XXXYYY and XXXZZZ.
On the spot market, according to the 2010 Triennial Survey, the most heavily traded bilateral
currency pairs were
EURUSD: 28%
USDJPY: 14%
GBPUSD (also called cable): 9%
The US currency was involved in 84.9% of transactions, followed by the euro (39.1%), the yen
(19.0%), and sterling (12.9%).
Trading in the euro has grown considerably since the currency's creation in January 1999, and how
long the foreign exchange market will remain dollar-centered is open to debate. Until recently,
trading the euro versus a non-European currency ZZZ would have usually involved two trades:
EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded
currency pair in the inter-bank spot market.
Dollar saw some erosion in value during the financial crisis of 2008, and since then, there is
interest in using the euro as reference currency for prices in commodities (such as oil), as well as a
larger component of foreign reserves by banks, has increased dramatically. Transactions in the
currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.
Sometimes exchange rates continue to fluctuate whenever they are allowed to respond to the
pressures of supply and demand in the foreign exchange markets. Exchange rates between all the
worlds major currencies are nowadays allowed to fluctuate in the market.

Supply and demand


There are some factors which contribute towards fluctuations in exchange rates. All of the factors
are associated with supply and demand. Supply and Demand are economic concepts related to
market situations. If a particular currency is plentiful, and is being offered by many dealers on the
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market, it will tend to become cheaper in terms of other currencies that are being purchased in
exchange. Then the price of the currency being readily supplied and offered for sale will fall. On
the other hand, if a currency is in demand, and a few people are offering it for sale, the price of
that currency will rise.
So fluctuations in exchange rates are caused by an excess of supply over demand, or vice versa. For
example, if demand of customers to buy USD and sell GBP exceeds the counter balancing
demand to buy GBP and sell USD, GBP will lose value against USD. Similarly, if demand to buy
EUR and sell INR exceeds the demand to buy INR and sell EUR, EUR will gain value against
INR.
The factors that create demand, or lack of demand, for a particular currency are very often difficult
to identify or isolate. However, the following factors are known to affect rate of exchange
The balance of payments
Confidence and speculation
Central bank intervention and exchange controls
International interest rate differentials
Leads and lags
Hot Money

The Balance of Payments


The balance of payments of a country can be defined roughly as the difference between what the
country earns and what it spends. When a country exports in value more goods and services than it
imports, the country will earn more foreign currency than it spends. For example, if the UK
exporters earn more than its importers have to pay out, this will result in a surplus on the UK
balance of trade. If the UK businessmen want to earn sterling and not foreign currency, there will
be a demand from the businessmen to sell foreign currency surpluses in exchange for sterling.
Then the market pressure of supply and demand will create & increase in sterlings value against
other currencies. This could increase sterlings value against other currencies.
From the above points we can see that a balance of payments surplus or deficit will affect the
current rates of exchange between currencies. The effect of balance of payments surplus will create
a demand for the countrys currency which will increase in value in terms of other currencies.
When other factors remain unchanged, there will be more money flowing in to the country than
comes out of it. Hence, more overseas buyers need the currency to pay for their imports from the
country. Such demand will cause the currency to increase in value. Conversely, a country suffering
a balance of payments deficit will find that its currency weakens or falls in value.

Confidence and speculation


Confidence of dealers in the future position of a particular country is based perhaps on
speculation. It will probably affect their quoted rates for the currency of that country. If there is a
possibility of a war, a strike or the possibility of a change in government in a country, it will prompt
investors to sell the currency of that country. This would enable them to obtain the better rate of
exchange now than they would do if the currency of that country was to fall in value.

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Confidence, or lack of it, can lead to speculation in a currency. If people think a currency is going
to devalue, they obviously wish to protect themselves by making sure they have none of that
currency on their books. So if speculation is against a currency, investors will sell that currency. If
speculation is in favour of a currency, investors buy that currency.
Therefore, if speculation becomes strong, the pressure of demand for or against the currency will
force exchange rate movements in the direction intended by speculators. So, speculative forces can
have a major effect on exchange rates.

Central bank intervention


A central bank might intervene in the market to buy or sell its domestic currency when the
government has a policy of fixed rates. It might allow its currency to float or allow only limited
fluctuations in the rates for its currency.
When the government has a policy of fixed exchange rates, intervention would be made to prevent
a devaluation of the currency by buying of the currency and selling off some foreign exchange
reserves. It might also prevent revaluation of the currency by selling the currency in exchange for
the foreign currencies.
When the government allows its currency to float, the central bank might still intervene to buy or
sell its currency, if the government considers that the exchange rate for the currency has
appreciated or depreciated to unjustifiable or undesirable levels.

Exchange Control
Exchange control regulations can also affect exchange rates. The introduction of new regulations
which restrict the free movement of funds will cause a reduction in demand for a currency.
Conversely, the relaxation or abolition of exchange control regulations will make for a freer market
in that countrys currency and will usually lead to an increase in demand.

Interest rate differentials


Interest rates refer to the rate of interest an investor would receive by investing either at home or
abroad. It is possible to invest in a deposit account with a bank, certificate of deposits (CDs), stocks
and shares and also in treasury bills. The normal method of short term profits investment in any
centre, either at home or abroad, is by means of treasury bills. For the sake of simplicity the
following example is based upon treasury bills.
Let us assume that UK treasury bills are issued, offering an interest rate of 12 per cent and that US
treasury bills offer 10 per cent per annum. There is therefore a 2 percent interest rate differential
in favour of the UK. This means that there is an incentive for people abroad to move funds from
the US to the UK to buy UK treasury bills rather than US treasury bills.
If an American investor wishes to buy a UK treasury bills in sterling, he would have to buy sterling
and sell the US dollars in the foreign exchange market. The increase in demand for sterling might
push up its current exchange value.

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Leads
Leads and Lags
Leads means a rush to pay in currency (or sell currency) ahead of time normally chosen for
payments
Lags means a delay in payment or sale of currency
These are anticipatory factors. They are defined as a displacement from normal in time at which
settlement is made in the course of international trade. Expectations about future movements in
exchange rates are likely to affect the way that companies make decisions about buying and selling
foreign currencies.
Suppose that Indian traders expect that INR will fall in value against other currencies
An Indian importer who must pay for goods in a foreign currency will probably
Pay now instead of taking a period of credit (leads)
Import more of goods now (leads) while INR still has a high value, and keep larger
inventories
On the other hand, an Indian exporter who receives payment in foreign currency will delay
asking his bank to buy the currency for INR (lags). This is because by waiting, he will hope to
obtain more INR in exchange when INR eventually falls in value
Moreover foreign buyers may be aware that INR might fall in value. They will be tempted to
delay buying goods (lags). They will expect that prices of goods from India will soon fall in
terms of their own currency

Hot Money
Hot money is a vast sum of international money which is available for investment or for
speculative purposes. When it is used for investment the money moves from one country to
another in order to obtain the benefits of higher interest rates. When it is speculative, it is money
which will flow from a weak currency into a stronger one in the hope that the stronger currency will
increase in value and enable a capital profit to be made. Just as hot money flows into a country, it
can just as quickly flow out, putting speculative pressure on the countrys currency to weaken.

14.11 Major Currencies


U.S. Dollar
The United States dollar is the world's main currency. All currencies are generally quoted in U.S.
dollar terms. Under conditions of international economic and political unrest, the U.S. dollar is
the main safe-haven currency which was proven particularly well during the Southeast Asian crisis
of 1997-1998. The U.S. dollar became the leading currency toward the end of the Second World
War and was at the center of the Bretton Woods Accord, as the other currencies were virtually
pegged against it. The introduction of the euro in 1999 reduced the dollar's importance only
marginally.

Euro
The euro was designed to become the premier currency in trading by simply being quoted in
American terms. Like the U.S. dollar, the euro has a strong international presence stemming from
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members of the European Monetary Union. The currency remains plagued by unequal growth,
high unemployment, and government resistance to structural changes. Recent problems in Greece
and Ireland highlight the problems with the Euro.

Japanese Yen
The Japanese yen is the third most traded currency in the world; it has a much smaller
international presence than the U.S. dollar or the euro. The yen is very liquid around the world,
practically around the clock. The natural demand to trade the yen concentrated mostly among the
Japanese keiretsu, the economic and financial conglomerates. The yen is much more sensitive to
the fortunes of the Nikkei index, the Japanese stock market, and the real estate market.

British Pound
Until the end of World War II, the pound was the currency of reference. Its nickname, cable, is
derived from the telex machine, which was used to trade it in its heyday. The currency is heavily
traded against the euro and the U.S. dollar, but has a spotty presence against other currencies. The
two-year bout with the Exchange Rate Mechanism, between 1990 and 1992, had a soothing effect
on the British pound, as it generally had to follow the deutsche mark's fluctuations, but the crisis
conditions that precipitated the pound's withdrawal from the ERM had a psychological effect on
the currency. Prior to the introduction of the euro, both the pound benefited from any doubts
about the currency convergence. After the introduction of the euro, Bank of England is attempting
to bring the high U.K. rates closer to the lower rates in the euro zone. The pound could join the
euro in the early 2000s, provided that the U.K. referendum is positive.

Swiss Franc
The Swiss franc is the only currency of a major European country that belongs neither to the
European Monetary Union nor to the G-7 countries. Although the Swiss economy is relatively
small, the Swiss franc is one of the four major currencies, closely resembling the strength and
quality of the Swiss economy and finance. Switzerland has a very close economic relationship with
Germany, and thus to the euro zone. Therefore, in terms of political uncertainty in the East, the
Swiss franc is favored generally over the euro. Typically, it is believed that the Swiss franc is a stable
currency. Actually, from a foreign exchange point of view, the Swiss franc closely resembles the
patterns of the euro, but lacks its liquidity. As the demand for it exceeds supply, the Swiss franc can
be more volatile than the euro.

Canadian Dollar
Canada decided to use the dollar instead of a Pound Sterling system because of the ubiquity of
Spanish dollars in North America in the 18th century and early 19th century and because of the
standardization of the American dollar. The Province of Canada declared that all accounts would
be kept in dollars as of January 1, 1858, and ordered the issue of the first official Canadian dollars
in the same year. The colonies that would come together in Canadian Confederation progressively
adopted a decimal system over the next few years.

Australian Dollar
The Australian Dollar was introduced in February 14, 1966, not only replacing the Australian
Pound but also introducing a decimal system. Following the introduction of the Australian Dollar
in 1966, the value of the national currency continued to be managed in accord with the Bretton
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Woods gold standard as it had been since 1954. Essentially the value of the Australian Dollar was
managed with reference to gold, although in practice the US dollar was used. In 1983, the
Australian government floated the Australian dollar, meaning that it no longer managed its value
by reference to the US dollar or any other foreign currency. Today the value of the Australian
Dollar is managed with almost exclusive reference to domestic measures of value such as the CPI
(Consumer Price Index).
Currency Symbol
GBP
USD
EUR
JPY
CAD
CHF
AUD

Currency
British Pound
US Dollar
Euro
Japanese Yen
Canadian Dollar
Swiss Franc
Australian Dollar

14.12 Effect of fluctuations in exchange rates: exposure and foreign exchange risk
Fluctuations in exchange rates represent a serious risk to business. They may lead to losses or gains
for exporters or importers. The major effect of fluctuating exchange rates for international trade is
the risk for exporters or importers that the value of foreign exchange they may have to deal in turns
out to be different from what they had hoped and intended.

Effects on exporters
When exporters invoice foreign buyers in foreign exchange, they have to exchange their income
for their home currency. If foreign currency has weakened in value, they would earn less home
currency than planned. For example suppose that a UK exporter sells goods costing GBP 85,000
to a US buyer for USD 120,000 when the exchange rate is USD 1.20 = GBP 1. The USD buyer is
allowed 90 days credit. When payment is eventually received (more than 90 days later) the UK
exporter asks his bank to exchange the USD 120,000 for GBP. The UK exporter finds exchange
rate is 1 GBP = 1.5 USD
At an exchange rate of USD 1.20, the sale would have earned him GBP 100,000 in GBP, and
the UK exporter could have expected a profit on the sale of GBP 15,000
At an exchange rate of USD 1.50, the sale would earn him only GBP 80,000 , and the UK
exporter would end up with a loss on the sale of GBP 5,000, caused entirely by movements in
exchange rates
We can say that the UK exporter was exposed in US dollars for 90 days or more to the extent of
USD 120,000. Whenever a business has foreign exchange exposure, it is at risk of making a loss
from currency fluctuations.
Sometimes the USD might have strengthened against GBP in those 90 days. If the exchange rate
had changed to GBP = 1 USD, by the time the USD 120,000 were received, the UK exporter
would have obtained GBP 120,000 from the sale. Then he would have made a profit of GBP
35,000, which was bigger than expected.

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So foreign exchange exposure and foreign exchange risk might bring extra profit as well as loss.
However being exposed in a currency does involve a gamble. Most businessmen would prefer not
to put their companys profits or losses on a gamble if they can avoid it. Therefore business men
look for ways of reducing their foreign exchange exposure so that they can plan their business and
foresee their profits with greater confidence.

Effects on importers
Importers also want to minimize their foreign exchange exposure for the same reasons. Suppose
that a UK importer arranges to buy goods from a US supplier for USD 540,000, and takes 60
days credit. When he signed the purchase contract, the exchange rate was GBP =1.5 USD. When
he has to pay for the goods (more than 60 days later) the rate might have changed to GBP = 1.2
USD as the USD have strengthened against GBP. The importer would ask his bank to sell him the
USD 540,000 to pay the US supplier, but instead of costing GBP 360,000 (@ 1.5 USD per GBP),
it would cost GBP 450,000 (@ 1.2 USD per GBP).
If the USD had weakened against the GBP, say to 1.8 USD for 1 GBP, the importer would only
have to pay GBP 300,000 for the goods. So they would have made a profit from the movement in
the exchange rates. Even though, most businessmen would prefer to minimize their foreign
exchange exposure, or avoid it just as with the case of the exporter. The importers would generally
prefer to know what they will have to pay in their own currency, rather than take a gamble on
exchange rate movements.

14.13 Risks of foreign exchange to exporters and importers


Exchange rate risk
Interest rate risk
Credit risk
Country risk

Exchange Rate Risk


Exchange rate risk is a consequence of the continuous shift in the worldwide market supply and
demand balance on an outstanding foreign exchange position. A position will be a subject to all the
price changes as long as it is outstanding. In order to cut losses short and ride profitable positions
that losses should be kept within manageable limits. The most popular steps are the position limit
and the loss limit.

Interest Rate Risk


Interest rate risk is pertinent to currency swaps, forward out rights, futures, and options. It refers to
the profit and loss generated by both the fluctuations in the forward spreads and by forward
amount mismatches and maturity gaps among transactions in the foreign exchange book. An
amount mismatch is the difference between the spot and the forward amounts. For an active
exporter, the complete elimination of maturity gaps is virtually impossible.
However, this may not be a serious problem if the amounts involved in these mismatches are
small. On a regular basis, exporters balance the net payments and receipts for each currency.

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Credit Risk
Credit risk is connected with the possibility that an outstanding payment may not be repaid as
agreed, due to a voluntary or involuntary action by a counter party.
The following forms of credit risk are known
Replacement risk which occurs when counter parties of the failed bank find their books
unbalanced to the extent of their exposure to the insolvent party. To rebalance their books,
these banks enter new transactions.
Settlement risk which occurs because of different time zones on different continents. Such a
way, currencies may be credited at different times during the day. Australian and New Zealand
dollars are credited first, then Japanese yen, followed by the European currencies and ending
with the U.S. dollar.
Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent)
immediately after, but prior to executing its own payments.
The credit risk for instruments traded off regulated exchanges is to be minimized through the
customers' creditworthiness. Commercial and investment banks, trading companies, and banks'
customers must have credit lines with each other to be able to trade. Even after the credit lines are
extended, the counter parties financial soundness should be continuously monitored. Along with
the market value of their currency portfolios, end users, in assessing the credit risk, must consider
also the potential portfolios exposure.

Country Risk
The failure to receive an expected payment due to government interference amounts to the
insolvency of an individual bank or institution, a situation described under credit risk. Country risk
refers to the government's interference in the foreign exchange markets and falls under the joint
responsibility of the treasurer and the credit department. Outside the major economies, controls
on foreign exchange activities are still present and actively implemented.
For the exporters it is important to know or be able to anticipate any restrictive changes concerning
the free flow of currencies. If this is possible, though trading in the affected currency will dry up
considerably, it is still a manageable situation.
The risk culture of your business is critical and must be established at the most senior level. Above
all it calls for honesty. Too often individuals are criticized for decisions that, at the time, were in
tune with the organizations perceived appetite for risk. But it is never easy to set down effective
guidelines and the range of exposures for even a simple transaction can be extensive.
For example, an exporter needing to borrow to finance a sale in foreign currency may have to
consider counterparty credit risk, funding risk and interest rate risk. The permutations are endless
and the costs of hedging transactions to reduce or eliminate every possible exposure could
potentially swallow any profit from a deal.
Effective risk management requires thinking the unthinkable. This does not in any way lessen the
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great value of the many sophisticated risk-management systems available. The problems come if
people start to think of them, and the models they are based on, as infallible.
It is also common for the development of control systems to come after any new risk-related
products. Be careful not to bet the business until the exposure is known. To be in business you
must make decisions involving risk. However sophisticated the tools at your disposal you can never
hope to provide for every contingency. But unpleasant surprises should be kept to a minimum.
Ask yourself
Can the risks to your business be identified, what forms do they take and are they clearly
understood - particularly if you have a portfolio of activities?
Do you grade the risks faced by your business in a structured way?
Do you know the maximum potential liability of each exposure?
Are decisions made on the basis of reliable and timely information?
Are the risks large in relation to the turnover of your business and what impact could they have
on your profits and balance sheet?
Over what time periods do the risks exist?
Are the exposures one-off or are they recurring?
Do you know enough about the ways in which you exposures can be reduced or hedged and
what it would cost including the potential loss of any upside profit?
Have trading and risk-management functions or decisions been adequately separated?

14.14 Managing risk


Exporters have no business being in international trade if risk/reward analysis is not at the top of
their concerns.
Of course, for every exporter, the best case scenario would be to minimize the first and maximize
the second. But how do you get a handle on the potential reward in any investment and the risk
you might be taking on?

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Self Assessment Questions


Q1. Which of the following Acts governs foreign exchange rules of India?
a)
b)
c)
d)

FERA
FEMA
FDI
FII

Q2. As per RBI manual, which of the following is the permitted currency for export transaction?
a)
b)
c)
d)

Malaysian Ringitt
Chinese Yuan
Srilankan Rupee
US Dollar

Q3. Which of the following is the correct full form of FEMA?


a) Foreign Exchange Mechanism Act
b) Foreign Exchange Management Act
Q4. Which is the characteristic/s of the freely floating exchange rate system?
a) Exchange rate values are determined by the market forces
b) Country having this system is more insulated from unemployment problems of other
countries
c) Country having this system is more insulated from inflation of other countries
d) All of the above

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15. ELECTRONIC DATA INTERCHANGE


INTERCHANGE
EDI is the paperless transfer of documentation and data amongst organizations through the use of
computer networks

15.1 Advantages
Reduction in documentation costs
Speed of execution
Most current database maintenance
Speedier and efficient movement of cargo
Cost reduction and savings
Faster information flow
Improved accuracy
Reduced paperwork and intervention
A lot of effort has been made internationally to make the systems automated and electronic

15.2 ASYCUDA
The Automated System for Customs Data (ASYCUDA) is a computerized system designed by the
UNCTAD to administer a country's customs. In 2004 there were more than 50 operational project
with expenditures exceeding 7 million US$. It is the largest technical cooperation programme of
the UNCTAD covering over 80 countries and 4 regional projects.
ASYCUDA is a computerized customs management system which covers most foreign trade
procedures. The system handles manifests and customs declarations, accounting procedures,
transit and suspense procedures.
Currently there are three different generations of ASYCUDA in use: ASYCUDA 2.7,
ASYCUDA++ and ASYCUDA World. All of them were built using different paradigms and
solutions available at the time of conception, being ASYCUDA World the most recent one and
less used so far (early 2009).
UNCTAD premise was to build a computer system to assist customs authorities (or their local
equivalent) all over the world to automate and control their core processes and obtain timely,
accurate and valuable information to support government projections and planning.

15.3 EDI link ups


A country implanting EDI reduces time at warehouses, docks and airports and saves tremendous
costs. A successful EDI links up to
Customs
Port and Rail Authorities
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Telecommunications
Insurance
Banks
Other statutory bodies
Port Operators (container terminals)
Shipping lines
Customs brokers / forwarders
Road transport companies
Importers / exporters

15.4 Indian Customs EDI System (ICES)


Objectives
The main objectives set for Indian Customs EDI System by the Customs were
Respond more quickly to the needs of the trade
Computerization of customs related functions including import/export, general manifest
control, ex-bond clearance of warehoused goods, goods imported against export promotion
schemes, monitoring of export promotion schemes.
Reduce interaction of the trade with Government agencies
Provide retrieval of information from other custom locations to have uniformity in assessment
and valuation
Provide management information system for policy making and its effective revenue and
pendency monitoring and
Provide quick and correct information on import/export statistics to Director General of
Commercial Intelligence and Statistics
The guiding principles for the officials of Customs and National Informatics Centre while
designing the ICES system were:

Facilitation
While ensuring proper enforcement of Customs laws and regulations, Customs Administration
should strive to improve facilitation of Customs clearance procedures.

Accountability
Customs Administration should be accountable for their actions through a transparent and easily
accessible process of Administration and/or judicial review.

Consistency
Customs laws, regulations, administrative guidelines and procedures should be applied in a
uniform manner.

Transparency
Customs laws, regulations, administrative guidelines and procedures should be publicly available in
a prompt and easily accessible manner.

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Simplification
Customs laws, regulations, administrative guidelines and procedures should be simplified to the
extent possible so that Customs clearance can proceed without undue burden.

Overview
The objective was to roll out systems and processes that improve the way the business is
conducted.
ICES system is not only a technology solution but it transformed the way business was done. ICES
comprises of two main sub systems namely, India Customs EDI system/Imports (ICES/I) and
Indian Customs EDI System/Export (ICES/E).
ICES/I system is used for processing of Bill of Entry; and ICES/E for processing of Shipping Bills.
The Exporters, Importers and Custom House Agents (CHAs) transmit Bills of Entry, Shipping
Bills and other related documents such as Invoice, Packing List over dial-up links to the NICNET
EDI Server which, in turn, submit them to Customs computer system for clearance. The trading
community is not required to travel physically to the Custom House for submitting the documents
except at the last stage for physical examination of goods, and for taking delivery.
The Custom House Agents use the Remote EDI System (RES) which is a standalone software
package for preparation of Bill of Entry and Shipping Bills and other related documents. It has
been developed by NIC as part of Indian Customs EDI System. The documents transmitted
electronically over NICNET are submitted to Customs Computer System for further processing.
ICES/I consists of the following main modules
Import General Manifest
Service Centre
Appraising
Audit
Assistant Commissioner
Cash
Examination
DEPB/DEEC/100% EOU

Bonds
Licence
Baggage
System Manager
MIS
Ex Bond
Transshipment
Import General Manifest

ICES/E consist the following modules


Service Centre
Duty Drawback
Additional Commissioner
License
System Manager

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Examination
Assistant Commissioner
Preventive Officer
Export General Manifest
MIS

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Main features of the system are

Security
ICES provides for security at all levels of access to the system. At the Service Centre. Security
features are implemented at module level. System keeps track of any transaction carried by an
user.

Help
System includes powerful help features which can be invoked by the Assessing Officers from their
respective screens to facilitate their assessment work.

Management and Control


ICES allow the Collector to find out the status of any document in the system. Controlling Officers
can monitor the progress of the Customs Officers in processing the documents and provide help
in expedite the process. Number of documents cleared at each stage can also be monitored.

Benefits
Computerization of customs procedures resulted in time and cost savings due to the reduced need
to prepare, handle, store and deliver customs documentation.
Improvements in communications, access to information and the transparency of customs
processes and appeals increased the level of certainty and fairness.
A good compliance track record resulted in faster clearance and less intrusive verification
techniques.
Importers know the amount of duties and taxes owing as a result of the clear and consistent rules.
More efficient clearance will produce time and cost savings and provide the certainty required to
exploit modern business practices such as just-in-time inventory.
Exporters benefited from having similar customs rules and procedures apply across the
international market, thus increasing market access opportunities, while reducing costs and
complexity.
Customs Brokers have the opportunity to refocus their services from dealing with forms and
complexity to using their expertise and knowledge to bring a new range of professional services to
clients operating in an expanding and evolving trade market.
Carriers benefit from faster service, lower costs and the ability to use their equipment to its utmost
capacity rather than having it delayed at Customs.

Operations
Fully automated process with little or no intervention by either party providing a virtual on-line
scenario
Declarations can be accepted round the clock automatically, resulting in maximum productivity
Quicker retrieval of cargo through reduction of clearance times
Reduction in manual administrative processes resulting in fewer errors and no duplication

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Harmonized business relationships with other bodies such as Ports, DGFT, Airlines,
Container Depots etc

Time Saving
Notification of releases are speeded up as a result of the electronic releases being generated
automatically No capturing of the release required by the client Communication errors reported
and communicated electronically to client

Data Accuracy
Electronic messaging has the proven advantage of minimizing data capture which in turn ensures
less errors and quicker releases
The accuracy of data received can be incorporated into clients Track and Trace

Cost Effectiveness
Cost of processing the documents has come down drastically.

Security and Risk Management


Security is very vital when submitting information electronically. To compound this basic
assumption, the risks of diminished value in the real world are nothing compared to the risks of
loss in the virtual world.
Customs in particular face issues such as fraud and theft in their standard business practice and
they realize the need for a secure system.
Scheduled auditing practices within the system ensured that to ensure that security is being
implemented effectively customs have made sure that the security requirements. The client can be
sure that their message information will not be tampered with.

Cargo Handling
Electronic clearances provide quicker cargo releases, resulting in more efficient deliveries

Technical
Indian Customs EDI system is developed for better management of Custom Activities. The
existing processes were analyzed in depth for re-engineering and improvement. The main
achievements of the system are simplified and harmonized procedures which has not only
provided efficient and reliable environment to the customs but also to the business communities
and other agencies involved in the trade. The business processes of the customs and the trading
partners along with their boundaries and interfaces were analyzed in depth and reengineered from
the viewpoint of
Higher efficiency
Customer satisfaction
Lower Cost
Facilitation
Lower inventory level
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Reduced turnaround time


The main objectives while re-engineering the procedures were
All the agencies of the government should present a single face to the user
Data once captured should be available for all the government agencies
The Importer/Exporter or their agent should interact with only one agency
Gradual transition from scrutiny of paper documents
System Appraisal for select import goods
Minimized export appraisement
Examination waiver - Green Channel
Electronic credit of drawback
Reduced documentation for export cargo
The Indian Customs EDI application is running on Sun Solaris Operating System (V.2.5/2.6) and
the database is Oracle (V.7.1/7.3). Each Customs station have stand-alone servers for running the
ICES application. The data at present is locally stored on these servers.

Functional
Document Preparation and submission
Indian Customs EDI System can accepts the documents from the trading partners in the
Electronic Format. The documents can be prepared and submitted using either the Electronic
Data Interchange or Service Centre. The Importers/Exporters and Custom House agents can use
the Graphical User Interface based package Remote EDI System implemented using Visual
Basic/Oracle 8 from their offices to create the documents in the desired format and then
transmitting them over the Internet using the secure server of NIC for submission at customs
house for further processing.
The document received over the Internet at Custom house is then loaded to the ICES after the
proper validation checks.
Importers/Exporters and CHAs who do not have access to Internet can get their documents
electronically prepared and submitted for further processing at the Service Centre. The Service
Centre module of NIC running on powerful Sun machine under Oracle 7.0 allows entry of data,
modifications and submission.
The data entered through EDI or Service Centre gets validated before their storage into ICES. If
errors are found, the same are reported to the Importer/Exporter/CHA through EDI or at the
Service Centre.

Indian Customs EDI System


Documents once entered and submitted are then reviewed by different officers of the Custom
House at various stages of processing and final clearance is accorded on the computer system after
all the formalities are over for physical examination of the goods at the Sheds. ICES keeps track of
the officers who have handled the documents at various stages of processing. The trail of the
processing cycle is available to superior officers at any time. The CHA, in turn, can enquire about
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the status of his documents from his own system. He can view any memo or objections on his
documents as they are posted in the system.

Indian Customs EDI System: Imports


The Bill of Entry is to be filed through the Service Center by the Importer/CHA, who has to
submit the signed declaration in a prescribed format along with copy of Invoice and Packing List if
filed through Service Centre. The document can also be filed through the Remote EDI System.
After the data entry at the service center, a "Check List" is generated which is to be verified by the
Importer/CHA and corrected in case any error is detected and the signed "Check List" is to be
submitted in the Service Center. In case of RES, the system validates the data and if errors are
found, a message is sent back to the party. If the data passes the check, system accepts the data and
an acknowledgment is sent to the Importer/CHA.
The Bill of Entry then appears in the screen of the respective Group Appraiser. The Group
Appraiser then assesses the Bill of Entry on the system and marks it to the Audit Appraiser. After
the Audit is complete, the Bill of Entry appears in the screen of the concerned Group Assistant
Commissioner. After the assessment is approved by the Assistant Commissioner concerned, TR-6
is printed at the Service Center for payment of duty. The Examination Order is also printed along
with the TR-6 Challan.
If the Appraiser does not agree with the importer regarding tariff classification / notification /
declared value etc., he can raise a query in this regard. The Importer/CHA has to enquire at the
Service Center whether there is any query in respect of their Bill of Entry and should reply to the
same through the Service Center if there is any.
The duty is to be paid through the designated bank.
After payment of the Duty, the Bank enters the same into the system at a terminal at their end.
Then the Bill of Entry appears on the screen of the Appraiser (Docks). The Importer/CHA
should present a copy of the B/E along with duty paid challan and other documents including
invoice, packing list etc. at the time of examination of the goods.
The Shed Appraiser shall examine the goods and enter the examination report in the system. After
the examination of the goods is complete, the Appraiser (Docks) would give the "Out of Charge"
order on the system. Thereafter, the system will print two copies of B/E for the importer and the
Exchange Control Copies.
In case of any discrepancy found in the docks with respect to the goods, the same is reported to
the respective Group through the system with the comments of the Dock Officers. On the basis of
the examination report and the comments of the dock officers, the Group may revise the
assessment or may raise a query.

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Indian Customs EDI System: Exporters (ICES/E)


Before filing any Export Shipping Bill, all exporters and CHAs are required to register with the
Customs EDI System their IEC Code No., CHA Licence No. and Authorized Dealer Code No.
of the Bank through which export proceeds are to be realized.
Those intending to file the Shipping Bill will have to present at the Service Center a declaration in
the prescribed format signed by the exporter or his authorized CHA along with the copy of Invoice
and Packing List.
After the data entry at the service center has been done, a "Check List" will be generated and
handed over to the CHA/Exporter who should verify the correctness of the data entered. If any
error/mistake is detected by the CHA/Exporter in the data, they should inform the Service Center
operators who will make the corresponding correction in the data accordingly.
After the correct data has been entered into the system, the Shipping Bills shall be processed
automatically by the System on the basis of the declaration made by the Exporters. However, the
following categories of Shipping Bill are assessed by the Assistant Commissioner (Export)
Shipping Bills where the FOB value is more than Rs. 10 Lakhs.
Shipping Bills relating to free trade samples whose value is more than Rs.20,000/Drawback Shipping Bills where drawback amount is more than Rs. 1 Lakh.
The status of the Shipping Bill can be checked by the Exporter/CHA at the Service Center. They
should also check whether any query has been raised in respect of their Shipping Bill. In case of
any query, they should file a reply to the query through the Service Center.
During examination of the goods at the docks, the CHA/Exporter has to present the Check List
along with all original documents such as Invoice, Packing List etc. to the Customs Officer. "Let
Export" order will be given by the Appraiser if everything is found to be in order after examination
of the goods and scrutiny of the documents.
After the "Let Export" order is given, the printout of the Shipping Bill is generated. The
examination report printed on the Shipping Bill is to be signed by the Appraiser, Examiner as well
as the CHA/Exporter. The name and Licence No. of the CHA should be clearly mentioned below
his signature.

Community
As mentioned, the main objective of introduction of EDI in International trade was to move away
from customs controls to trade facilitation. A number of parties, most of which are government
agencies, are involved in a trade transaction. NIC submitted a re-engineering proposal in 1998 to
the Customs, which is subsequently implemented. The main features of the system are
Integration of the agencies involved in a trade transaction
All the agencies presenting single face to the customer
Customer interact with only one agency as far as possible
Data once captured made available to other agencies
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This has been achieved primarily by re-engineering the processes of these regulatory agencies
involved. The internal functions of these agencies are automated and are made EDI capable. The
inter-agency data files are automatically transferred and received by the system and act upon the
messages received and the response messages are generated.
The main agencies other than Custom House and CHA/Importer/Exporter integrated into the
Customs EDI Community System are
Directorate General of Foreign Trade
Airport Authority of India
Apparel Export Promotion Council
Export Promotion Council(EPC)/Commodity Board
Airlines
Port Authorities
Shipping Lines and Shipping Agents
Inland Container Depots
Container Freight Stations
Banks

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Self Assessment Questions


Q1. Which of them is not used for international business?
a)
b)
c)
d)

Electronic Fund Transfer


Electronic Data Interchange
Electronic Currency
Radio Frequency Identification

Q2. Which of the following is not a benefit of e-procurement?


a)
b)
c)
d)

Reduction in transaction cost


Reduction in choice of vendors
Fewer human errors
Reduction in purchase cycle time

Q3. Which of the following company uses ONLY e-marketing platform?


a)
b)
c)
d)

Microsoft
Acer Computers
Dell Computers
Amazon.com

Q4. Which of the following products is ideal for e-marketing?


a)
b)
c)
d)

Perfumes
Books
Footwear
Garments

Q5. Which of the following is NOT among the top five logistics services supported by IT?
a)
b)
c)
d)

B2B logistics hub


Warehouse management
Transport management
Transport planning

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Q6. The major hurdle in the wider application of RFID is?


a)
b)
c)
d)

Lack of awareness about RFID


Yet to be proven technology
Popularity of bar coding
High per unit cost

Q7. Which of the following statement is true?


a)
b)
c)
d)

EDI is a substitute to email


EDI can be replaced by voice code technology
EDI is operated on value added network
Only small companies use EDI

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16. NATIONAL FOREIGN TRADE


TRADE POLICY 20092009-2014
Export Import Policy or better known as EXIM Policy or Foreign Trade Policy is a set of
guidelines and instructions related to the import and export of goods.

Principle
Principle Objectives of the Policy
To facilitate sustained growth in exports from India and import in India
To stimulate sustained economic growth by providing access to essential raw materials,
intermediates, components, consumables and capital goods required for augmenting
production and providing services
To enhance the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities, and to encourage the attainment of internationally accepted standards of quality
To provide clients with high-quality goods and services at globally competitive rates
Canalization is an important feature of EXIM Policy under which certain goods can be imported
only by designated agencies. For an example, an item like gold, in bulk, can be imported only by
specified banks like SBI and some foreign banks or designated agencies.
The Export Import Policy is updated every year on the 31st of March and the modifications,
improvements and new schemes became effective from 1st April of every year.
All types of changes or modifications related to the EXIM Policy is normally announced by the
Union Minister of Commerce and Industry who co-ordinates with the Ministry of Finance, the
Directorate General of Foreign Trade and its network of regional office.
Trade is an indispensable means for sustaining the economic growth and development of a nation.
In India, the main legislation governing foreign trade is the Foreign Trade (Development and
Regulation) Act, 1992. As per the provisions of the Act, the Government of India formulates and
announces a foreign trade policy and amends it from time to time.
The Ministry of Commerce and Industry is the most important organ concerned with the
promotion and regulation of foreign trade in India. The Ministry has an elaborate organizational
set up to look after the various aspects of trade. Its two important offices concerned with trade are
the Directorate General of Foreign Trade (DGFT) and the Directorate General of Commercial
Intelligence and Statistics (DGCI&S)
DGFT is mainly responsible for implementing Foreign Trade Policy/EXIM Policy with the main
objective of promoting Indian Exports. It also issues licenses to exporters and monitors their
corresponding obligations through a network of regional offices. DGCI&S is entrusted with the
work of collecting, compiling and publishing/disseminating trade statistics and various types of
commercial information required by the policy makers, researchers, importers, exporters, traders
as well as overseas buyers.

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India is also engaged in trade negotiations and agreements at multilateral, regional and bilateral
levels. It is interacting with international agencies such as the World Trade Organization (WTO),
the United Nation Conference on Trade & Development (UNCTAD), the Economic and Social
Commission for Asia and Pacific (ESCAP), as well as with individual countries or group of
countries on a wide range of issues including tariff and non tariff barriers, international commodity
agreements, preferential/free trade arrangements, investment matters etc. Some of the major
regional trading arrangements that India has entered into include: Agreement on South Asian Free
Trade Area (SAFTA), Asia Pacific Trade Agreement (APTA), Framework Agreement on
Comprehensive Economic Cooperation between ASEAN and India etc.
The foreign trade policy 2004-09 announced in 2004 had set two objectives
To double our percentage share of global merchandize trade within 5 years
Use trade expansion as an effective instrument of economic growth and employment
generation
The results of the FTP 2004-2009 have been remarkable. Our exports witnessed robust growth to
reach a level of USD 168 billion in 2008-09 from USD 63 billion in 2003-04. Our share of global
merchandise trade was 0.83% in 2003, which rose to 1.45% in 2008 as per WTO estimates. Our
share of global commercial services export was 1.4% in 2003, which rose to 2.8% in 2008. Indias
total share of goods and services trade has gone up from 0.92% to 1.64% during 2004-09.
The new Foreign Trade Policy (FTP) announced on 27th Aug 2009, covering a five year period of
2009-2014
2008 has seen recession worldwide, especially in the developed markets. The short term objective
of NFTP 2009-14 is to arrest and reverse the declining trend of exports and to provide additional
support especially to those sectors which have been hit badly by recession in the developed world.
The policy objective is to achieve an annual export growth of 15% with an annual export target of
USD 200 billion by March 2011. In the remaining three years of this FTP 2014, the country
should be able to come back to the high export growth path of around 25% per annum, and
double Indias export of goods and services by 2014. The long term policy objective for the
Government is to double Indias share in global trade by 2020. In order to meet these objectives,
the Government would follow a mix of policy measures including fiscal incentives, institutional
changes, procedural rationalization, and enhanced market access across the world and
diversification of export markets. Improvement in infrastructure related to exports, bringing down
transaction costs, and providing full refund of all indirect taxes. Endeavor will be made to see that
the Goods and services Tax rebate all indirect taxes and levies on export.
A special thrust has been provided to employment intensive sectors which have witnessed job
losses in the wake of recession, especially in the field of textiles, leather, handicrafts etc
Attention is being paid to diversify export markets and offset the inherent disadvantage for our
exporters in emerging markets of Africa, Latin America, Oceania and CIS countries such as Credit
risks, higher trade costs etc through appropriate policy instruments. The policy aims to diversify
products and markets through rationalization of incentive schemes including the enhancement of
incentive rates which have been based on the perceived long term competitive advantage of India
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in a particular product group and market. New emerging markets have been given a special focus
to enable competitive exports. This would of course be contingent upon availability of adequate
exportable surplus for a particular product. Additional resources have been made available under
the Market Development Assistance Scheme and Market Access Initiative Scheme. Incentive
Schemes are being rationalized to identify leading products which would catalyze the next phase of
export growth.
As part of our policy for market expansion, a Comprehensive Economic Partnership Agreement
with South Korea has been signed that will give enhanced market access to Indian exports. A
goods agreement has also been signed with ASEAN and has been effective since Jan 2010. These
trade agreements are in line with Indias Look East Policy.
Made in India shows are being planned to promote Brand India throughout the year. An
important part of increasing exports is technology upgradation. So, a major thrust area of Foreign
Trade Policy 2009-14 is to help exporters in technological upgradation. For this purpose, import
of Capital goods for certain sectors is being under EPCG at zero duty
For upgradation of export sector infrastructure, Towns of Export Excellence and units located
therein would be granted additional focused support and incentives.
In order to reduce the transaction costs and institutional bottlenecks, the e trade project is being
implemented in a time bound manner to bring all stake holders on a common platform.
Additionally ports/locations would be enabled on the EDI over the next few years.

Special Focus Initiatives


With a view to continuously increase our percentage share of global trade and expanding
employment opportunities, certain special focus initiatives have been identified/continued for
Market Diversification, Technology Upgradation, Support to status holders, Agriculture,
Handlooms, Handicraft, Gems and Jewellery, Leather, Marine, Electronics and IT Hardware
manufacturing Industries, Green Products, export of products from North East, Sports Goods and
Toys Sectors. Government of India shall make concerted efforts to promote exports in these
sectors by specific sectoral strategies that shall be notified from time to time. Further Sectoral
Initiatives in other sectors will also be announced from time to time.

Market Diversification
Weaker demand in developed economies in the wake of recession and increased economic
uncertainty has pulled back Indias exports to the developed countries. This has led to a fresh
though to diversify and insulate the exports from a regional shock. Focus is being shifted to
economies of Latin America, parts of Asia and Oceania. 26 new countries have been included
within the ambit of Focus Market Scheme The incentives provided under Focus Market Scheme
have been increased from 2.5% to 3% .
There has been a significant increase in the outlay under Market Linked Focus Product Scheme
by inclusion of more markets and products. This ensures support for exports to all countries in
Africa and Latin America

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Technological Upgradation
To usher in the next phase of export growth, India needs to move up in the value chain of export
goods. This objective is sought to be achieved by encouraging technological upgradation of our
export sector. A number of initiatives have been taken in this policy to focus on technological
upgradation. Such initiatives include
EPCG Scheme at zero duty has been introduced for certain engineering products, electronic
products, basic chemicals and pharmaceuticals, apparel and textiles, plastics, handicrafts,
chemicals and allied products and leather and leather products
The existing 3% EPCG Scheme has been considerably simplified, to ease its usage by the
exporters
To encourage value added manufacture export, a minimum of 15% value addition on
imported inputs under Advance Authorization Scheme has been stipulated
A number of products including automobiles and other engineering products have been
included for incentives under Focus Product, and Market Linked Focus Product Schemes
Steps to encourage Project Exports shall be taken

16.1 Highlights of Foreign Trade Policy 20092009-2014


Higher Support for Market and Product Diversification - Incentive schemes have been
expanded by way of addition of new products and markets
26 new markets have been added under Focus Market Scheme. These include 16 new markets
in Latin America and 10 in Asia-Oceania
The incentive available under Focus Market Scheme (FMS) has been raised from 2.5% to 3%.
The incentive available under Focus Product Scheme (FPS) has been raised from 1.25% to 2%
A large number of products from various sectors have been included for benefits under FPS
These include, Engineering products (agricultural machinery, parts of trailers, sewing machines,
hand tools, garden tools, musical instruments, clocks and watches, railway locomotives etc.), Plastic
(value added products), Jute and Sisal products, Technical Textiles, Green Technology products
(wind mills, wind turbines, electric operated vehicles etc.), Project goods, vegetable textiles and
certain Electronic items.
Market Linked Focus Product Scheme (MLFPS) has been greatly expanded by inclusion of
products classified under as many as 153 ITC(HS) Codes at 4 digit level. Some major products
include; Pharmaceuticals, Synthetic textile fabrics, value added rubber products, value added
plastic goods, textile made-ups, knitted and crocheted fabrics, glass products, certain iron and
steel products and certain articles of aluminum among others. Benefits to these products will
be provided, if exports are made to 13 identified markets (Algeria, Egypt, Kenya, Nigeria,
South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New
Zealand).
MLFPS benefits also extended for export to additional new markets for certain products.
These products include auto components, motor cars, bicycle and its parts, and apparels
among others.
A common simplified application form has been introduced for taking benefits under FPS,
FMS, MLFPS and VKGUY.
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Higher allocation for Market Development Assistance (MDA) and Market Access Initiative
(MAI) schemes is being provided.
Technological Upgradation - To aid technological upgradation of our export sector, EPCG
Scheme at Zero Duty has been introduced. This Scheme will be available for engineering &
electronic products, basic chemicals & pharmaceuticals, apparels & textiles, plastics,
handicrafts, chemicals & allied products and leather & leather products (subject to exclusions
of current beneficiaries under Technological Upgradation Fund Schemes (TUFS),
administered by Ministry of Textiles and beneficiaries of Status Holder Incentive Scheme in
that particular year). The scheme shall be in operation till 31.3.2011.
Jaipur, Srinagar and Anantnag have been recognized as Towns of Export Excellence for
handicrafts; Kanpur Dewas and Ambur have been recognized as Towns of Export Excellence
for leather products; and Malihabad for horticultural products.
EPCG Scheme Relaxations - To increase the life of existing plant and machinery, export
obligation on import of spares, moulds etc. under EPCG Scheme has been reduced to 50% of
the normal specific export obligation.
Taking into account the decline in exports, the facility of Re-fixation of Annual Average Export
Obligation for a particular financial year in which there is decline in exports from the country,
has been extended for the 5 year Policy period 2009-14.
Support for Green products and products from North East - Focus Product Scheme benefit
extended for export of green products; and for exports of some products originating from the
North East.
Status Holders - To accelerate exports and encourage technological upgradation, additional
Duty Credit Scrips shall be given to Status Holders @ 1% of the FOB value of past exports.
The duty credit scrips can be used for procurement of capital goods with Actual User
condition. This facility shall be available for sectors of leather (excluding finished leather),
textiles and jute, handicrafts, engineering (excluding Iron & steel & non-ferrous metals in
primary and intermediate form, automobiles & two wheelers, nuclear reactors & parts, and
ships, boats and floating structures), plastics and basic chemicals (excluding pharma products)
[subject to exclusions of current beneficiaries under Technological Upgradation Fund Schemes
(TUFS)].
Transferability for the Duty Credit scrips being issued to Status Holders under FTP under
VKGUY Scheme has been permitted. This is subject to the condition that transfer would be
only to Status Holders and Scrips would be utilized for the procurement of Cold Chain
equipment(s) only.
Stability/ continuity of the Foreign Trade Policy - To impart stability to the Policy regime, Duty
Entitlement Passbook (DEPB) Scheme is extended beyond 31-12-2009 till 31.12.2010.
Interest subvention of 2% for pre-shipment credit for 7 specified sectors has been extended till
31.3.2010 in the Budget 2009-10.
Income Tax exemption to 100% EOUs and to STPI units under Section 10B and 10A of
Income Tax Act has been extended for the financial year 2010-11 in the Budget 2009-10.
The adjustment assistance scheme initiated in December, 2008 to provide enhanced ECGC
cover at 95%, to the adversely affected sectors, is continued till March, 2010. Marine sector
Fisheries have been included in the sectors which are exempted from maintenance of average
EO under EPCG Scheme, subject to the condition that Fishing Trawlers, boats, ships and
other similar items shall not be allowed to be imported under this provision. This would
provide a fillip to the marine sector which has been affected by the present downturn in
exports.
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Additional flexibility under Target Plus Scheme (TPS) / Duty Free Certificate of Entitlement
(DFCE) Scheme for Status Holders has been given to Marine sector. Gems & Jewellery Sector
23. To neutralize duty incidence on gold Jewellery exports, it has now been decided to allow
Duty Drawback on such exports.
In an endeavor to make India a diamond international trading hub, it is planned to establish
Diamond Bourse(s).
A new facility to allow import on consignment basis of cut & polished diamonds for the
purpose of grading/ certification purposes has been introduced.
To promote export of Gems & Jewellery products, the value limits of personal carriage have
been increased from US$ 2 million to US$ 5 million in case of participation in overseas
exhibitions. The limit in case of personal carriage, as samples, for export promotion tours, has
also been increased from US$ 0.1 million to US$ 1 million. Agriculture Sector
To reduce transaction and handling costs, a single window system to facilitate export of
perishable agricultural produce has been introduced. The system will involve creation of multifunctional nodal agencies to be accredited by APEDA.
Leather Sector - Leather sector shall be allowed re-export of unsold imported raw hides and
skins and semi finished leather from public bonded ware houses, subject to payment of 50% of
the applicable export duty.
Enhancement of FPS rate to 2% would also significantly benefit the leather sector.
Tea - Minimum value addition under advance authorization scheme for export of tea has been
reduced from the existing 100% to 50%.
DTA sale limit of instant tea by EOU units has been increased from the existing 30% to 50%.
Export of tea has been covered under VKGUY Scheme benefits.
Pharmaceutical Sector - Export Obligation Period for advance authorizations issued with 6APA as input has been increased from the existing 6 months to 36 months, as is available for
other products.
Pharma sector extensively covered under MLFPS for countries in Africa and Latin America;
some countries in Oceania and Far East.
Handloom Sector - To simplify claims under FPS, requirement of Handloom Mark for
availing benefits under FPS has been removed.
EOUs have been allowed to sell products manufactured by them in DTA upto a limit of 90%
instead of existing 75%, without changing the criteria of similar goods, within the overall
entitlement of 50% for DTA sale.
To provide clarity to the customs field formations, DOR shall issue a clarification to enable
procurement of spares beyond 5% by granite sector EOUs.
EOUs will now be allowed to procure finished goods for consolidation along with their
manufactured goods, subject to certain safeguards.
During this period of downturn, Board of Approvals (BOA) to consider, extension of block
period by one year for calculation of Net Foreign Exchange earnings of EOUs.
EOUs will now be allowed CENVAT Credit facility for the component of SAD and Education
cess on DTA sale.
Thrust to Value Added Manufacturing - To encourage Value Added Manufactured export, a
minimum 15% value addition on imported inputs under Advance Authorization Scheme has
now been prescribed.
Coverage of Project Exports and a large number of manufactured goods under FPS and
MLFPS.
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DEPB rate shall also include factoring of custom duty component on fuel where fuel is allowed
as a consumable in Standard Input-Output Norms.
Flexibility provided to exporters - Payment of customs duty for Export Obligation (EO)
shortfall under Advance Authorization / DFIA / EPCG Authorization has been allowed by way
of debit of Duty Credit scrips. Earlier the payment was allowed in cash only.
Import of restricted items, as replenishment, shall now be allowed against transferred DFIAs,
in line with the erstwhile DFRC scheme.
Time limit of 60 days for re-import of exported gems and jewellery items, for participation in
exhibitions has been extended to 90 days in case of USA.
Transit loss claims received from private approved insurance companies in India will now be
allowed for the purpose of EO fulfillment under Export Promotion schemes. At present, the
facility has been limited to public sector general insurance companies only.
Waiver of Incentives Recovery, On RBI Specific Write off. In cases, where RBI specifically
writes off the export proceeds realization, the incentives under the FTP shall now not be
recovered from the exporters subject to certain conditions.
Simplification of Procedures: To facilitate duty free import of samples by exporters, number of
samples/pieces has been increased from the existing 15 to 50. Customs clearance of such
samples shall be based on declarations given by the importers with regard to the limit of value
and quantity of samples.
To allow exemption for up to two stages from payment of excise duty in lieu of refund, in case
of supply to an advance authorization holder (against invalidation letter) by the domestic
intermediate manufacturer. It would allow exemption for supplies made to a manufacturer, if
such manufacturer in turn supplies the products to an ultimate exporter. At present, exemption
is allowed upto one stage only.
Greater flexibility has been permitted to allow conversion of Shipping Bills from one Export
Promotion scheme to other scheme. Customs shall now permit this conversion within three
months, instead of the present limited period of only one month.
To reduce transaction costs, dispatch of imported goods directly from the Port to the site has
been allowed under Advance Authorization scheme for deemed supplies. At present, the duty
free imported goods could be taken only to the manufacturing unit of the authorization holder
or its supporting manufacturer.
Disposal of manufacturing wastes / scrap will now be allowed after payment of applicable
excise duty, even before fulfillment of export obligation under Advance Authorization and
EPCG Scheme.
Regional Authorities have now been authorized to issue licences for import of sports weapons
by renowned shooters, on the basis of NOC from the Ministry of Sports & Youth Affairs.
Now there will be no need to approach DGFT (Hqrs.) in such cases.
The procedure for issue of Free Sale Certificate has been simplified and the validity of the
Certificate has been increased from 1 year to 2 years. This will solve the problems faced by the
medical devices industry.
Automobile industry, having their own R&D establishment, would be allowed free import of
reference fuels (petrol and diesel), upto a maximum of 5 KL per annum, which are not
manufactured in India.
Acceding to the demand of trade & industry, the application and redemption forms under
EPCG scheme have been simplified.
Reduction of Transaction Costs. No fee shall now be charged for grant of incentives under the
Schemes in Chapter 3 of FTP. Further, for all other Authorizations/ licence applications,
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maximum applicable fee is being reduced to Rs. 100,000 from the existing Rs 1,50,000 (for
manual applications) and Rs. 50,000 from the existing Rs.75,000 (for EDI applications).
To further EDI initiatives, Export Promotion Councils/ Commodity Boards have been advised
to issue RCMC through a web based online system. It is expected that issuance of RCMC
would become EDI enabled before the end of 2009.
Electronic Message Exchange between Customs and DGFT in respect of incentive schemes
under Chapter 3 will become operational by 31.12.2009. This will obviate the need for
verification of scrips by Customs facilitating faster clearances.
For EDI ports, with effect from December 09, double verification of shipping bills by customs
for any of the DGFT schemes shall be dispensed with.
In cases, where the earlier authorization has been cancelled and a new authorization has been
issued in lieu of the earlier authorization, application fee paid already for the cancelled
authorization will now be adjusted against the application fee for the new authorization subject
to payment of minimum fee of Rs. 200.
An Inter Ministerial Committee will be formed to redress/ resolve problems/issues of
exporters.
An updated compilation of Standard Input Output Norms (SION) and ITC (HS)
Classification of Export and Import Items has been published.
Directorate of Trade Remedy Measures: To enable support to Indian industry and exporters,
especially the MSMEs, in availing their rights through trade remedy instruments, a Directorate
of Trade Remedy Measures shall be set up.

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Self Assessment Questions


Q1. The export strategy provides focused attention to products that have ___________ in the
country and potential for export competitiveness
a)
b)
c)
d)

High production capacity


High distribution capacity
High selective capacity
None of the above

Q2. Foreign Trade Policy 2009-2014 aims to increase Indias share in global trade by
a)
b)
c)
d)

Two times
Three times
Five times
Ten times

Q3. The incentive available under Focus Market Scheme has been raised from 2.5% to
a)
b)
c)
d)

3%
4%
5%
10%

Q4. Market Linked Focus Product Scheme (MLFPS) benefits are available when the products are
exported to
a)
b)
c)
d)

United Kingdom
USA
France
Australia

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17. CONTAINERIZATION AND TRANSPORTATION


17.1 Modes of Transport
We find that basically transport is possible through land, air or water and the various modes of
transport can be broadly divided into three categories: Land transport, Water transport and Air
transport.

Road Transport
Part of Land transport, roads are the means that connect one place to another on the surface of the
land.

Advantages of Road transport


It is a relatively cheaper mode of transport as compared to other modes
Perishable goods can be transported at a faster speed by road carriers over a short distance
It is a flexible mode of transport as loading and unloading is possible at any destination. It
provides door-to-door service

Limitations of Road transport


Due to limited carrying capacity road transport is not economical for long distance
transportation of goods
Transportation of heavy goods or goods in bulk by road involves high cost
It is affected by adverse weather conditions. Floods, rain, landslide, etc., sometimes create
obstructions to road transport

Rail transport
Transportation of goods on rail lines through trains is called rail transport. It occupies an
important place in land transport system of our country and is the most dependable mode of
transport to carry goods over a long distance.

Advantages of Rail transport


It is a convenient mode of transport for travelling long distances
It is relatively faster than road transport
It is suitable for carrying heavy goods in large quantities over long distances
Its operation is less affected by adverse weathers conditions like rain, floods, fog, etc

Limitations of Railway transport


It is relatively expensive for carrying goods over short distances
It is not available in remote parts of the country
It provides service according to fixed time schedule and is not flexible for loading or unloading
of goods at any place

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Pipelines transport
In modern times, pipelines are used for various purposes. Petroleum and natural gas are also
transported from one place to another through pipelines. This is the most convenient as well as
economical mode of transport for petroleum as well as natural gas in comparison to road and rail
transport, provided the volume to be transported is large. But the cost of installation and
maintenance requires large capital investment. Pipelines can be the target of vandalism, sabotage,
or even terrorist attacks. In war, pipelines are often the target of military attacks, as destruction of
pipelines can seriously disrupt enemy logistics.

Water transport
Water transport refers to movement of goods on waterways by using various means like boats,
steamers, launches, ships, etc. With the help of these means, goods are carried to different
places, both within as well as outside the country. Within the country, rivers and canals
facilitate the movement of boats, launches, etc.

Advantages of water transport


It is a relatively economical mode of transport for bulky and heavy goods
It is a safe mode of transport with respect to occurrence of accidents
The cost of maintaining and constructing routes is very low as most of them are naturally made
It promotes international trade

Limitations of water transport


The depth and navigability of rivers and canals vary and thus, affect operations of different
transport vessels
It is a slow moving mode of transport and therefore not suitable for transport of perishable
goods
It is adversely affected by weather conditions
Sea transport requires large investment on ships and their maintenance

Air transport
This is the fastest mode of transport. It carries goods through airways by using different aircrafts. It
generally carries goods that are less bulky or of high value. In hilly and mountainous areas where
other mode of transport is not accessible, air transport is an important as well as convenient mode.
International air transport is used for carrying goods between different countries. Air transport is
carried out in fixed air routes, which connect almost all the countries.

Advantages of Air transport


It is the fastest mode of transport
It is very useful in transporting goods, which are not accessible by any other means

Limitations of air transport


It is relatively more expensive mode of transport
It is not suitable for transporting heavy and bulky goods
It is affected by adverse weather conditions
It is not suitable for short distance travel
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17.2 Containerization
Containerization is a system of freight transport based on a range of steel intermodal containers
(also 'shipping containers', 'ISO containers' etc). Containers are built to agreed upon standard
dimensions and can be loaded and unloaded, stacked and transported efficiently over long
distances, often by container ship, rail and semi trailer trucks without being opened. The system
developed after WWII and led to greatly reduced transport costs and supported a vast increase in
international trade.
It is a method of distribution of goods using containers. The use of containers has not only
facilitated but has also revolutionized the carriage of goods among the developed countries. The
exporters in developing countries are also making greater use of containers for the transportation
of the goods. The enactment of Multi Modal Transportation of Goods Act, 1993 has enabled
exporters from India to use containers for transportation of export cargo. Train or road to the
seaports carries the containers, where they are loaded on the ships for onward transportation to
their destination.

Containers
The container, as the meaning implies, is the equipment used to store and carry goods. In
shipping, the term was used to refer to any type of box used to carry cargo.
The International Organization for Standardization (ISO) defined a freight container as an article of
transport equipment,

Of a permanent character and accordingly strong enough to be suitable for repeated use
Specially designed to facilitate the carriage of goods by one or more modes of transport,
without intermediate reloading
Fitted with devices permitting its ready handling, particularly its transfer from one mode of
transport to another
So designed as to be easy to fill and empty
Having an internal volume of 1m.cube (35.3cu.ft) or more
Further, the general-purpose freight container is defined as "A freight container is rectangular in
shape, weatherproof, used for transporting and storing a number of unit loads, packages or
bulk material; it confines and protects the contents from loss or damage, it can be separated
from the means of transport, handled as a unit load and transshipped without re-handling the
contents

Advantages of Container
Use of containers offers many advantages to the exporters. These are as follows:
The risk of damage (due to pilferage and mishandling) to the goods during transport is reduced
substantially.
The cargo arrives in better condition and this creates a better impression about the exporter in
the mind of the importer. This perception of delivery of goods in good condition enables an
exporter to gain an edge over other competitors.
There are no damages due to mishandling of the cargo at terminal ports in the case of
transshipment.

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The widespread use of ISO standard containers has driven modifications in other freight-moving
standards, gradually forcing removable truck bodies or swap bodies into standard sizes and shapes
(though without the strength needed to be stacked), and changing completely the worldwide use of
freight pallets that fit into ISO containers or into commercial vehicles.
Improved cargo security is also an important benefit of containerization. The cargo is not visible to
the casual viewer and thus is less likely to be stolen and the doors of the containers are generally
sealed so that tampering is more evident. Some containers are outfitted with electronic monitoring
devices and can be remotely monitored for changes in air pressure, which happens when the doors
are opened. This has reduced the "falling off the truck" syndrome that long plagued the shipping
industry.
Use of the same basic sizes of containers across the globe has lessened the problems caused by
incompatible rail gauge sizes in different countries. The majority of the rail networks in the world
operate on a 1,435 mm (4 ft 8 12 in) gauge track known as standard gauge but many countries (such
as Russia, India, Finland, and Lithuania) use broader gauges while many other countries in Africa
and South America use narrower gauges on their networks. The use of container trains in all these
countries makes trans-shipment between different gauge trains easier.
Containers have become a popular way to ship private cars and other vehicles overseas using 20 or
40ft containers. Unlike roll-on/roll-off vehicle shipping, personal effects can be loaded into the
container with the vehicle, allowing for easy international relocation

Container Standards
There are five common standard lengths, 20-ft (6.1 m), 40-ft (12.2 m), 45-ft (13.7 m), 48-ft (14.6
m), and 53-ft (16.2 m). United States domestic standard containers are generally 48 ft (15 m) and
53-ft (rail and truck). Container capacity is often expressed in twenty foot equivalent units (TEU, or
sometimes teu). An equivalent unit is a measure of containerized cargo capacity equal to one
standard 20 ft (length) 8 ft (width) container. As this is an approximate measure, the height of the
box is not considered, for instance the 9 ft 6 in (2.9 m) High cube and the 4-ft 3-in (1.3 m) half
height 20 ft (6.1 m) containers are also called one TEU.

Classification
Classification of containers
By raw material
A container can be classified in terms of its building or cladding materials i.e. it is defined by what
it is made of. The maximum numbers of containers are made of steel, aluminum or GRP (glass
fiber reinforced plywood). Almost 65 per cent of the entire container fleet presently consists of
steel containers.

By size
The ISO has worked a great deal on standardization of container dimensions and published
recommendations. Containers are defined in multiples of l0ft. i.e., 10ft or 20 ft, or 30ft, or 40ft.
Presently 20ft, 40ft containers are used predominantly, and around 65-70 per cent of world fleet
consists of 20 ft containers. Twenty-foot containers are referred as Twenty Foot Equivalent Unit or
TEU and 40 footers as FEU (Forty foot Equivalent Unit). If all the containers are expressed -in
terms of TEU, it becomes easier for the container terminal operators and, ship owner to estimate
the space required in a container terminal or inside the vessel.
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Most of the containers have width of 8 ft. However, in height containers vary from 8ft to 8Y2 ft.
Presently about 75 per cent of world box fleet has a height of 8Y2 ft. and about 20 per cent have a
height of 8 ft. However, there is an increasing tendency to use containers of 9Y2 ft (High cube).
The inside volume of a standard 20ft x 8 ft. X 8Y2 ft. container is around 33m3

Container Dimensions and Capacity


The 20 feet (20') and 40 feet (40') containers are very popular in ocean freight. The 8.5 feet (8.5')
high container8 feet 6 inches (8' 6") high containeris often referred to as standard container.
The demand for the high cube container is increasing. The popular high cube container has a
normal height of 9.5 feet (9.5' or 9' 6").
There are half height containers (4.25' or 4' 3" high) designed for heavy loads such as steel rods and
ingots, which absorb the weight limit in half the normal space.
The most widely used type of container is the general purpose (dry cargo) container having a
nominal length and height of 20' x 8.5', 40' x 8.5', and 40' x 9.5'.
Referring to the Dimension of General Purpose Containers below, the dimensions shown in the
table are not fixed, that is, the external and internal dimensions may vary among containers of the
same length and height.
The container capacity is the total cube a container can accommodate. The term cube often refers
to the cubic measurement of cargo. The capacity (i.e., the internal volume) is determined by
multiplying the internal dimensions, that is, the product of internal length, width and height. The
capacity may vary among containers of the same length and height.

Classification of Containers
Containers can also be classified by their uses. Containers maybe broadly classified into three types
by cargo to be stowed therein.

The General Cargo Container


The General Cargo Container is the most representative type for general cargo (packed cargo) that
does not require temperature control. This type occupies an overwhelming share of the total
number of containers. The type is called Dry Cargo Container in ordinary parlance. It is generally
of the closed van type with a door at one end.
These containers are closed and are suitable for the carriage of all types of general cargo both solid
and liquid. Access for loading and unloading is through full width doors.
Based on the length of the container, the container is generally known as a 20 ft container or 40 ft.
container in practice.

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The Thermal Container


The Thermal Container is designed for cargo requiring refrigerated or insulated storage. It is
covered with material of low heat transfer such as polystyrene foam.
Thermal containers are classified into three types
Refrigerated (or Reefer) Container (for cooled foodstuffs, meat, fish vegetables etc): It has
insulated walls, doors, roof, and floor, which limit the range of temperature loss or gain. It is
used for perishable goods like meat, fruits and vegetables.
Insulated containers: It is used for fruit, vegetables etc. Here dry ice is used as the cooling
medium. It does not use any device for cooling and/or heating.
Ventilated container allows for the passage of air by means of apertures on sides or ends. This
type is used for cargo such as fruit or vegetable, which requires respiration. They are required
for carriage of special cargo like tea, coffee, etc. which may lose moisture, that is; they may
"sweat" if carried in closed box type containers.

Controlled and Modified Atmosphere systems


In the Controlled Atmosphere, there is computerized controller. The refrigeration unit maintains
the set temperature and the controller maintains the ideal atmosphere by sensing the product's
consumption of oxygen and production of carbon dioxide. By integrating this information the
controller continuously adjusts air exchange valves and activates the required scrubbing systems to
maintain the atmosphere of the pre-set level.
In the Modified Atmosphere system, the desired atmosphere is created in the container when it is
stuffed. The container is then sealed to prevent changes in the original atmosphere due to
ventilation. The modified atmosphere system is limited to shorter voyages and fewer commodities
than the controlled atmosphere system.

Special Containers
The category of container comprises of the balance types under the broad head of Special
Containers. Prominent types in this head are: Bulk containers, Tank containers, open top
Containers, Side Open containers, Flats, Car containers, Pen containers (to carry livestock).
Bulk Containers: These containers are designed for the carriage of dry powders and gram
substances in bulk
Ventilated Containers: These containers have full length ventilation galleries.
Half-height version of the open top container is designed for the carriage of heavy dense
cargoes such as steel, pipes and tubes etc
Tank Containers: These containers are generally constructed for the carriage of a specific
product or range of products in mind
Open Sided Containers: These containers are designed to accommodate specific commodities
such as plywood, perishable commodities and livestock

Dry cargo containers


Dry cargo containers are by far the maximum in use. They are of different types. A standard dry
cargo container is a of box type with a door at one end. Sometimes containers are provided with
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side doors, i.e., the entire side of the container can be opened for easier stuffing and unstuffing.
These types of containers are useful when stuffing operations are carried out while the container is
mounted on a wagon or trailer. There are various "dry specials" like open top containers, flat racks,
bulk containers, garment container, ventilated containers, etc.

The open top container


The open top container is one having no roof and usually provided with a polythene lined
tarpaulin to cover the container. The advantage of this container is that heavy machineries,
structural etc. can be easily hoisted by a crane and put inside the container through its open roof.
Flat container: Flat rack or flat container is a container having its base only. Usually a cargo of
odd size and weight is put on to this container and is lashed to it
Bulk container: Bulk container is a container fitted with manholes to facilitate loading of bulk
cargo through gravity
Garment container: Garment containers are fitted with hangers to help loading a large number
of garments in hangers into the containers
Liquid containers: Liquid containers are usually made of stainless steel and have manholes for
loading and unloading liquid cargo
Gas containers: Gas containers are special containers with fixtures and fittings for filling and
emptying liquid gas. They also have special features like thick walls of special metal for safety
during transit

Other Container
Insulated Containers: Such containers protect the cargo against head loss or gain and are used
in conjunction with a blown-air-refrigeration system to protect perishable or other cargo which
needs to be carried under temperature control
Fruit Containers: These are insulated containers with internal dimensions slightly longer
Refrigerated Containers: These containers are fitted with their own refrigeration units which
require an electrical supply for their operation
Hanger Containers: These containers are used for dry cargo and are equipped with removable
beams in the upper part. They are used for the shipment of garments on hangers
Bin Containers: These containers have no doors and are ideal for heavy dense cargoes such as
steel, pipes etc

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Self Assessment Questions


Q1. Which of the following statement is NOT true?
a) Containers are strong enough for repeated use
b) Containers are specially designed to facilitate the carriage of goods by only one mode of
transport
c) Containers are fitted with devices permitting its ready handling particularly its transfer from
one mode of transport to another
d) Containers are designed for easy filling and emptying
Q2. What does TEU stand for?
a)
b)
c)
d)

Ton Equivalent Unit


Twelve Equal Unit
Ten Feet Equivalent Units
Twenty Feet Equivalent Units

Q3. Which amongst the following is NOT among the top five container ports in the world?
Singapore?
a)
b)
c)
d)

Hong Kong
Shanghai
Dubai
Shenzhen

Q4. Which of the following is Not a benefit of containerization?


a)
b)
c)
d)

Big container ports dominating the shipping industry


More cargo carrying capacity on a ship
Higher Return on investment
Less port congestion

Q5. Which of the following is NOT offered by a C&F agent to shippers?


a)
b)
c)
d)

Coordination with shipper and shipping lines


Storing the cargo in his own warehouse at the port
Securing port permit for the cargo
Completing the customs formalities at the port on behalf of shippers

Q6. Which of the following products is NOT suitable for sea transportation?
a)
b)
c)
d)

Timber
Hazardous Cargo
Gems and Jewellery
Automobiles

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18. MANAGING QUALITY IN EXPORTS


In the prevailing economic situation, large and small enterprises in developing and developed
world are discovering that the old ways of doing business do not work any more and that new
approaches are called for. Companies are adopting newer systems of management for both
internal and external purposes. The use of TQM principles and quality management systems in
cooperation with other companies, entering into agreement and developing, manufacturing and
supplying the required products and services meeting customer expectations is becoming more
and more a business imperative.
Economic studies have discovered that meeting quality, delivery and cost requirements is the only
long term method for success. Export promotion is vitally linked to economic development and
unless a country exports quality goods and services meeting customer requirements, there can be
no steady economic growth. No enterprise can afford to compromise on quality if it is to establish
a good image for its products and for its country. A single consignment of inferior quality can
tarnish the good name of the exporter and the country as a whole.
Quality control is a process by which entities review the quality of all factors involved in
production. This approach places an emphasis on three aspects
Elements such as controls, job management, defined and well managed processes,
performance and integrity criteria, and identification of records
Competence, such as knowledge, skills, experience, and qualifications
Soft elements, such as personnel integrity, confidence, organizational culture, motivation, team
spirit and quality relationships
The quality of the outputs is at risk if any of these three aspects is deficient in any way.
Quality control emphasizes testing of products to uncover defects, and reporting to management
who make the decision to allow or deny the release, whereas quality assurance attempts to improve
and stabilize production, and associated processes, to avoid, or at least minimize, issues that led to
the defects in the first place. For contract work, particularly work awarded by government agencies,
quality control issues are among the top reasons for not renewing a contract.

18.1 Services Quality


In recent times, service sector has been the fastest growing sector in the world. While product
quality is easier to control with rigorous tests, services are usually produced and consumed at the
same time, and service deficiencies cannot be eliminated before delivery due to the personalized
and subject nature of services. In addition, service standards are difficult to establish due to
subjective measurements, and customers have their own expectations about what service quality is
or should be.
For export of services, the usual inquiries from the buyer relate to assurance of continuity of supply
and consistency of quality. In addition, services are usually labour intensive, involving complex
cross functional integration of several supporting systems.
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The implementation of quality system based on the ISO 9000 series should provide an
opportunity for evaluating how an enterprise is conducting its business, and whether or not there
are further opportunities for meeting the service needs of its clientele.

18.2 ISO 9000 Sstandards


Sstandards
The ISO 9000 standards relate to quality management systems and are designed to help
organizations ensure they meet the needs of customers and other stakeholders. The standards are
published by ISO, the International Organization for Standardization and available through
National standards bodies.
ISO 9000 deals with the fundamentals of quality management systems, including the eight
management principles on which the family of standards is based. ISO 9001 deals with the
requirements that organizations wishing to meet the standard have to meet.
Independent confirmation that organizations meet the requirements of ISO 9001 may be obtained
from third party certification bodies. Over a million organizations worldwide are independently
certified making ISO 9001 one of the most widely used management tools in the world today.

Summary of ISO 9001:2008


The quality policy is a formal statement from management, closely linked to the business and
marketing plan and to customer needs. The quality policy is understood and followed at all
levels and by all employees. Each employee needs measurable objectives to work towards
Decisions about the quality system are made based on recorded data and the system is
regularly audited and evaluated for conformance and effectiveness
Records should show how and where raw materials and products were processed, to allow
products and problems to be traced to the source
The business needs to determine customer requirements and create systems for
communicating with customers about product information, inquiries, contracts, orders,
feedback and complaints
When developing new products, the business needs to plan the stages of development, with
appropriate testing at each stage. It must test and document whether the product meets design
requirements, regulatory requirements and user needs
The business needs to regularly review performance through internal audits and meetings.
Determine whether the quality system is working and what improvements can be made. It must
deal with past problems and potential problems. It must keep records of these activities and
the resulting decisions, and monitor their effectiveness. It needs a documented procedure for
internal audits
The business needs documented procedures for dealing with actual and potential non
conformances (problems involving suppliers or customers, or internal problems). It must make
sure no one uses bad product, determine what to do with bad product, deal with the root cause
of the problem seeking and keep records to use as a tool to improve the system
Effectiveness of the ISO system being implemented depends on a number of factors, the most
significant of which are
Involves commitment of Senior Management to monitor, control, and improves quality.
Organizations that implement an ISO system without this desire and commitment, often take
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the cheapest road to get a certificate on the wall and ignore problem areas uncovered in the
audits
How well the ISO system integrates into their business practices. Many organizations that
implement ISO try to make their system fit into a cookie-cutter quality manual rather than
create a manual that documents existing practices and only adds new processes to meet the
ISO standard when necessary
How well the ISO system focuses on improving the customer experience. The broadest
definition of quality is "Whatever the customer perceives good quality to be". This means that
you don't necessarily have to make a product that never fails, some customers will have a
higher tolerance for product failures if they always receive shipments on-time, or some other
dimension of customer service. Your ISO system should take into account all areas of the
customer experience, the industry expectations, and seek to improve them on a continual
basis. This means taking into account all processes that deal with the three stakeholders (your
customers, your suppliers, and your organization), only then will you be able to sustain
improvements in your customer experience
How well the auditor finds and communicates areas of improvement. While ISO auditors may
not provide consulting to the clients they audit, there is the potential for auditors to point out
areas of improvement. Many auditors simply rely on submitting reports that indicate
compliance or non-compliance with the appropriate section of the standard, however, to most
executives; this is like speaking a foreign language. Auditors that can clearly identify and
communicate areas of improvement in language and terms executive management understands
allows the companies they audit to act on improvement initiatives. When management doesn't
understand why they were non-compliant and the business implications, they simply ignore the
reports and focus on what they do understand

Advantages
It is widely acknowledged that proper quality management improves business, often having a
positive effect on investment, market share, sales growth, sales margins, competitive advantage, and
avoidance of litigation.ISO 9000 guidelines provide a comprehensive model for quality
management systems that can make any company competitive implementing ISO often gives the
following advantages
Create a more efficient, effective operation
Increase customer satisfaction and retention
Reduce audits
Enhance marketing
Improve employee motivation, awareness, and morale
Promote international trade
Increases profit
Reduce waste and increases productivity.

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18.3 List of Certification Bodies in India


Bureau of Indian Standards (BIS)
9, Bahadurshah Zafar Marg, Manak Bhawan, Tel 23230131
New Delhi 110002
Fax 2323 4062 Email: info@bis.org.in
Website http://www.bis.org.in/
Bureau Veritas
609 Balarama, 6th floor, 3C Bandra Kurla Email industry/mum@in.bureauveritas.com
Complex , Bandra (E), Mumbai 400 051
Website http://bureauveritas.co.in
Det Norske Veritas (DNV)
203 Savitri Sadan -1, 11 Preet Vihar, Email newdelhi@dnv.com
Community Centre, New Delhi 110092
Website http://www.dnv.in/
Indian Register Quality Systems (IRQS)
52A, Adi Sankaracharya Marg, Opp Powai Tel 022 22154128
Lake, Powai, Mumbai 400 072
Email irqs@irclass.org
Website http://www.irclass.org/
S-241, Greater Kailash 1, New Delhi 110048
Lloyds Register Industrial Services (India) Ltd (LRQA)
401/2 Tulsiani Chambers, Nariman Point, Tel 2830612,2854680
Mumbai 400021
Website www.lr.org
NQA Quality Systems Registrar Ltd
#15/1, 8th Main, Hampi Nagar (RPC Layout)
Tel 080-32722693
Behind Govt. Central Library,
Email nqaindia@vsnl.net
Vijayanagar II Stage Bangalore,Karnataka Website www.nqa.com
560040 .
SGS India Ltd (SGS)
SGS House, 4B Adi Shankaracharya Marg, Tel 022 25798421
Vikroli (W), Mumbai 400 083
Email sgs_india@sgs.com
Website http://www.in.sgs.com/
Standardization, Testing & Quality Control (STQC)
Department of Information Technology,
Tel 011 24363083
Electronic Niketan,
6 CGO Complex, Lodhi Road, New Delhi
110003
TUV (India) Pvt Ltd
241, Hindustan Kohinoor Industrial Complex, Tel 25771454/1324
Opp MTNL, LBS Marg, Vikroli (E), Mumbai Fax 25770738
400 083
Email tuvindia@vsnl.com
Website http://www.tuvindia.co.in

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Self Assessment Questions


Q1. Implementation of ISO gives the following advantages
a)
b)
c)
d)

Create a more efficient, effective operation


Increase customer satisfaction and retention
Reduce audits
All of the above

Q2. An ISO 9000/BIS 14000 Certification holder company is exempted from


a)
b)
c)
d)

Customs Duty
Compulsory pre shipment inspection
Letter of Credit
All of the above

Q3. Quality control places emphasis on


a) Elements such as controls, job management, defined and well managed processes,
performance and integrity criteria, and identification of records
b) Competence, such as knowledge, skills, experience, and qualifications
c) Soft elements, such as personnel integrity, confidence, organizational culture, motivation,
team spirit and quality relationships
d) All of the above

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19.
19. GLOSSARY (ACRONYMS)
ACRONYMS)
Acronym
ACU
AEZ
ANF
ARO
ASIDE
BG
BIFR
BOA
BOT
BRC
BTP
CBEC
CCP
CEA
CEC
CIF
CIS
CoD
CoO
CVD
DA
DC
DEPB
DFIA
DFRC
DGCI&S
DGFT
DIPP
DoBT
DoC
DoE
DoIT
DoR
DoT
DTA
EDI
EEFC
EFC
EFT
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Explanation
Asian Clearing Union
Agri Export Zone
Aayaat Niryaat Form
Advance Release Order
Assistance to States for Infrastructure Development of Exports
Bank Guarantee
Board of International and Financial Reconstruction
Board of Approval
Board of Trade
Bank Realization Certificate
Biotechnology Park
Central Board of Excise and Customs
Customs Clearance Permit
Central Excise Authority
Chartered Engineer Certificate
Cost, Insurance & Freight
Commonwealth of Independent States
Cash on Delivery
Certificate of Origin
Countervailing Duty
Document against Acceptance
Development Commissioner
Duty Entitlement Passbook
Duty Free Import Authorization
Duty Free Replenishment Certificate
Director General, Commercial Intelligence & Statistics
Director General of Foreign Trade
Department of Industrial Policy & Promotion
Department of Bio Technology
Department of Commerce
Department of Electronics
Department of Information Technology
Department of Revenue
Department of Tourism
Domestic Tariff Area
Electronic Date Interchange
Exchange Earners Foreign Currency
Exim Facilitation Committee
Electronic Fund Transfer
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EH
EHTP
EIC
EO
EODC
EOP
EOU
EPC
EPCG
EPO
FDI
FIEO
FIRC
FMS
FOB
FPS
FT (D&R)
FTDO
FTP
GATS
GRC
HACCP
HBP v1
HBP v2
ICD
ICES
ICM
IEC
ISO
ITC (HS)
ITPO
LoC
LoI
LoP
LUT
MAI
MDA
MEA
MoD
MoF
NC
NFE
NFTP
NOC
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Certified Export Import (Foreign Trade) Professional


Export House
Export Hardware Technology Park
Export Inspection Council
Export Obligation
Export Obligation Discharge Certificate
Export Obligation Period
Export Oriented Unit
Export Promotion Council
Export Promotion Capital Goods
Export Process Outsourcing
Foreign Direct Investment
Federation of Indian Export Organization
Foreign Exchange Inward Remittance Certificate
Focus Market Scheme
Freight On Board
Focus Product Scheme
Act Foreign Trade (Development & Regulation) Act, 1992 (22 of 1992)
Foreign Trade Development Officer
Foreign Trade Policy
General Agreement of Trade in Services
Grievance Redressal Committee
Hazard Analysis and Critical Control Process
Handbook of Procedures (Vol 1)
Handbook of Procedures (Vol 2)
Inland Container Depot
Indian Customs EDI System
Indian Commercial Mission
Importer Exporter Code
International Standards Organization
Indian Trade Classification (Harmonized System) Classification for Export and
Import Items
Indian Trade Promotion Organization
Line of Credit
Letter of Intent
Letter of Permit
Legal Undertaking
Market Access Initiative
Market Development Assistance
Ministry of External Affairs
Ministry of Defence
Ministry of Finance
Norms Committee
Net Foreign Exchange
National Foreign Trade Policy
No Objection Certificate
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PRC
PSU
PTH
R&D
RA
RBI
RCMC
REP
RSCQC
S/B
SEH
SEI CMM
SEZ
SFIS
SIA
SION
SSI
STE
STH
STP
TEE
TH
TRA
TRQ
UNCTAD
VA
VKGUY
WHOGMP

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Policy Relaxation Committee
Public Sector Undertaking
Premier Trading House
Research and Development
Regional Authority
Reserve Bank of India
Registration cum Membership Certificate
Replenishment
Regional Sub Committee on Quality Complaints
Shipping Bill
Star Trading House
Software Engineers Institutes Capability Maturity Model
Special Economic Zone
Served from India Scheme
Secretariat Technology Park
Standard Input Output Norms
Small Scale Industry
State Trading Enterprise
State Trading House
Software Technological Park
Towns of Export Excellence
Trading House
Telegraphic Release Advice
Tariff Rate Quota
United Nations Conference on Trade and Development
Value Addition
Vishesh Krishi and Gram Udyog Yojana
World Health Organization Good Manufacturing Practices

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20. ANSWERS KEY


Chapter 1
1
2

Chapter 11
d
d

Chapter 2
1
2
3

d
b
d
Chapter 3

1
2

b
d
Chapter 4

1
2

d
c
Chapter 5

1
2
3
4

b
d
d
d
Chapter 6

1
2
3
4
5

c
c
a
c
a

Chapter 12

Chapter 13

Chapter 14
14

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b
d
b
d
Chapter 15

c
a
c
c
a
a
c

1
2
3
4

a
a
b

1
2
3
4
5
6

c
b
d
b
a
d
c
Chapter 16
a
a
a
d
Chapter 17

Chapter 10
1
2
3
4
5
6

b
b
d
c
a

1
2
3
4

Chapter 9
1
2
3

d
b

1
2
3
4
5

Chapter 8
1
2
3
4

c
a
d
b
a

1
2

1
2
3
4
5
6
7

Chapter 7
1
2
3

1
2
3
4
5

c
d
a
c
a
c

b
d
c
a
d
c
Chapter 18

1
2
3

d
b
d

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