Export Trade

Export Trade

Exports have attained greater importance in the contemporary world. It has emerged as one of the vital indicators of a nation’s social, economical andpolitical growth. No country in the world can produce all the goods and services it required. They have to inevitably buy and sell from one another. Therefore countries have to engage in international trade. Export and import represent two sides of the same coin of international trade. In other words the countries have to buy the goods which are either not available or not adequately available in home country and sell the surplus goods/ services produced by it to other countries which need them utmost. In short each and every country has to export surplus goods and import the deficit goods. In this process, it earns precious foreign exchange and use the foreign exchange thus earned for import goods which cannot be produced or adequately produced in the home country.

Developing countries like India, Bangladesh, South Korea and so on require substantial amount of foreign exchange in order to acquire machineries, equipment, raw materials, petroleum products, mineral resources, technical know-how, managerial talents and so on for their faster economic development. Government of India has initiated several steps to encourage exports. It has been promoting export by providing cash incentives, tax incentives and relief, institutional support, concessional interest rate, infrastructural assistance, loan assistance, tax exemptions, tax holidays and transport concessions, etc., Trade delegations are sent abroad to explore export potential for various products and services in various countries across the world. Bilateral trade agreements are entered into with foreign countries which offer bright prospects for export. Besides trade fairs and exhibitions too are organized for promoting international business. The Government of India has set up several institutions for the purpose of promoting exports.

Export and Import Bank (EXIM Bank)

Export and Import Bank which is one of the specialized financial institutions wholly owned by Government of India was set up in the year 1982 for financing, facilitating and promoting foreign trade of India. The main objective of EXIM bank is to co-ordinate the various activities of institutions and bank engaged in financing foreign trade.

Main Functions of EXIM Bank

Main functions of EXIM bank are listed below

1.        It provides direct  financial  assistance to exporters of plant, machinery, and related services.

2.        It underwrites the shares, debentures and bonds of the companies engaged in exports

3.        It provides re-discount facility in respect of export bills for a period not exceeding 90 days against short-term export bill discounted by commercial bank.

4.        It gives overseas buyer credit to foreign exporters for the import of Indian capital goods which are used for manufacturing export products.

5.        It finances export- oriented industries.

6.        It collects and provides market and credit information about foreign trade to those engaged in international business.

Role of Commercial Bank in International Business

Commercial banks provide financial assistance in two ways, namely, pre- shipment financial assistance and post- shipment financial assistance.

Pre-Shipment Financial Assistance.

This is the type of assistance given to enable exporters to purchase raw materials process them and create finished goods for the purpose of export. This credit is given on the basis of exports orders and letter of credit opened in favour of overseas buyer

Post-Shipment Financial Assistance.

Post-shipment financial assistance is an assistance granted in the form of advances on the basis of bills of exchange and shipping documents drawn under letters of credit. This type of export finance is granted right from the date of shipment of the goods to date of realization collection of export proceeds for the purpose meeting capital need, paying insurance charges. ECGC premium commission and brokerage to agent export promotion expenses and so on and so forth.

Objectives of Export Trade

The important objectives of the export include the following.

1.        Facilitating selling of goods to countries which desperately need such goods

2.        Expanding the market for goods by producing them on a large scale.

3.        Earning foreign exchange through exports

4.        Helping a country increase the national income

5.        Creating  employment  opportunity   in a country by promoting of export - oriented and export related enterprises.

6.        Generating revenue for the Government in the form of customs and excise duties.

7.        Promoting mutual understanding and co-operation among the nations.

8.        Achieving optimum utilization of resources by large scale production of goods

Export Trade Procedure

An exporter has to fulfill the formalities given below to export the goods out of the country

1. Receiving Trade Enquiry

Exporter receives trade enquiry (written request) from the importer / his agent who intends to buy the product. In the first place importer requests the exporter to supply the information given right below.

a.        Specification about the goods like, size, design, quality and brand name.

b.        Quantity of goods available.

c.         Price per unit

d.        Terms and conditions of shipment

e.         Terms and conditions of payment

f.          Probable delivery time

g.        The period up to which his proposal to import is valid.

2. Receiving Indent and Sending Confirmation

After the scrutiny of quotation / proforma invoice, the buyer who intends to buy the goods sends an indent to exporter. The latter may either receive the order directly from the importer or through an agent who acts as an intermediary between the exporter and the importer. The agent receives commission for this intermediating service. An indent actually points to an order received from abroad for export of goods. i.e. sale of goods. The indent contains the details in the box.

Indent is prepared in duplicate. One copy of the indent is sent to the exporters and second one is retained by the importer and kept in his records. There are three types of indent, namely open indent, closed indent and confirmatory indent.

A. Open Indent

It gives complete freedom to exporter to choose type of goods, price, quality, method of packing etc.,

B. Closed Indent

It does not give any freedom to exporter. Importer specifies climates the type of goods, price, quality, packing method, and so on which should be strictly observed by the exporter.

C. Confirmatory Indent

An indent is to be confirmed by importer/ his agent and the final indent is sent by importer thereafter.

3. Arranging Letter of Credit

Under this stage exporter intends to satisfy himself/herself about the trust worthiness of the importer. In this case the exporter is requested to arrange a letter of credit in his favour.

Letter of Credit (LC) is an undertaking by its issuer(importer’s bank) thatbillsofexchange drawn by the foreign dealer on the importer will be honoured upon its presentation by exporter’s bank up to a specified amount. In other words it simply represents a guarantee given by the importer bank to the foreign dealer (exporter) that the amount in the bill will be honoured upon its presentation by the exporter /his agent. There are different types of letter of credit.

Letter of Credit is opened only for well- established and reputed importer. It is beneficial both to the exporter and importer. Exporter is assured of payment and need not bother about credit worthiness of importer. The letter of credit simply transfers the burden of settling the transactions to the bank

4. Obtaining Importer Exporter Code (IEC) and RBI code Number

Exporter has to apply in Ayaab Niryatt Form 2A(ANF2A) to the Regional Authority of the Director General of Foreign Trade (DGFT) in the region where the registered office of the company is located. Exporter has to mention the number in all the shipping documents. However IEC number is not required where the goods are exported/imported for the personal use of importer and not for trade/ manufacture or agriculture purpose.

5. Obtaining Registration cum Membership Certificate (RCMC) from Export Promotion Council /Commodity Board

An Exporter is required to obtain RCMC from Export Promotion Councils/ Commodity Board/Development Authority in order to avail himself/herself of export incentives, concessions, and other facilities offered by Government e g. cash compensatory support and benefit of promotional scheme from Government.

6. Manufacturing /Procuring Goods and Packing items

Exporters  steps  into  manufacturing  and procuring of goods required by the importer. Where the materials required for manufacturing of goods are subject to excise duty. the exporter has to apply to Export Commissioner for exemption from excise duty if the goods are meant for export along with the invoice AR4/AR5 and other documents. The Excise Commissioner would issue excise clearance certificate if he is satisfied with the documentation made by exporter. If the exporter has already paid excise duty, he can get refund from the Directorate of Drawback functioning under the Ministry of Finance.

The exporter proceeds to collect the goods from the factory or purchase it from the market. These goods have to be packed as per the specifications given by the importer. Where such  instructions  are not specifically given by the importer, the goods can be packed keeping in mind the safety and freight charges in respect of the consignment. The goods packed are marked distinctly to facilitate easy identification of goods of specific importer. The markings reveal the name of the importer, port of destination and weight of consignment.

7. Export Inspection Certificate

After the goods have been packed as per the specifications of importer, the exporter has to apply to the Export Inspection Agency (EIA) or other designated agency in this connection The agency sends an inspector to inspect the consignment meant for export. 

If the inspector is satisfied with the packing he/she issues certificate mentioning that goods exported adhere to specification made by the exporter. This certificate is termed as Export Inspection Certificate. It is required by the customs authorities for the shipment of goods.

8. Insurance of Goods

Exporter has to arrange for getting the goods insured to protect them against the various risks like deterioration, collision, immersion, fire, entry of sea water etc., as per the instructions of importer if any.

9. Certificate of Origin.

Import regulation of foreign countries may require that all this import consignments must accompany a certificate of origin. This certificate certifies that goods which are exported have  been manufactured  in a particular country. In  India,  Chamber of Commerce, Trade Association, Export Promotion Council have been empowered to issue such certificate. 

It will be sent to importer, This certificate helps the importer to get concessions on import duty on the goods imported based on the bilateral trade agreement between the countries.

10. Consular Invoice

Where the  customs  duties  are  charged  on the basis of value of goods at import’s port(ad-valorem basis), the customs officers are empowered to open  the  consignment to calculate duties. In order to avoid this problem exporter obtains consular invoice and sends it over to the importer.

This document is signed by the consul of importer’s country stationed in exporter’s country. Hence customs officer at the port of destination will not open the consignment and simply access customs duty based on the value declared in the invoice. They simply accept the invoice as true statement of the content of the consignment.

11. Engagement of Forwarding Agent

After Export Inspection certificate is obtained, the exporter has to obtain clearance from customs authorities. Generally exporters engage Clearing Forwarding Agent to fulfill various custom formalities. The latter do it for fees.

12. Dispatch of Goods to Port and Sending the Receipt to Agent

The exporter will send the goods over to port town by rail or by truck and endorse the Railway Receipt (R/R) or Lorry Receipt(L/R) to forwarding agent’s favour with necessary instructions.

13. Fulfilment of Customs Formalities by Forwarding Agent

i. Taking the Delivery of Goods at Port Town

When the goods arrive at port town, the forwarding agent takes delivery from the rail or from the truck after the submission of railway receipt (R R) or lorry receipt (L R). Then the agent arranges for storage of the consignment in a warehouse.

ii. Obtaining Shipping Order

The clearing and forwarding agent approaches the shipping company or its agentto book space in the ship. Onbooking a space in ship, shipping company issues a document called Shipping Order. It contains instruction to the captain of the ship concerned to accept the consignment on board. Besides it provides information about the name of ship, nature of goods shipped, the date of shipping, weight of goods, port of destination, and freight paid.

iii. Charter Party

A charter party is a formal agreement between ship owner and the exporter under which exporter hires an entire ship or a major part of ship either for a particular voyage or for a specific time period when the shipping is heavy. The hiring of ship for specific voyage is called voyage charter while this hiring of entire ship for a specific time period is called time charter. The content of charter party includes the following

1. Name of the ship 2. Place of loading

3. Port of destination 4. Name of exporter

5. Amount of freight

14. Customs Clearance

The exporter or his agent prepares three copies of shipping bill in printed  form.  The shipping bill contains the details like name and address of exporter, description of goods, value of goods, volume of goods, identification marks on the goods, port of destination and port of loading.

There are three types of shipping bills for three different categories of goods namely, dutiable  goods,  duty-free  goods  and duty draw-back goods Forwarding agent proceeds to pay of export duty calculated by customs officers in the case of dutiable goods.

i. Payment of Dock Dues

After  the  payment  of  export   duty, the forwarding agent arranges for transporting the goods to docks. The agent fills two copies of challan and submits it to the dock authorities along with one copy of shipping bill.  Then  the agent pays dock charges. Dock authorities retain one copy of challan and return the second copy to the forwarding agent. This signed copy is called Dock Receipt or Port Trust Receipt.

ii. Obtaining Permission for Shipment

Theforwardingagentbringstheconsignment over to the dock. The Customs Preventive Officer stationed at the docks inspects the goods on the basis of declaration in the shipping bill. This officer gives permission to load the goods onto board by issuing Customs Export Pass or simply makes an endorsement with wordings ‘Let Ship’ on the duplicate copy of shipping bill.

iii. Mate’s Receipt

Mate’s Receipt is the document issued by the captain of the ship acknowledging the receipt of goods on board by him to the port of specified destination. This contains details like quantity of goods shipped, number of packages condition for packing. etc., Where the Mate is satisfied with packing he/she issues clean receipt. If he/she is not satisfied with packing, he/she issues foul receipt. Forwarding agent should seek to get clean receipt. Otherwise insurance company will not bear liability for loss in case of foul receipt.

iv. Bill of Lading

Bill of Lading, refers to a document signed by ship owner or to his agent mentioning that goods specified have been received and it would be delivered to the importer or his agent at the port of destination if good condition subject to terms and conditions mentioned therein.

15. Preparation of Commercial Invoice and Submitting Documents to Bank

The exporter prepares a commercial invoice in respect of the goods shipped  in triplicate according to the terms and conditions agreed between the exporter and the importer. Then the exporter submits all related documents like commercial invoice, insurance policy, certificate of origin, consular invoice, etc., to his bank for onward transmission to importer’s bank with the instruction that there documents should be delivered to importer only when he accepts the bills enclosed.

16. Securing Payment

i. Bills of Exchange

Bills of exchange of can be two types

a. Document against payment (D/P)

b. Document against acceptance(D/A)

Document against Payment (D/P)

In this case documents are handed over to the importer only against payment of bill by importers bank

Document Against Acceptance (D/A)

In this case documents are released to the importer immediately after he  accepts  the bills of exchange sent along with the document of title to the goods and agrees to pay at maturity date. 

The exporter’s bank makes payment through importer’s bank either immediately or at maturity date in the case of usance bill. This amount is, then credited to the exporter’s account.

ii. Bank Certificate of Payment

After receiving payment for exports,  the exporter has to get a certificate from his bank mentioning that the documents relating to export have been presented to the importer for payment and the payment has been received from the importer as per exchange control regulation.

Intermediaries in Export Trade

Intermediaries involved in export trade include the following

1. Forwarding Agent

Forwarding agent is appointed by exporter to fulfill the customs and shipping related formalities and certain logistic functions.

1.        Enlightening exporters on the relevant trade laws

2.        Supplying transport, handling cost information to exporter.

3.        Assisting exporter in packing, marking and labeling.

4.        Arranging transport for exporter

5.        Assisting in fulfilling customs formalities

6.        Preparing and procuring documents

7.        Exposing exporter on the developments happening in transportation.

2. Commission Agents

Commission Agent is an international agent who is paid a certain percentage of commission for the order booked by him abroad. He offers product to potential customers in the territory allotted to him   in accordance with the terms and condition specified by the principal. However there is no employment relationship between the agent and the principal and the relationship is purely temporary. The agents gets only commission at the end of the deal.

3. Export Trading House

Export Trading House has been established to increase the export, strengthen the global market, capacity and get necessary facilities for increasing export performance of our country. It consists of merchants, exporters, trading companies, export oriented units, units located in export processing zones, electronic hardware technology park etc.

Functions/Services of Export house

The functions of export house are mentioned below

1.        Identifying potential market for a product

2.        Finding buyers and their agent and eliciting their response for export proposal.

3.        Establishing product specification  in the light of market needs, standards and regulation in accordance with suppliers capabilities.

4.        Determining appropriate mode of transportation and routing keeping in mind the cost, quality of service and security

5.        Preparing the goods for delivery at destination

6.        Determining buyer’s creditworthiness

7.        Negotiating the transactions

8.        Arranging proper insurance coverage against maritime risks and currency fluctuations

9.        Financing the transactions and paying for goods and service received.

10.   Preparing document for international trade

11.   Settling claim.