Import Export Procedure
Import And Export Procedure, Financing, and Primary Consideration Of international shipping documents..
Import Export Procedure Introducing: Firms engaged in international trade face a problem – they have to trust someone who may be very difficult to track down if they default on an obligation. Due to the lack of trust, each party to an international transaction has a different set of preferences regarding the configuration of the transaction. Firms can solve the problems arising from a lack of trust between exporters and importers by using a third party who is trusted by both–normally a reputable bank. A bank issues a letter of credit, abbreviated as L/C at the request of an importer. It states that the bank promises to pay a beneficiary, normally the exporter, upon presentation of documents specified in the letter of credit. A draft (bill of exchange) is the instrument normally used in international commerce to effect payment. It is an order written by an exporter instructing an importer, or an importer’s agent, to pay a specified amount of money at a specified time.
14 Steps for conducting export transaction
The entire 14-step process for conducting an export transaction is summarized. Take for example an Indian importer and US exporter.
Step 1: The Indian importer place an order with the US exporter and asks the American if he would be willing to ship under a letter of credit.
Step 2: The US exporter agrees to ship under a letter of credit and specifies relevant information such as price and delivery terms.
Step 3: The Indian importer applies to (e.g.) State bank of India for a letter of credit to be issued in favour of the US exporter from the merchandise the importer wishes to buy.
Step 4: The state bank of India issues a letter of credit in the Indian importer’s favour and sends it to the US exporter’s bank, the bank of New York.
Step 5: The bank of New York advices the US exporter of the opening of a letter of credit in his favour.
Step 6: The US exporter ships the goods to the Indian importer on a common carrier. An official of the carrier gives the exporter a bill of lading.
Step 7: The US exporter presents a 90 day-time draft (bill of exchange) drawn on the State Bank of India, in accordance with its letter of credit and the bill of lading to the bank of New York. The US exporter endorses the bill of lading so title of goods is transferred to the Bank of New York.
Step 8: The bank of New York sends the draft and the bill of lading to the State Bank of India. The State Bank of India accepts the draft, taking possession of the documents and promising to pay the now accepted draft in 90 days.
Step 9: State Bank of India returns the accepted draft to the bank of New York.
Step 10: The bank of New York tells the US exporter that it has received the accepted bank draft, which is payable in 90 days.
Step 11: The exporter sells the draft to the bank of New York at a discount from its face value and receives the discounted cash value of the daft in return.
Step 12: State Bank of India notifies the Indian importer of the arrival of the documents. He agrees to pay the State Bank of India in 90 days. State Bank of India releases the documents so the importer can take possessions of the shipment.
Step 13: in 90 days, the State Bank of India receives the importer’s payment, so it has funds to pay the maturing draft.
Step 14: In 90 days the holder of the matured acceptance i.e. bank of New York presents it to the State Bank of India for payment. The State Bank of India pays.
Exporters in the Indian can draw upon two types of government-backed assistance to help finance their exports; the Export-Import bank and Export Credit Guarantee Corporation (ECGC) The Export-Import Bank (EXIM BANK ) is a public sector financial institution established in January 1 , 1982 . It was established by an act of parliament for the purpose of financing, facilitating, and promoting foreign trade in India. Export Credit Guarantee Corporation (ECGC): this institution covers the exporter against various risks. It also provides guarantees to the financing banks to enable them to provide Adequate finances to exporters.
Export Import Primary Consideration
It will discuss the preliminary considerations that anyone intending to export should consider. Before beginning to export and on each export sale thereafter, a number of considerations should be addressed to avoid costly mistakes and difficulties. Those companies that begin exporting or continue to export without having addressed the following issues will run into problems sooner or later Products initially, the exporter should think about certain considerations relating to the Product it intends to export. For example, is the product normally utilized as a component Ina customer’s manufacturing process? Is it sold separately as a spare part? Is the product a raw material, commodity, or finished product? Is it sold singly or as part of a set or system? Does the product need to be modified– such as the size, weight, weight, or colour-to be saleable in the foreign market? Is the product new or used? (If the product is used, some countries prohibit importation or require independent appraisals of Value, which can delay the sale.) Often the appropriate methods of manufacturing, marketing, the appropriate documentation, the appropriate procedures for exportation, and the treatment under foreign law, including foreign customs laws, will depend upon these considerations.
What is the expected volume of export of the product? Will this be an isolated? Sale of a small quantity or an ongoing series of transactions amounting to substantial Quantities? Small quantities may be exported under purchase orders and purchase Order acceptances. Large quantities may require more formal international sales agreements: more secure methods of payment: special shipping, packing, and handling procedures: the appointment of sales agents and /or distributors in the foreign country: or After-sales service.
Country Market and Product Competitiveness Research On many occasions, a company’s sole export sales business consists of responding to orders from customers located in foreign countries without any active sales efforts by the company. However, as matter of successful exporting, it is imperative that the company adequately e valuate the various world markets where its product is likely to be marketable. This will include review of macro-economic factors such as the size of the population and the economic development level and buying power of the country, and the economic development level and buying power of the country, and specific factors, such as the existence of competitive products in that country.
Identification of Customers: End user, Distributors, and sales Agents Once the countries with the best market potential and the international competitiveness of your company’s products have been evaluated, the specific purchasers, Such as end users of the products, sales agents who can solicit sales in that country for the products, or distributors who are willing to buy and resell the products in that country, must be identified.
Compliance with Foreign Law
Prior to exporting to a foreign country or e3ven agreeing to sell to a customer in a foreign country, U.S. company should be aware of any foreign laws which might affect the sale. Some specific examples are as follows:
Foreign Customs Laws
Buy American Equivalent Laws
Exchange Controls and Import Licenses
Introduction: Although the sales agreement is by far the most important single document in an export sales transaction, they are numerous other documents with which the exporter must be familiar. In some cases, the exporter may not actually prepare such documents, especially if the exporter utilizes the services of a freight forwarder. The exporter is responsible for the content of the documents prepared and filed by its agent, the freight forwarder. Since the4 exporter has legal responsibility for any mistakes of the freight forwarder, it is very important for the exporter to understand what documents the freight forwarder is preparing and for the exporter to review and be totally comfortable with the contents of such documents. Furthermore, the documents prepared by the freight forwarder are usually prepared based on information supplied by the exporter. If the exporter does not understand the documents or the information that is being requested and a mistake occurs, the freight forwards will claim that the mistake was due to improper information provided by the exporter.
Freight Forwarder’s Powers of Attorney:
A freight forwarder will ordinarily provide a form contract that specifies the services it will perform and the terms and conditions of the relationship. Among other things, the contract will contain a provision appointing the freight forwarder as an agent to prepare documentation and granting a power of attorney for that purpose. Under new regulations, if the freight forwarder will have the authority to prepare shipper’s Export Declarations that must be expressly stated in the power of attorney.) Usually, however, the freight forwarder will have a more elaborate contract which includes other specific terms of or provisions relating to, the Services which it will provide.
Shipper’s Letters of Instructions
On each individual export transaction, the freight forwarder will want to receive instructions from the exporter on how the export is to be processed. The terms or Conditions of sale agreed between the seller and the buyer may vary from sale to sale. Consequently, in order for the freight forwarder to process the physical export of the goods and prepare the proper documentation, it is necessary for the exporter to advise the freight forwarder as to the specific agreement between the seller and buyer for that sale. Freight forwarders offer provide standard forms containing spaces to be filled in by the exporter for the information that it needs.
When the exports is shipped, the exporter must prepare a commercial invoice, which is a statement to the buyer for payment. Usually English is sufficient but some countries require the seller’s invoice to be in their language. Multiple copies are usually required, some of which are sent with the bill of lading and other transportation documents. The original is forwarded through banking channels for payment (except on open account sales, where it is sent directly to the buyer). On letter of credit transactions, the invoice must be issued by the beneficiary of the letter of credit and addressed to the applicant for the letter of credit. Putting the commercial invoice number on the other shipping documents helps to tie the documents together.
Bills of Lading
Bills of lading are best understood if considered as bills of loading. These documents are issued by transportation carriers as evidence that they have received the shipment and have agreed to transport it to the destination in accordance with their usual tariffs s (rate schedule). Separate bills of lading may be issued for the inland or domestic portion of the transportation and the ocean marine) or air transportation, or a through bill of lading covering all transportation to the destination may be issued.
The domestic portion of the route will usually be handled by the trucking company or railroad transporting the product to the port of export. Such transportation companies have the own forms of bills of lading and, again, commercial stationers make available forms that can be utilized by exporters, which generally say that the exporter agrees to all of the specific terms or conditions of transport normally contained in the carrier’s usual bill of lading and tariff. The inland bill of lading should be prepared in accordance with the freight forwarders or transportation carrier’s instructions.
The ocean transportation will be covered by a marine bill of lading prepared by the exporter or freight forwarder and issued by the steamship company. Information in bills of lading (except apparent condition at the time of loading) such as marks, numbers, quantity, weight, and hazardous nature is based on information provided to the carrier by the shipper, and the shipper warrants its accuracy. Making, altering, negotiating, or transferring a bill of lading with intent to defraud is a criminal offense. If the transportation is by air, the airline carrier will prepare and issue an air waybill. A freight consolidator will issue house air waybills which are not binding on the carrier buy are given to each shipper to evidence inclusion of its shipment as part of the consolidated shipment. In such cases the freight consolidator becomes the “shipper” on the master bill of lading.
Dock and Warehouse Receipts
Upon completion of the inland transportation to the port of export, the inland carrier may deliver the goods to a warehouse company or to a warehouse operated by the steamship company as arranged by the freight forwarder. A dock receipt is often prepared by the freight forwarder on the steamship company’s form and is signed by the warehouseman or agent of the steamship company upon receipt of the goods as evidence of the receipt. The inland carrier then provides a signed copy of the dock receipt to the freight forwarder as evidence that it has completed the delivery.
In addition to a commercial invoice, some countries, including Panama, Bolivia, Haiti, the Dominican Republic, and Honduras, also require that a consular invoice be prepared. A consular invoice is usually prepared from the information in the commercial invoice, but it must be signed by a representative of the country of destination stationed at that country’s embassy or consulate located in the United States nearest the exporter. One reasons for requiring such invoices is that the country of destination may deduct certain charges from the price of the goods in order to determine the value for customs duties. If the commercial invoice does not contain all of the information necessary, the foreign customs service would be unable to complete the duty assessment. The consular invoice list the specific items about which that country requires information. The consular charges a fee for this service.
Certificates of Origin
Some countries require that goods shipped to the country be accompanied by a certificate of origin designating the place of manufacture or production of the goods. This is signed by the exporter, and usually, a local chamber of commerce that is used to performing this service (again, for a feed) certifies to the best of its knowledge that the products are products of the country specified the exporter. The exporter may exports to or imports from Canada or Mexico. In general, in order to be eligible for the duty-free or reduced duty rates under NAFTA, all items imported from outside of North America must have undergone the “tariff shift” specified in Annex 401 during the manufacturing process for that product.
Certificates of Free Sale
Sometimes an importer will request that an exporter provide a certificate of free Sale. Loosely speaking, this a certification that a product being purchased by the importer complies with any U.S. government regulations for marketing the product And may be freely sold within the United States. Sometimes, depending upon the Type of product involved, the importer will be able to accept a self-certification by the Exporter. Frequently, however, the importer seeks the certificate of free sale because the importer’s own government requires it.
For example, these request are common With regard to food, beverages, pharmaceuticals, and medical devices. The foreign Government may or may not require the importer to conduct its own testing of the Products for safety but May, either as a primary source or as backup for its own testing, seek confirmation that the products are in compliance with the U.S. Food, Drug and Cosmetics Act. Delivery Instructions and Delivery Orders The Delivery Instructions form is usually issued by the freight forwarding company to the inland transportation carrier (the trucking or rail company), indicating to the inland carrier which pier or steamship company has been selected for the ocean transportation and giving specific instructions to the inland carrier as to where to deliver the goods at the port of export.
This must be distinguished from the Delivery Order, which is a document used to instruct the customs broker at the foreign port of destination what to do with the goods , in particular, the method of foreign inland transportation to the buyer’s place of business.
Shipper’s Declarations for Dangerous Goods
Under the U.S. Hazardous Materials Transportation Act, the international Air Transport Association Dangerous Goods Regulations, and the International Maritime Dangerous Goods Code, exporters are required to provide special declarations or notice to the inland and ocean transportation companies when the goods are hazardous. This includes explosives, radioactive materials, etiological agents, flammable liquids or solids, combustible liquids or solids, poisons, oxidizing or corrosive materials, and compressed gases. These include aerosols, dry ice, batteries, cotton, anti-freeze, cigarette lighters, motor vehicles, diesel fuel, disinfectants, cleaning liquids, fire extinguishers, Pesticides, animal or vegetable fabrics or fibres, matches, paints, and may other products. The shipper must certify on the invoice that the goods are properly Classed, described, packaged, marked and labelled, and are in proper condition for Transportation in accordance with the regulations of the Department of Transportation Precursor and Essential Chemical Exports Those who export (or import) “precursor” chemicals and “essential “chemicals that can be used to manufacture illegal drugs are required to file Drug Enforcement Administration (DEA) Form 486 In some case,. This form must be filed fifteen days in advance of exportation (or importation).
Animal, Plant, and Food Export Certificates
The U.S. Department of Agriculture is supportive of companies that want to export Livestock, animal product s, and plants and plant products. Often, the destination Country will have specific requirements in order to permit import to that country, but sometimes the foreign country will accept or require inspections performed and Certificates issued in the United States. In general, the U.S. Department of Agriculture Offers inspection services and a variety of certificates to enable exporters to satisfy Foreign Government requirements.
Drafts for Payment
If payment for the sale is going to be made under a letter of credit or by documentary Collection, such as documents against payment ( “DP” or sight draft ) or documents against acceptance (“DA or time draft ), the exporter will draw a draft on the buyer’s bank in a little of credit transaction or the l buyer in a documentary collection transaction payable to itself ( sometimes it will be payable to the seller’s bank on a confirmed letter or credit ) in the amount of the sale. This draft will be sent to the seller’s bank along with the instructions for collection, or sometimes the seller will sent it directly to the buyer’s bank. If the payment agreement between the seller and buyer is at sight, the buyer will pay the draft when it is received, or if issued under a letter of credit, the buyer’s bank will pay the draft when it is received. If the agreement between the seller and the buyer is that the buyer will have some grace period before making payment, the amount of the delay, called the usance, will be written on the draft (time draft), and the buyer will usually be responsible for payment of interest to the seller during the usance period unless the parties agree otherwise. The time period may also be specified as some period after a fixed date, such as ninety days after the bill of lading or commercial invoice date, or payment simply may be due on a fixed date.
Freight Forwarder’s Invoices
The freight forwarder will issue a bill to the exporter for its services. Sometimes. The forwarder will include certain services in its standard quotation while other services. Will be add-ons. It is important to make clear at the outset of the transaction which services will be performed by the exporter, the freight forwarder, and other, Such as the bank.
Shipper’s Export Declarations
The Shipper’s Export Declaration (SED) is important because it is the one by one of all of the export documents that is filled with and U.S. Governmental agency. The SED is given to the exporting steamship carrier or air carrier and is filed by them with the U.S. Customs Service prior to clearing the port. This document may be prepared by the exporter, or it may be prepared by the exporter’s agent, the freight forwarder, and the exporter may not see it. Nevertheless, the SED form specifically states that any false statements in the form (which is interpreted to include accidentally false statements as well as intentionally false statements) will subject the exporter to various civil and criminal penalties, including a $ 10,000 fine and up to five year’s imprisonment.
Letters of credit
When the buyer has agreed to provide a letter or credit as part of the payment terms, the buyer will apply to its local bank in its home country and a letter of credit will be issued. The seller should send instructions to the buyer before the letter of credit is opened, advising the seller as to the terms and conditions it desires. The seller should always specify that the letter of credit must be irrevocable. The bank in the buyer’s country is called the issuing bank. The buyer’s bank will contact a correspondent bank near the seller in the United States, and the U.S. bank will send a notice or advice to the exporter that the letter of credit has been opened. If the letter of credit is a confirmed letter of credit, the U.S bank is called the confirming bank; otherwise, it is called the advising bank. The advice will specify the exact documents that the exporter must provide to the bank in order to receive payment. Since the foreign and U.S. banks are acting as agent and subagent, respectively, for the buyer, the U.S. bank will refuse to pay unless the exact documents specified in the letter of credit are provided. The banks never see the actual shipment or inspect the goods; therefore, they are extremely meticulous about not releasing payment unless the documents required have been provided. The issuing bank and advising bank each have up to seven banking days to review the documents presented before making payment when the exporter receives the advice of the opening of a letter of credit, the exporter should review in detail the exact documents required in order to be paid under the letter of credit.
Introduction to Letters of Credit
Letters of credit are a payment mechanism, particularly used in international trade. The Seller gets paid, not after the Buyer has inspected the goods and approved them, but when the Seller present certain document ( typically a bill of lading evidencing shipment of the goods, an insurance policy for the goods, commercial invoice, etc.) to his bank. The bank does not verify that the documents presented are true, but only whether they “on their face” appear to be consistent with each other and comply with the terms of the credit. After examination the bank will pay the Seller (or in LC terms the beneficiary of the letter of credit).
- Buyer and Seller sign a purchase contract that stipulates payment by letter of credit. It is good practice to agree already in the purchase contract which documents the Seller / Beneficiary has to present.
- The Buyer goes to his bank (so called issuing bank ) opening the credit to the benefit of the Seller, in particular the Buyer tells his bank which documents the Beneficiary has to present, where and how, and the amount of the credit and details of payment ( by sight, deferred sight payment, against acceptance or negotiation of drafts).
- The issuing Bank, which is normally located in a foreign country, advises the Beneficiary through a correspondence bank located in the country of the Beneficiary of the credit.
- The Buyer ships the goods and presents the necessary documents to his local bank which pays him after examining them. The obligation of the bank is independent of the rights of the parties under the purchase/service contract. This means that absent fraud, the bank has to pay when conforming documents are presented, even though the goods are not of the contractually agreed quality or quantity.
The Seller can strengthen his position by requesting a “confirmed“letter of credit. The confirmation of a bank in the Seller’s country means that the payment obligation of the confirming bank is independent of the issuing bank. If the issuing bank cannot wire funds outside the country due to governmental restrictions, the confirming bank still has to pay, even though it will not be reimbursed by the issuing bank.
The Seller thus can avoid currency transfer restrictions which are sometimes found in developing countries. A standby letter of credit is basically a bank guarantee. Previously US banks were not allowed to issue guarantees and circumvented this limitation by issuing standby letters of credit where the beneficiary basically has to present his face to get paid. Most letters of credit, particularly in international transactions, are subject to the Uniform Customs and Practices (UCP) issued and published by the International Chamber of Commerce (ICC).
The current revision UCP 600 is publication No. 600 of the ICC and takes effect as of July 1 ,2007 Since the ICC lacks legislative authority, meaning it is not the arm of or authorized by any government but rather a trade association, the UCP are no laws and have to be explicitly incorporated into individual transaction. Some countries and states have enacted statutes regarding letters of credit (see e.g. Article 5 US Uniform Commercial Code). In international trade however, most parties choose to use the UCP.
The Letter of Credit
A letter of credit is a document typically issued by a bank or financial institution , which authorizes the recipient of the letter ( the “customer “ of the bank ) to draw amounts of money up to a specified total, consistent with any terms and conditions set forth in the letter. This usually occurs where the bank’s customer seeks to assure a seller (the “beneficiary “ ) that it will receive payment for any goods it sells to the customer.
For example, the bank might extend the letter of credit conditioned upon the beneficiary’s providing documentation that the goods purchase with the line of credit have been shipped to the customer. The customer may use the letter of credit to assure the beneficiary that, if it satisfies the conditions set forth in the letter, it will be paid for any goods it sells and ships to the customer.
In simple terms, a letter of credit could be said to document a bank customer’s line of credit, and any terms associated with its use of that line of credit. Letters of credit are most commonly used in association with long-distance and international commercial transactions.
Confirmed Letter of Credit.
A letter of credit, issued by a foreign bank, which has been verified and guaranteed by a domestic bank in the event of default by the foreign bank or buyer. Typically, this form of letter of credit will be sought when a domestic exporter seeks assurance of payment from a foreign importer.
Commercial Letter of Credit.
A commercial letter of credit assures the seller that the bank will provide payment for any goods or merchandise shipped to the bank’s customer, assuming the seller provides any required documentation of the transaction and its shipment of the purchased goods.
Irrevocable Letter of Credit
An irrevocable letter of credit includes a guarantee by the issuing bank that if all of the terms and conditions set forth in the letter are satisfied by the beneficiary, the letter of credit will be honoured.
Standby Letter of Credit.
In the event that the bank’s customer defaults on a payment to the beneficiary, and the beneficiary documents proof of its loss consistent with any terms set forth in the letter, a standby letter of credit may be used by the beneficiary to secure payment from the issuing bank.
Import And Export Procedure To start Export Business Along With Import Export Course Of international shipping documents.