INCOTERMS

The most complex & important tool of International Trade is Language. Small changes in wording can have a major impact on all the aspects of Business agreement, esp. in International Trade. For Business terminology to be effective, phrases must mean the same thing through out the industry. This is where “Incoterms” comes into existence.  “Incoterms” is devised & published by the International Chamber of Commerce in 1936. Incoterms or International commercial terms are a series of international sales terms widely used throughout the world. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use.  ICC introduced the first version of Incoterms - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated it many times to keep pace with the development of international trade. Effective January 1 of 2000, the ICC once again updated Incoterms to follow the modern trends in international trade. They should now be incorporated under the reference "Incoterms 2000" into contracts that are effective from January 2000 or any date thereafter.  Incoterms 2000 are internationally accepted commercial terms defining the respective roles of the buyer (Importer) and seller (Exporter) in the arrangement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. These terms are incorporated into export-import sales agreements and contracts worldwide and are a necessary part of foreign trade.  The main objective of Incoterms2000 defines the responsibilities and the obligations of a seller (Exporter) and a buyer (Importer) within the framework of international contracts of trade concerning loading, transport, type of transport, insurances and delivery. Its first function is about a distribution of transport charges. The second role of the Incoterms2000 is to define the place of transfer and the transport risks involved in order to justify the ownership for support and damage of goods by shipments sent by the seller (exporter) or the buyer (importer) in an event of execution of transport.  Incoterms safeguard the following issues in the Foreign Trade contract or International Trade Contract:

a) To determine the critical point of the transfer of the risks of the seller to the buyer in the process forwarding of the goods (risks of loss, deterioration,robbery of the goods) allow the person who supports these risks to make arrangements in particular in term of insurance.

b) To specify is going to subscribe the contract of carriage that is to say the seller or the buyer.

c) To distribute between the seller and the buyer the logistic and administrative expenses at the various stages of the process.

d) To define who is responsible for packaging, marking, operations of handling, loading and unloading of the goods or the potting and the discharge of the containers as well as the operations of inspection.

e) To fix respective obligations for the achievement of the formalities of exportation and /or importation, the payment of the rights and taxes of importation as well as the supply of the documents.    International Commercial Terms are a series of international trade terms that are used worldwide to divide the transaction costs and responsibilities between the seller and the buyer and reflect state-of-the-art transportation practices.  Incoterms deal with the questions related to the delivery of the products from the seller (exporter) to the buyer (importer). This includes the carriage of products, export and import clearance responsibilities, who pays for what, and who has risk for the condition of the products at different locations within the transport process. Incoterms are always linked to a physical location and has nothing to do with the transfer of ownership.  INCOTERMS are most frequently listed by category. Below are the 13 international Incoterms adopted by the International Chamber of Commerce. 

Group E (Departure):

1)   EXW - Ex Works (...named place): Ex works means that the seller (exporter) delivers when he places the goods at the disposal of the buyer (importer) at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

This term thus represents the minimum obligation for the seller (exporter), and the buyer (importer) has to bear all costs and risks involved in taking the goods from the seller's premises. However, if the parties wish the seller (exporter) to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale.

Group F (Main carriage unpaid):

2)   FCA - Free Carrier (...named place): Free Carrier means that the seller (exporter) delivers the goods, cleared for export, to the carrier nominated by the buyer (importer) at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at

that place. If delivery occurs at the seller's premises, the seller (exporter) is responsible for loading. If delivery occurs at any other place, the seller (exporter) is not responsible for unloading.

This term may be used irrespective of the mode of transport, including multimodal transport.

A Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If the buyer (importer) nominates a person other than a carrier to receive the goods, the seller (exporter) is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.

3)   FAS - Free Alongside Ship (...named port of shipment): Free Alongside Ship means that the seller (exporter) delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that moment.

The FAS term requires the seller (exporter) to clear the goods for export. However, if the parties wish the buyer (importer) to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term can be used only for sea or inland waterway transport.

4)   FOB - Free On Board (...named port of shipment): Free on Board means that the seller (exporter) delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that point.

The FOB term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used.

This term can be used only for sea or inland waterway transport.

Group C (Main carriage paid)

5)   CFR - Cost & Freight (...named port of destination): Cost and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to

the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller (exporter) to the buyer (importer).

The CFR term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the CPT term should be used.

This term can be used only for sea and inland waterway transport.

6)   CIF - Cost, Insurance & Freight (...named port of destination): Cost, Insurance and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller (exporter) to the buyer (importer).

However, in CIF the seller (exporter) also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage.

Consequently, the seller (exporter) contracts for insurance and pays the insurance premium. The buyer (importer) should note that under the CIF term the seller (exporter) is required to obtain insurance only on minimum cover. Should the buyer (importer) wish to have the protection of greater cover, he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements.

The CIF term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the CIP term should be used.

This term can be used only for sea and inland waterway transport.

7)   CPT - Carriage Paid To (...named place of destination): "Carriage paid to..." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer (importer) bears all risks and any other costs occurring after the goods have been so delivered.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller (exporter) to clear the goods for export.

This term may be used irrespective of the mode of transport including multimodal transport

8)   CIP - Carriage and Insurance Paid To (...named place of destination): "Carriage and Insurance paid to..." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer (importer) bears all risks and any additional costs occurring after the goods have been so delivered. However, in CIP the seller (exporter) also has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage.

Consequently, the seller (exporter) contracts for insurance and pays the insurance premium. The buyer (importer) should note that under the CIP term the seller (exporter) is required to obtain insurance only on minimum cover. Should the buyer (importer) wish to have the protection of greater cover, he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller (exporter) to clear the goods for export.

This term may be used irrespective of the mode of transport including multimodal transport.

Group D (Arrival):

9)   DAF - Delivered at Frontier (...named place): Delivered at Frontier means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country. The term "frontier" may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.

However, if the parties wish the seller (exporter) to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term may be used irrespective of the mode of transport when goods are to be delivered at a land frontier. When delivery is to take place in the port of destination, on board a vessel or on the quay (wharf), the DES or DEQ terms should be used.

 

10)   DES - Delivered Ex-Ship (...named port of destination): Delivered Ex Ship means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) on board the ship not cleared for import at the named port of destination. The seller (exporter) has to bear all the costs and risks involved in bringing the goods to the named port of destination before discharging.

If the parties wish the seller (exporter) to bear the costs and risks of discharging the goods, then the DEQ term should be used.

This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on a vessel in the port of destination.

11)   DEQ - Delivered Ex-Quay (...named port of destination): Delivered Ex Quay means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) not cleared for import on the quay (wharf) at the named port of destination. The seller (exporter) has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf).The DEQ term requires the buyer (importer) to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.

If the parties wish to include in the seller's obligations all or part of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. However if the parties wish to include in the seller's obligations the risks and costs of the handling of the goods from the quay to another place (warehouse, terminal, transport station, etc.) in or outside the port, the DDU or DDP terms should be used.

12)   DDU - Delivered Duty Unpaid (...named port of destination): Delivered duty unpaid means that the seller (exporter) delivers the goods to the buyer (importer), not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller (exporter) has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any "duty" (which term includes the responsibility for and the risks of

the carrying out of customs formalities, and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination. Such "duty" has to be borne by the buyer (importer) as well as any costs and risks caused by his failure to clear the goods for import in time.

However, if the parties wish the seller (exporter) to carry out customs formalities and bear the costs and risks resulting therefrom as well as some of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.

13)   DDP - Delivered Duty Paid (...named port of destination): Delivered duty paid means that the seller (exporter) delivers the goods to the buyer (importer), cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller (exporter) has to bear all the costs and risks involved in bringing the goods thereto including, where applicable (Refer to Introduction paragraph 14), any "duty" (which term includes the responsibility for and the risk of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

Whilst the EXW term represents the minimum obligation for the seller (exporter), DDP represents the maximum obligation. This term should not be used if the seller (exporter) is unable directly or indirectly to obtain the import license.

However, if the parties wish to exclude from the seller's obligations some of the costs payable upon import of the goods (such as VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.

If the parties wish the buyer (importer) to bear all risks and costs of the import, the DDU term should be used. This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.

 

INCOTERMS

The most complex & important tool of International Trade is Language. Small changes in wording can have a major impact on all the aspects of Business agreement, esp. in International Trade. For Business terminology to be effective, phrases must mean the same thing through out the industry. This is where “Incoterms” comes into existence.

  “Incoterms” is devised & published by the International Chamber of Commerce in 1936. Incoterms or International commercial terms are a series of international sales terms widely used throughout the world. INCOTERMS are designed to create a bridge between different members of the industry by acting as a uniform language they can use.  ICC introduced the first version of Incoterms - short for "International Commercial Terms" - in 1936. Since then, ICC expert lawyers and trade practitioners have updated it many times to keep pace with the development of international trade. Effective January 1 of 2000, the ICC once again updated Incoterms to follow the modern trends in international trade. They should now be incorporated under the reference "Incoterms 2000" into contracts that are effective from January 2000 or any date thereafter.  Incoterms 2000 are internationally accepted commercial terms defining the respective roles of the buyer (Importer) and seller (Exporter) in the arrangement of transportation and other responsibilities and clarify when the ownership of the merchandise takes place. These terms are incorporated into export-import sales agreements and contracts worldwide and are a necessary part of foreign trade.  The main objective of Incoterms2000 defines the responsibilities and the obligations of a seller (Exporter) and a buyer (Importer) within the framework of international contracts of trade concerning loading, transport, type of transport, insurances and delivery. Its first function is about a distribution of transport charges. The second role of the Incoterms2000 is to define the place of transfer and the transport risks involved in order to justify the ownership for support and damage of goods by shipments sent by the seller (exporter) or the buyer (importer) in an event of execution of transport.  Incoterms safeguard the following issues in the Foreign Trade contract or International Trade Contract:

a) To determine the critical point of the transfer of the risks of the seller to the buyer in the process forwarding of the goods (risks of loss, deterioration,robbery of the goods) allow the person who supports these risks to make arrangements in particular in term of insurance.

b) To specify is going to subscribe the contract of carriage that is to say the seller or the buyer.

c) To distribute between the seller and the buyer the logistic and administrative expenses at the various stages of the process.

d) To define who is responsible for packaging, marking, operations of handling, loading and unloading of the goods or the potting and the discharge of the containers as well as the operations of inspection.

e) To fix respective obligations for the achievement of the formalities of exportation and /or importation, the payment of the rights and taxes of importation as well as the supply of the documents.    International Commercial Terms are a series of international trade terms that are used worldwide to divide the transaction costs and responsibilities between the seller and the buyer and reflect state-of-the-art transportation practices.  Incoterms deal with the questions related to the delivery of the products from the seller (exporter) to the buyer (importer). This includes the carriage of products, export and import clearance responsibilities, who pays for what, and who has risk for the condition of the products at different locations within the transport process. Incoterms are always linked to a physical location and has nothing to do with the transfer of ownership.  INCOTERMS are most frequently listed by category. Below are the 13 international Incoterms adopted by the International Chamber of Commerce. 

Group E (Departure):

1)   EXW - Ex Works (...named place): Ex works means that the seller (exporter) delivers when he places the goods at the disposal of the buyer (importer) at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle.

This term thus represents the minimum obligation for the seller (exporter), and the buyer (importer) has to bear all costs and risks involved in taking the goods from the seller's premises. However, if the parties wish the seller (exporter) to be responsible for the loading of the goods on departure and to bear the risks and all the costs of such loading, this should be made clear by adding explicit wording to this effect in the contract of sale.

Group F (Main carriage unpaid):

2)   FCA - Free Carrier (...named place): Free Carrier means that the seller (exporter) delivers the goods, cleared for export, to the carrier nominated by the buyer (importer) at the named place. It should be noted that the chosen place of delivery has an impact on the obligations of loading and unloading the goods at that place. If delivery occurs at the seller's premises, the seller (exporter) is responsible for loading. If delivery occurs at any other place, the seller (exporter) is not responsible for unloading.

This term may be used irrespective of the mode of transport, including multimodal transport.

A Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport by rail, road, air, sea, inland waterway or by a combination of such modes.

If the buyer (importer) nominates a person other than a carrier to receive the goods, the seller (exporter) is deemed to have fulfilled his obligation to deliver the goods when they are delivered to that person.

3)   FAS - Free Alongside Ship (...named port of shipment): Free Alongside Ship means that the seller (exporter) delivers when the goods are placed alongside the vessel at the named port of shipment. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that moment.

The FAS term requires the seller (exporter) to clear the goods for export. However, if the parties wish the buyer (importer) to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term can be used only for sea or inland waterway transport.

4)   FOB - Free On Board (...named port of shipment): Free on Board means that the seller (exporter) delivers when the goods pass the ship's rail at the named port of shipment. This means that the buyer (importer) has to bear all costs and risks of loss of or damage to the goods from that point.

The FOB term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the FCA term should be used.

This term can be used only for sea or inland waterway transport.

Group C (Main carriage paid)

5)   CFR - Cost & Freight (...named port of destination): Cost and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller (exporter) to the buyer (importer).

The CFR term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the CPT term should be used.

This term can be used only for sea and inland waterway transport.

6)   CIF - Cost, Insurance & Freight (...named port of destination): Cost, Insurance and Freight means that the seller (exporter) delivers when the goods pass the ship's rail in the port of shipment. The seller (exporter) must pay the costs and freight necessary to bring the goods to the named port of destination but the risk of loss of or damage to the goods, as well as any additional costs due to events occurring after the time of delivery, are transferred from the seller (exporter) to the buyer (importer).

However, in CIF the seller (exporter) also has to procure marine insurance against the buyer's risk of loss of or damage to the goods during the carriage.

Consequently, the seller (exporter) contracts for insurance and pays the insurance premium. The buyer (importer) should note that under the CIF term the seller (exporter) is required to obtain insurance only on minimum cover. Should the buyer (importer) wish to have the protection of greater cover, he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements.

The CIF term requires the seller (exporter) to clear the goods for export. If the parties do not intend to deliver the goods across the ship's rail, the CIP term should be used.

This term can be used only for sea and inland waterway transport.

7)   CPT - Carriage Paid To (...named place of destination): "Carriage paid to..." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer (importer) bears all risks and any other costs occurring after the goods have been so delivered.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CPT term requires the seller (exporter) to clear the goods for export.

This term may be used irrespective of the mode of transport including multimodal transport

8)   CIP - Carriage and Insurance Paid To (...named place of destination): "Carriage and Insurance paid to..." means that the seller (exporter) delivers the goods to the carrier nominated by him but the seller (exporter) must in addition pay the cost of carriage necessary to bring the goods to the named destination. This means that the buyer (importer) bears all risks and any additional costs

occurring after the goods have been so delivered. However, in CIP the seller (exporter) also has to procure insurance against the buyer's risk of loss of or damage to the goods during the carriage.

Consequently, the seller (exporter) contracts for insurance and pays the insurance premium. The buyer (importer) should note that under the CIP term the seller (exporter) is required to obtain insurance only on minimum cover. Should the buyer (importer) wish to have the protection of greater cover, he would either need to agree as much expressly with the seller (exporter) or to make his own extra insurance arrangements.

Carrier means any person who, in a contract of carriage, undertakes to perform or to procure the performance of transport, by rail, road, air, sea, inland waterway or by a combination of such modes. If subsequent carriers are used for the carriage to the agreed destination, the risk passes when the goods have been delivered to the first carrier. The CIP term requires the seller (exporter) to clear the goods for export.

This term may be used irrespective of the mode of transport including multimodal transport.

Group D (Arrival):

9)   DAF - Delivered at Frontier (...named place): Delivered at Frontier means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) on the arriving means of transport not unloaded, cleared for export, but not cleared for import at the named point and place at the frontier, but before the customs border of the adjoining country. The term "frontier" may be used for any frontier including that of the country of export. Therefore, it is of vital importance that the frontier in question be defined precisely by always naming the point and place in the term.

However, if the parties wish the seller (exporter) to be responsible for the unloading of the goods from the arriving means of transport and to bear the risks and costs of unloading, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term may be used irrespective of the mode of transport when goods are to be delivered at a land frontier. When delivery is to take place in the port of destination, on board a vessel or on the quay (wharf), the DES or DEQ terms should be used.

 

10)   DES - Delivered Ex-Ship (...named port of destination): Delivered Ex Ship means that the seller (exporter) delivers when the goods are placed at the

.

11)   DEQ - Delivered Ex-Quay (...named port of destination): Delivered Ex Quay means that the seller (exporter) delivers when the goods are placed at the disposal of the buyer (importer) not cleared for import on the quay (wharf) at the named port of destination. The seller (exporter) has to bear costs and risks involved in bringing the goods to the named port of destination and discharging the goods on the quay (wharf).The DEQ term requires the buyer (importer) to clear the goods for import and to pay for all formalities, duties, taxes and other charges upon import.

If the parties wish to include in the seller's obligations all or part of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term can be used only when the goods are to be delivered by sea or inland waterway or multimodal transport on discharging from a vessel onto the quay (wharf) in the port of destination. However if the parties wish to include in the seller's obligations the risks and costs of the handling of the goods from the quay to another place (warehouse, terminal, transport station, etc.) in or outside the port, the DDU or DDP terms should be used.

12)   DDU - Delivered Duty Unpaid (...named port of destination): Delivered duty unpaid means that the seller (exporter) delivers the goods to the buyer (importer), not cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller (exporter) has to bear the costs and risks involved in bringing the goods thereto, other than, where applicable, any "duty" (which term includes the responsibility for and the risks of the carrying out of customs formalities, and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination. Such "duty" has to be borne by the buyer (importer) as well as any costs and risks caused by his failure to clear the goods for import in time.

However, if the parties wish the seller (exporter) to carry out customs formalities and bear the costs and risks resulting therefrom as well as some of the costs payable upon import of the goods, this should be made clear by adding explicit wording to this effect in the contract of sale.

This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.

13)   DDP - Delivered Duty Paid (...named port of destination): Delivered duty paid means that the seller (exporter) delivers the goods to the buyer (importer), cleared for import, and not unloaded from any arriving means of transport at the named place of destination. The seller (exporter) has to bear all the costs and

risks involved in bringing the goods thereto including, where applicable (Refer to Introduction paragraph 14), any "duty" (which term includes the responsibility for and the risk of the carrying out of customs formalities and the payment of formalities, customs duties, taxes and other charges) for import in the country of destination.

Whilst the EXW term represents the minimum obligation for the seller (exporter), DDP represents the maximum obligation. This term should not be used if the seller (exporter) is unable directly or indirectly to obtain the import license.

However, if the parties wish to exclude from the seller's obligations some of the costs payable upon import of the goods (such as VAT), this should be made clear by adding explicit wording to this effect in the contract of sale.

If the parties wish the buyer (importer) to bear all risks and costs of the import, the DDU term should be used. This term may be used irrespective of the mode of transport but when delivery is to take place in the port of destination on board the vessel or on the quay (wharf), the DES or DEQ terms should be used.

 

The seller makes the goods available at its premises. The buyer is responsible for unloading. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn't load the goods on collecting vehicles and doesn't clear them for export. If the seller does load the good, he does so at buyer's risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

FCA – Free Carrier (named place of delivery)The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.

CPT – Carriage Paid To (named place of destination)The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.

CIP – Carriage and Insurance Paid to (named place of destination)The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

DAT – Delivered at Terminal (named terminal at port or place of destination)Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP – Delivered at Place (named place of destination)Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

2010

The eighth published set of pre-defined terms, Incoterms 2010 defines 11 rules, reducing the 13 used in Incoterms 2000 by introducing two new rules ("Delivered at Terminal", DAT; "Delivered at Place", DAP) that replace four rules of the prior version ("Delivered at Frontier", DAF; "Delivered Ex Ship", DES; "Delivered Ex Quay", DEQ; "Delivered Duty Unpaid", DDU).[6] In the prior version, the rules were divided into four categories, but the 11 pre-defined terms of Incoterms 2010 are subdivided into two categories based only on method of delivery. The larger group of seven rules applies regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation over water.

Rules for Any Mode(s) of Transport

The seven rules defined by Incoterms 2010 for any mode(s) of transportation are:

EXW – Ex Works (named place of delivery)The seller makes the goods available at its premises. The buyer is responsible for unloading. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a seller has the goods ready for collection at his premises (works, factory, warehouse, plant) on the date agreed upon. The buyer pays all transportation costs and also bears the risks for bringing the goods to their final destination. The seller doesn't load the goods on collecting vehicles and doesn't clear them for export. If the seller does load the good, he

does so at buyer's risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

FCA – Free Carrier (named place of delivery)The seller hands over the goods, cleared for export, into the disposal of the first carrier (named by the buyer) at the named place. The seller pays for carriage to the named point of delivery, and risk passes when the goods are handed over to the first carrier.

CPT – Carriage Paid To (named place of destination)The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier.

CIP – Carriage and Insurance Paid to (named place of destination)The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier.

DAT – Delivered at Terminal (named terminal at port or place of destination)Seller pays for carriage to the terminal, except for costs related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP – Delivered at Place (named place of destination)Seller pays for carriage to the named place, except for costs related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

DDP – Delivered Duty Paid (named place of destination)Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The buyer is responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer.

Rules for Sea and Inland Waterway Transport

The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are:

FAS – Free Alongside Ship (named port of shipment)The seller must place the goods alongside the ship at the named port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). This term is typically used for heavy-lift or bulk cargo.

FOB – Free on Board (named port of shipment)The seller must load the goods on board the vessel nominated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel (this rule is new!). The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for, the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

CFR – Cost and Freight (named port of destination)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 are loaded on the vessel (this rule is new!). Maritime transport only and Insurance for the goods is NOT included. This term is formerly known as CNF (C&F).

CIF – Cost, Insurance and Freight (named port of destination)Exactly the same as CFR except that the seller must in addition procure and pay for the insurance. Maritime transport only.

Duties of buyer/seller according to Incoterms 2010

Incoterm

Loading on truck

(carrier)

Export-Custom

s declarati

on

Carriage to

port of export

Unloading of

truck in port of export

Loading

charges in port of

export

Carriage to

port of import

Unloading

charges in port

of import

Loading on truck

in port of

import

Carriage to

place of destinati

on

Insurance

Import custom

s clearan

ce

Import

taxes

EXW Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer BuyerBuye

r

FCA Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buyer BuyerBuye

r

FAS Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer BuyerBuye

rFOB Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer Buyer Buyer Buye

Incoterm

Loading on truck

(carrier)

Export-Custom

s declarati

on

Carriage to

port of export

Unloading of

truck in port of export

Loading

charges in port of

export

Carriage to

port of import

Unloading

charges in port

of import

Loading on truck

in port of

import

Carriage to

place of destinati

on

Insurance

Import custom

s clearan

ce

Import

taxes

r

CFR Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Buyer BuyerBuye

r

CIF Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer Seller BuyerBuye

r

DAT Seller Seller Seller Seller Seller Seller Seller Buyer Buyer Buyer BuyerBuye

r

CPT Seller Seller Seller Seller Seller Seller Seller Seller Seller Buyer BuyerBuye

r

DAP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller BuyerBuye

r

CIP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller BuyerBuye

r

DDP Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller SellerSelle

r

Previous terms from Incoterms 2000 that were eliminated from Incoterms 2010

DAF – Delivered At Frontier (named place of delivery)This term can be used when the goods are transported by rail and road. The seller pays for transportation to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for transportation from the frontier to his factory. The passing of risk occurs at the frontier.

DES – Delivered Ex Ship (named port of delivery)Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the named port of destination and the goods made available for unloading to the buyer. The seller pays the same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named port. Costs for unloading the goods and any duties, taxes, etc… are for the Buyer. A commonly used term in shipping bulk commodities, such as coal, grain, dry chemicals – - – - – - – -and where the seller either owns or has chartered, their own vessel.

DEQ – Delivered Ex Quay (named port of delivery)This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the port of destination.

DDU – Delivered Duty Unpaid (named place of destination)

This term means that the seller delivers the goods to the buyer to the named place of destination in the contract of sale. The goods are not cleared for import or unloaded from any form of transport at the place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the place of destination, then this all needs to be explicitly agreed upon in the contract of sale.

See also

Commercial law International Commercial Terms (Incoterms) International trade International trade law Uniform Commercial Code (UCC) United Nations Convention on Contracts for the International Sale of Goods

This page was last modified on 3 December 2012 at 03:25. Text is available under the Creative Commons Attribution-ShareAlike License;

additional terms may apply. See Terms of Use for details.Wikipedia® is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization.

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Letter of credit

LETTERS OF CREDIT - LC - INCOTERMS - INTERNATIONAL TRADE

Letter of Credit

What is a Letter of Credit?

A Letter of Credit is a payment term generally used for international sales transactions. It is basically a mechanism, which allows importers/buyers to offer secure terms of payment to exporters/sellers in which a bank (or more than one bank) gets involved. The technical term for Letter of credit is 'Documentary Credit'. At the very outset one must understand is that Letters of credit deal in documents, not goods. The idea in an international trade transaction is to shift the risk from the actual buyer to a bank. Thus a LC (as it is commonly referred to) is a payment undertaking given by a bank to the seller and is issued on behalf of the applicant i.e. the buyer. The Buyer is the Applicant and the Seller is the Beneficiary. The Bank that issues the LC is referred to as the Issuing Bank which is generally in the country of the Buyer. The Bank that Advises the LC to the Seller is called the Advising Bank which is generally in the country of the Seller.

The specified bank makes the payment upon the successful presentation of the required documents by the seller within the specified time frame. Note that the Bank scrutinizes the 'documents' and not the 'goods' for making payment. Thus the process works both in favor of both the buyer and the seller. The Seller gets assured that if documents are presented on time and in the way that they have been requested on the LC the payment will be made and Buyer on the other hand is assured that the bank will thoroughly examine these presented documents and ensure that they meet the terms and conditions stipulated in the LC.

Typically the documents requested in a Letter of Credit are the following:

Commercial invoice

Transport document such as a Bill of lading or Airway bill, Insurance document; Inspection Certificate Certificate of Origin

But there could be others too.

Letters of credit (LC) deal in documents, not goods. The LC could be 'irrevocable' or 'revocable'. An irrevocable LC cannot be changed unless both the buyer and seller agree. Whereas in a revocable LC changes to the LC can be made without the consent of the beneficiary. A 'sight' LC means that payment is made immediately to the beneficiary/seller/exporter upon presentation of the correct documents in the required time frame. A 'time' or 'date' LC will specify when payment will be made at a future date and upon presentation of the required documents.

Essential Principles Governing Law Within the United States, Article 5 of the Uniform Commercial Code (UCC) governs L/Cs. Article 5 is founded on two principles: (1) the L/C,s independence from the underlying business transaction, and (2) strict compliance with documentary requirements.

1) Strict Compliance

How strict compliance? Some courts insist upon literal compliance, so that a misspelled name or typographical error voids the exporter's/beneficiary's/seller's demand for payment. Other courts require payment upon substantial compliance with documentary requirements. The bank may insist upon strict compliance with the requirements of the L/C. In the absence of conformity with the L/C, the Seller cannot force payment and the bank pays at its own risk. Sellers should be careful and remember that the bank may insist upon strict compliance with all documentary requirements in the LC. If the documents do not conform, the bank should give the seller prompt, detailed notice, specifying all discrepancies and shortfalls.

2) The Independence Doctrine

Letters of credit deal in documents, not goods. L/Cs are purely documentary transactions, separate and independent from the underlying contract between the Buyer and the Seller. The bank honoring the L/C is concerned only to see that the documents conform with the requirements in the L/C. If the documents conform, the bank will pay, and obtain reimbursement from the Buyer/Applicant. The bank need not look past the documents to examine

the underlying sale of merchandise or the product itself. The letter of credit is independent from the underlying transaction and, except in rare cases of fraud or forgery, the issuing bank must honor conforming documents. Thus, Sellers are given protections that the issuing bank must honor its demand for payment (which complies with the terms of the L/C) regardless of whether the goods conform with the underlying sale contract.

3 Most Common Reasons why Letters of Credit Fail

1) Time Lines:

The letter of credit should have an expiration date that gives sufficient time to the seller to get all the tasks specified and the documents required in the LC. If the letter of credit expires, the seller is left with no protection. Most LC s fail because Sellers/Exporters/Beneficiaries were unable to perform within the specified time frame in the LC. Three dates are of importance in an LC:a) The date by when shipment should have occurred. The date on the Bill of Lading.b) The date by when documents have to be presented to the Bankc) The expiry date of the LC itself.

A good source to give you an idea of the timelines would be your freight forwarding agent. As a seller check with your freight forwarding agent to see if you would be in a position to comply.

2) Discrepancy within the Letter of Credit:

Letters of credit could also have discrepancies. Even a discrepancy as small as a missing period or comma can render the document invalid. Thus, the earlier in the process the letter of credit is examined, the more time is available to identify and fix the problem. This is another common reason why LCs fail.

3) Compliance with the Documents and Conditions within the Letter of Credit.

Letters of credit are about documents and not facts; the inability to produce a given document at the right time will nullify the letter of credit. As a Seller/Exporter/Beneficiary you should try and run the compliance issues with the various department or individuals involved within your organization to see if compliance would be a problem. And if so, have the LC amended before shipping the goods.

Learning the Terminology of ExportingINCOTERMS (TRANSPORTATION)

Shipping terms set the parameters for international shipments, specify points of origin and destination, outline conditions under which title is transferred from seller to buyer, and determine which party is responsible for shipping costs. They also indicate which party assumes the cost if merchandise is lost or damaged during transit. To provide a common terminology for international shipping, INCOTERMS (International Commercial Terms) have been developed under the auspices of the International Chamber of Commerce. See their website at www.iccwbo.org for the latest Incoterms2000.

For resources on this subject please visit our 'Links' page

Letter of credit new

  

DOCUMENTARY LETTERS OF CREDIT

 Why use documentary credits?

 When goods are bought or sold abroad the transaction is complicated by a number of factors:

 The buyer and seller are most likely widely separated by legal or natural borders.

 The buyer and seller may be unacquainted with each other’s business standing and integrity.

 Import / export and exchange control regulations dictate the use of a letter of credit.

 Whereas in a shop or market the buyer actually handles, examines and physically takes away a purchase from a distance cannot always ensure that the articles agreed upon for sale are those eventually obtained. Obviously, what is required for such transactions is a form of proceeding which protect the interests of the parties involved.  To satisfy both, wide use is made of the documentary credit advised through the banking system, calling for the exporter to present to a bank documents evidencing shipment or dispatch of the required merchandise for which, if the documents are in order he will be paid.  These documents often convey title to the goods themselves, so that the buyer not only knows what he is getting but can ensure that he, rather than an un-entitled party, is able to obtain release of the goods when they arrive at destination.

 Essentially, a credit is a written undertaking given by the buyer’s bank, (the issuing bank), to pay an exporter of goods, the beneficiary.

  The beneficiary, usually through an advising or confirming bank in the beneficiary’s country, is guaranteed to receive payment provided the terms and conditions of the credit are complied with and documents called for by the credit are presented within the time limit specified.

 Through years of experience, we recognize many companies are reluctant to trade under the protection of a credit due to the complexity of the transaction.

 Initially a buyer establishes a documentary letter of credit, after he has negotiated with his seller the purchase of goods and / or services.  At Britam we have the experience and expertise to handle the negotiation of a documentary credit.  Even at the outset of a contract, advice and assistance is offered to ensure a completed document is free from error, and provides a workable instrument acceptable to both parties.

 Once the order is available we will effect shipment, having firstly submitted a fully comprehensive quotation.

 All documentation called for by the letter of credit will be completed by us, to include commercial invoices, packing lists, certificates of origin, sight drafts etc.  In order to ensure that deadlines specified in the letter of credit are met, we present the letter of credit complete to the negotiating bank.

**Subject to consignment shipping with Britam International Ltd and recommendations for amendments to documentary letters of credit being complied with we will indemnify the beneficiary against bank fees for discrepancies upon presentation.  Also subject to The Letter of Credit being fully Negotiated and Presented by, and all relevant documents being produced by Britam.International Ltd. 

The expo r t e r i s r equ i r ed - t o r eg i s t e r h i s o rgan i za t i on w i th a number o f   institutions and authorities, which directly or indirectly help him in the smoothconduct of export, trade. The registration stage includes:a )Reg i s t r a t i on o f t he Organ i za t i on  b )Open ing -Bank Accoun t c)Obtaining Importer-Exporter Code Number (lEC No.)d)Obtaining Permanent Account Number- (PAN)e )Ob ta in ing Sa l e s Tax Number   f ) R e g i s t r a t i o n w i t h E C G C g)Registration with other AuthoritiesShipment StagesExpor t , c a rgo can be expo r t ed t o t he ove r sea s buye r by s ea , a i r o r l and . However, shipment by sea is the most popular and generally resorted to, as it iscomparatively cheaper. Besides, the ship’s capacity is far greater than other modeso f t r anspo r t a t i on . Neve r the l e s s , t r an spo r t a t i on by a i r i s u t i l i z ed fo r expo r t

Exchang control forems

Date : 31 May 2005 Exports of Goods, Software, Currency etc.

CHAPTER 6

EXPORT OF GOODS, SOFTWARE, CURRENCY ETC.

PART A - GENERAL

6A.1 Trade and Exchange Control

6A.2 Exemptions from declarations

6A.3 Export Declaration Forms

6A.4 Numbering of forms

6A.5 Importer-Exporter Code Number

6A.6 Methods of Payment

6A.7 Time limit for Realisation of Export Proceeds

6A.8 Exports under Trade Agreements/ Rupee Credits

6A.9 Protection against Transit Risks under f.o.b., c.& f., etc. Contracts

6A.10 Bid Bonds and Other Guarantees against Commodity Exports

6A.11 Minor Guarantees

6A.12 Foreign Currency Accounts

6A.13 Counter Trade

6A.14 Export of goods on lease, hire, etc.

6A.15 Participation in Trade Fairs Abroad

6A.16 Project Exports and Service Exports

6A.17 Export on Elongated Credit Terms

6A.18 Forfaiting

PART B - GR/PP PROCEDURE

6B.1 Disposal of Copies of Export Declaration Forms

6B.2 Shut out Shipments and Short Shipments

6B.3 Exports by Air

6B.4 Consolidation of Air Cargo

6B.5 Exports by Barges/ Country Craft/Road Transport

PART C - AUTHORISED DEALERS' OBLIGATION

6C.1 Countersignature on PP forms

6C.1A Exports by Government/Public Sector Undertakings, etc.

6C.2 Delay in Submission of Shipping Documents by Exporters

6C.3 Check-list for Scrutiny of Forms

6C.4 Transfer of Documents

6C.5 Trade Discount

6C.6 Advance Payments against Exports

6C.7 Part Drawings

6C.8 Consignment Exports

6C.9 Despatch of Shipping Documents

6C.10 Handing Over Negotiable Copy of Bill of Lading to Master of Vessel/ Trade Representative

6C.11 Export Bills Register

6C.12 Follow-up of Overdue Bills

6C.13A Reduction in invoice value on account of Prepayment of usance bills.

6C.13B Reduction in Value

6C.14 Write off of unrealised Export Bills

6C.15 Change of Buyer/Consignee

6C.16 Extension of Time Limit

6C.17 Shipments Lost in Transit

6C.18 Payment of Claims by ECGC

6C.19 Return of Documents to Exporters

6C.20 Exporters' Caution List

PART D - EXPORT OF COMPUTER SOFTWARE

6D.1 Declaration of Software Exports

6D.2 Valuation of Software Exports and Certification of SOFTEX Forms

6D.3 Time Limit for Realisation of Proceeds of Software Export

6D.4 Terms of payment - Invoicing

6D.5 Time limit for realisation of export value

PART E - REMITTANCES CONNECTED WITH EXPORTS

6E.1 General

6E.2 Agency Commission on Exports

6E.3 Overprice

6E.4 Export Claims

6E.5 Other Remittances

6E.6 Refund of Export Proceeds

PART F - DESPATCH OF GOODS NOT INVOLVING FOREIGN EXCHANGE (WAIVER OF GR/PP FORM PROCEDURE)

6F.1 Gift Parcels

6F.2 Export of Defective Goods for Replacement or Repairs and Return

6F.3 Export of Replacement Goods

PART G - EXPORT OF JEWELLERY, INDIAN CURRENCY, FOREIGN EXCHANGE, SECURITIES, ETC.

6G.1 Export of Jewellery, etc.

6G.2 Export of Indian Currency

6G.3 Export of Foreign Exchange

6G.4 Export of cheques, etc. by Authorised Dealers and others

6G.5 Export of securities

EXPORT OF GOODS, SOFTWARE, CURRENCY ETC.PART A - GENERAL

Trade and Exchange Control

6A.1(i) The offices of the Director General of Foreign Trade regulate the physical

export of commodities. They may prohibit under the Exim Policy, the export of certaincommodities, stipulate that the export of certain other commodities would be subject to licence, prescribe minimum export prices or methods by which payments for exports of some commodities will have to be received. Export of certain commodities might be subject to restrictions placed in other statutes also. Nothing in the Exchange Control regulations outlined in this Manual shall relieve the exporter from complying with those laws and/or conditions imposed under those laws.

(ii) In exercise of the powers conferred by section 18(1) of Foreign Exchange

Regulation Act, 1973, Government of India have issued Notifications No. F1/67/EC/73-1 and No. F1/67/EC/73-2 both dated 1st January 1974, prohibiting the export of any goods directly or indirectly to any place outside India, other than Nepal and Bhutan, unless a declaration in the prescribed form is furnished to the prescribed authority. The various forms of declarations have been prescribed in the Second Schedule to the Foreign Exchange Regulation Rules, 1974. These Rules also lay down regulations relating to the prescribed period for realisation of export proceeds and the manner of payment of export value of goods.Exemptions from Declarations

6A.2In terms of Notifications Nos.F1/67/EC/73-1 and 2 both dated 1st January 1974, the

requirement of declaration on one of the prescribed forms does not apply to the exports listed

therein. Copies of these notifications are given in Volume II of the Manual. In terms of these notifications, the requirement of declaration does not, inter alia, apply to goods despatched by air freight or post parcel provided the packet is accompanied by a declaration by the sender that the value of the goods is not more than Rs.10,000 and that the export does not involve any transaction in foreign exchange. Reserve Bank, by its Order No. EC.CO.COX.126/5/Policy/93 dated 5th March 1993, has granted general permission to airline companies/air taxi operators to despatch aircraft engines and spare parts out of India for overhauling/repairs and their subsequent return to India, free of payment, without furnishing a declaration on GR / PP form. [Please also see paragraph 6F.3 regarding replacement of goods]Export Declaration Forms

6A.3The Foreign Exchange Regulation Rules, 1974 prescribe export declaration forms

called Exchange Control Declaration (GR) form, hereafter referred to as GR form, PP

and VP/COD forms. All exports to which the requirement of declaration applies must be declared on appropriate forms as indicated below:

(a) Exchange Control Declaration : Exports to all countries made (GR)Form otherwise than by post.

(b) PP Form : Exports to all countries by parcel post, except when made on 'value payable' or 'cash on delivery' basis.

(c) VP/COD Form : Exports to all countries by parcel post, under arrangements to realise proceeds through postal channels on 'value payable' or 'cash on delivery' basis.

NOTE: Export declarations are to be made in a set of two copies (original and duplicate) of GR or PP form. VP/COD forms are to be submitted in a single copy.

A.D.(M.A. Series) Circular No.4

Numbering of forms

6A.4GR and PP forms are printed by Reserve Bank for sale to authorised dealers for supply to their customers. VP/COD forms are sold directly to exporters by the offices of the Exchange

Control Department of Reserve Bank. GR / PP forms are printed in distinctive colours and each set bears a printed number which appears on both copies in the set. In all remittance applications and correspondence with the Reserve Bank relating to any export transaction, the printed number of GR / PP form on which the relative export was declared should invariably be cited. In case of exports declared on GR form, the 10 digit number allotted to the GR form by Customs should also be cited in full.Importer-Exporter Code Number6A.5 Every person/firm/company engaged in export business in India should obtain

Importer-Exporter Code Number from the Director General of Foreign Trade (DGFT) as required

under the Export and Import Policy. The Head/Registered office as well as its branches in India should invariably cite the number so allotted by DGFT on GR, PP or VP/COD forms as also SOFTEX form used for declaration of exports. Customs/Post Office/Department of Electronics will not entertain any export forms which do not bear the Importer-Exporter Code Number issued by DGFT.Methods of Payment

6A.6 (i) The methods for receipt of payment for exports are given in Chapter 2. Normally, payment must be received through the medium of an authorised dealer. It will, however, be in order for authorised dealers to handle documents in cases where the exporter has received the export proceeds directly from the overseas buyer in the form of bank draft, pay order, banker's cheque, personal cheque, foreign currency notes, foreign currency travellers' cheques, etc., without any monetary limit provided the exporter's track record is good, he is a customer of the concerned authorised dealer and prima facie the instrument represents payment for exports.

(ii) It will also be in order for authorised dealers to handle documents in cases where the exporter

has received the export proceeds in respect of goods sold to overseas buyers during their visits to India in rupees from the Credit Card Servicing banks either by way of reimbursement against charge slips signed by the ICC holders (overseas buyers) or as instantaneous credit to his bank account in India. GR(duplicate) should be released by the authorised dealers on receipt of funds in their Nostro account or on production of a certificate by the exporter from the Credit Card Servicing bank in India to the effect that it has received the equivalent amount in foreign exchange, if the authorised dealer concerned is not the Credit Card Servicing bank.

(iii) Payments towards export proceeds out of funds held in the Foreign Currency (Non-resident) account and Non-resident (External) Rupee account is also permitted.

(iv) Payments towards export proceeds from a rupee account, held in the name of an Exchange House with an authorised dealer, is also permissible up to Rs.2,00,000 per transaction.

Time limit for Realisation of Export Proceeds

6A.7In terms of Rule 8 of the Foreign Exchange Regulation Rules, 1974, as amended, the

amount representing the full export value of goods exported must be realised by an exporter on the due date for payment or within six months from the date of shipment, whichever is earlier. In respect of exports made to Indian-owned Warehouses abroad established with the permission of the Reserve Bank, a maximum period of 15 months is allowed for realisation of export proceeds. As regards consignment exports to CIS countries and East European countries, see Note C under paragraph 6C.8(ii).

Exports under Trade Agreements/Rupee Credits

6A.8(i) Export of goods under special arrangements or rupee credits extended by

Government of India to foreign Governments will be governed by terms and conditions

set out by Export Trade Control authorities in the relative Public Notices. These notices will cover various aspects such as type of goods eligible for export, procedure for obtaining approval for individual export contracts, manner of receiving payment and other matters. Important instructions relating to such exports will also be communicated by Reserve Bank to authorised dealers in the form of A.D. Circulars. Authorised dealers should refer to these Public Notices and A.D. Circulars while handling documents covering exports under these arrangements and ensure that prescribed procedure is meticulously followed.

(ii) The Export-Import Bank of India (Exim Bank) also extends, from time to time,

lines of credit to commercial banks/financial institutions in foreign countries for financing exports from India to those countries. Terms and conditions governing such credits are communicated by Reserve Bank to authorised dealers by means of A.D. Circulars. Authorised

dealers should be guided by the instructions contained in such circulars while handling documents covering exports under these arrangements and should meticulously follow the procedure prescribed therein.

Protection against Transit Risks under f.o.b., c.& f.,etc. Contracts

6A.9In case of exports contracted on f.o.b., c.& f., etc. terms and not covered by irrevocable letter of credit opened by buyers, exporters will be well advised to ensure even before

cargoes are shipped that the shipment has been adequately insured against all risks of loss or damage during the entire course of transit and that such insurance cover incorporates seller's interest clause in the relative policy, permitting claims being paid to exporter in India in the event of loss/damage to the shipment before ownership in the goods passes to buyer (See Note under paragraph 15A.2 and also paragraph 15A.3).

Bid Bonds and Other Guarantees against Commodity Exports6A.10 In terms of the Notification No. FERA.132/93-RB dated 26th April 1993, issued under

Section 26 of FERA 1973, authorised dealers have the permission to give performancebond or guarantee in favour of overseas buyers on account of bonafide exports from India. Before issuing any such guarantees, they should satisfy themselves with the bona fides of the applicant and his ability to perform the contract and also that the value of the bid/guarantee as a percentage of the value of the contract/tender is reasonable and according to the normal practice in international trade and that the terms of the contract are in accordance with the Exchange Control regulations. Authorised dealers may also, subject to what has been stated above, issue counter-guarantees in favour of their branches/correspondents abroad in cover of guarantees required to be issued by the latter on behalf of Indian exporters in cases where guarantees of only resident banks are acceptable to overseas buyers in accordance with local laws/regulations. If and when the bond/guarantee is invoked, authorised dealers may make payments due thereunder to non-resident beneficiaries but a report should be sent to Reserve Bank where the amount of the remittance exceeds U.S.$ 5000 or its equivalent.

NOTE: Prior approval of Reserve Bank should be obtained by authorised dealers for issue of performance bonds/guarantees in respect of caution-listed exporters.

Minor Guarantees6A.11 Authorised dealers may freely give on behalf of their customers and overseas branches

and correspondents, guarantees in the ordinary course of business in respect of missing or defective documents, authenticity of signatures and for other similar purposes.Foreign Currency Accounts6A.12 Reserve Bank may consider selectively applications from exporters having good track

record for opening foreign currency accounts with banks abroad for crediting the proceeds of export

shipments made (except to countries which are members of Asian Clearing Union) subject to certain terms and conditions. The facility will generally be extended to Export/Trading/Star Trading/Super Star Trading Houses and other exporters whose net foreign exchange earnings during the preceding year on account of exports after adjusting payments towards imports are

not less than Rs.4 crores. A designated branch of an authorised dealer in India will monitor the operations in the account abroad. Applications for this purpose may be submitted through the designated branch on form EFC to the concerned office of the Exchange Control Department under whose jurisdiction the exporter is functioning.

Counter Trade6A.13 (i) Counter-trade proposals involving adjustment of value of goods imported into India against value of goods exported from India in terms of an arrangement voluntarily entered into between the Indian party and the overseas party through an Escrow Account opened in India in U.S. dollar will be considered by the Reserve Bank. All imports and exports under the will be payable on balances standing to the credit of the Escrow Account but the funds temporarily rendered surplus may be held in a short-term deposit up to a total period of three months in a year (i.e. in a block of 12 months) and the banks may pay interest at the applicable rate. No overdraft will be permitted in the Escrow Account nor any loans will be permitted to be granted against funds in the account.

(ii) Application for permission for opening an Escrow Account may be made by the

overseas exporter/organisation through the authorised dealer with whom the account is proposed to be opened, to the office of Reserve Bank under whose jurisdiction the authorised dealer is functioning.

(iii) Reserve Bank will also consider counter trade proposals from Indian exporters

with Romania involving adjustment of value of goods exported from India to Romania against value of goods imported from Romania into India in terms of an arrangement voluntarily entered into with a party in Romania through an Escrow account in U.S. Dollar maintained with a bank in Romania for the purpose. The Indian exporter should utilise the Escrow account funds within three months from the date of credit to the Escrow account for import of goods from Romania into India. Application for necessary permission to open a U.S. Dollar Escrow Account may be submitted by an Indian exporter through an authorised dealer to the concerned office of Reserve Bank under whose jurisdiction the applicant is situated. The concerned authorised dealer will be required to monitor the transactions in the U.S. Dollar Escrow Account with banks in Romania through a mirror account.

Export of goods on lease, hire, etc.

6A.14Machinery, equipment, etc. are sometimes exported on lease, hire, etc. basis under

agreement with the overseas lessee against collection of hire charges and ultimate reimport of the goods exported. Exporters who wish to export goods on such terms should approach, through an authorised dealer, the office of the Reserve Bank under whose jurisdiction the exporter is situated, giving full particulars.

Participation in Trade Fairs Abroad

6A.15(i) Firms, companies as also Export Promotion Councils and other grantee

organisations (list given in the Annexure) which are autonomous organisations under the Ministries

of Commerce and Textiles of the Government of India and other Agencies/Commodity Boards regarded as Export Promotion Councils which are notified in the Export and Import Policy wishing to participate in trade fairs and exhibitions abroad and private publishers, printers etc. wishing to participate in book fairs/exhibitions abroad should apply to authorised dealers for exchange with necessary particulars. Authorised dealers may, on receipt of application from the aforesaid entities, release exchange subject to the condition that the participants render proper account of the expenditure incurred for the above purpose.

(ii) Exporters participating in international exhibition/trade fairs have been granted

general permission vide Reserve Bank Notification No.FERA.161/95-RB dated 31st January 1995 for opening temporary foreign currency account abroad for depositing the foreign exchange obtained by sale of goods sent for display-cum-sale at the international exhibition/trade fair and operate thereon during their stay outside India provided that the account is closed immediately after close of exhibition/trade fair and the balances therein is repatriated to India through normal banking channel. Exporters are also required to render full account of the transactions and the sale of goods exported for display-cum-sale in exhibition/trade fair to Reserve Bank duly certified by their bankers and produce documentary evidence regarding reimport of goods unsold within a period of 15 days from the close of the exhibition/fair.

NOTE: Authorised dealers may release exchange up to the amount requested for, on application to the All-India trade / industry bodies for organising trade fairs/exhibitions abroad. Authorised dealers should ensure that proper account of the expenditure incurred in foreign exchange so released for the above purpose is rendered by the organisation as soon as the trade fair/exhibition is over.

Project Exports and Service Exports

6A.16(i) Export of engineering goods on deferred payment terms and execution of

turnkey projects and civil construction contracts abroad are collectively referred to as

'Project Exports'. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive credit terms to be able to secure orders from foreign buyers in the face of stiff international competition. Indian exporters offering deferred payment terms to overseas buyers in respect of export of goods and those participating in global tenders for undertaking turnkey/civil construction contracts abroad require specific prior approval of Reserve Bank for credit terms to be offered, third country imports and opening of liaison office. Regulations relating to 'Project Exports' and 'Service Exports' are laid down in the Memorandum on Project Exports (PEM).

(ii) Pure supply contracts i.e. contracts for export of goods where at least 90 per cent

of the export value is realised within the prescribed period i.e. six months from the date of shipment and the balance amount within a maximum period of two years from the date of shipment, are not treated as deferred payment exports, provided the exporter does not require/avail of any funded or non-funded facility/ies for such exports from authorised dealers. Exporters should, therefore, directly approach ECGC for appropriate cover and Reserve Bank for approval of the terms of payment in accordance with the procedure laid down in Memorandum PEM.

Export on Elongated Credit Terms

6A.17Normally, proceeds of export of goods, other than those for which exporters have been permitted to offer commercial credit, (cf. paragraph 6A.16) have to be realised on the

due date for payment or within six months from the date of shipment whichever is earlier (or 15 months from the date of shipment in respect of exports to Indian-owned warehouses established abroad with the permission of the Reserve Bank). In some cases, however, the overseas buyers may be seeking longer period for payment of proceeds of commodities which are normally exported from India on 'cash' terms generally on the ground that remittances of proceeds are not permitted within 6 months or earlier by the buyers' country, in view of its difficult balance of payments position. Exporters intending to export goods on such terms may submit their proposals in form ECT through their banks to the concerned regional office of Reserve Bank for consideration.

Forfaiting

6A.18(i) Export-Import Bank of India (Exim Bank) has introduced a scheme of forfaiting

as an instrument of financing exports. It would be in order for authorised dealers to

allow remittance of commitment fee/service charges payable by the exporter as certified by the Exim Bank. Such remittance may be permitted in advance in one lump-sum or at monthly intervals as certified by the Exim Bank. Payment of these fees may be treated analogous to bank charges. In case, however, the commitment fee and other charges exceed 1.5% of the invoice value, the exporter should be advised to obtain prior approval of Reserve Bank.

(ii) Authorised dealers have also been permitted to introduce a scheme of forfaiting

of medium term export receivables, if they so desire. The procedure as followed by Exim Bank may be followed by authorised dealers in this regard.

PART B - GR/PP PROCEDUREDisposal of Copies of Export Declaration Forms

6B.1(i) Copies of export declaration forms should be disposed of as under:

(a) GR forms should be completed by the exporter in duplicate and both the copies submitted to the Customs at the port of shipment along with the shipping bill. Customs will give their running serial number on both the copies after admitting the corresponding shipping bill. The Customs serial number will have ten numerals denoting the code number of the port of shipment, the calendar year and a six digit running serial number. Customs will certify the value declared by the exporter on both the copies of the GR form at the space earmarked and will also record the assessed value. They will then return the du

Paret 2

PART B - GR/PP PROCEDUREDisposal of Copies of Export Declaration Forms6B.1 (i) Copies of export declaration forms should be disposed of as under:

(a) GR forms should be completed by the exporter in duplicate and both the copies submitted to the Customs at the port of shipment along with the shipping bill. Customs will give their running serial number on both the copies after admitting the corresponding shipping bill. The Customs serial number will have ten numerals denoting the code number of the port of shipment, the calendar year and a six digit running serial number. Customs will certify the value declared by the exporter on both the copies of the GR form at the space earmarked and will also record the assessed value. They will then return the duplicate copy of the form to the exporter and retain the original for transmission to Reserve Bank. Exporters should submit the duplicate copy of the GR form again to Customs along with the cargo to be shipped. After examination of the goods and certifying the quantity passed for shipment on the duplicate copy, Customs will return it to the exporter for submission to the authorised dealer for negotiation or collection of export bills.

(b) Within twenty one days from shipment of goods, exporter should lodge the duplicate copy together with relative shipping documents and an extra copy of the invoice with the authorised dealer named on the GR form. After the documents have been negotiated/sent for collection, the authorised dealer should report the transaction to Reserve Bank in statement ENC under cover of appropriate R-Supplementary Return. The duplicate copy of the form together with a copy of invoice will be retained by the authorised dealer till full export proceeds have been realised and thereafter submitted to Reserve

Bank duly certified under cover of appropriate R-Supplementary Return.NOTE: In the case of exports made under deferred credit arrangement or to

joint ventures abroad against equity participation or under rupee credit agreement, the number and date of Reserve Bank approval and/or number and date of the relative A.D. circular should be recorded at the appropriate place on the GR form.

(c) In cases where ECGC initially settles the claims of exporters in respect of exports insured with them and subsequently receives the export proceeds from the buyer/buyer's country through the efforts made by them, the share of exporters in the amount so received is disbursed through the bank which had handled the shipping documents. In such cases, ECGC will issue a certificate to the bank which had handled the relevant shipping documents after full proceeds have been received by them. The certificate will indicate the number of GR / PP form, name of the exporter, name of the authorised dealer, date of negotiation/bill number, invoice value and the amount actually received by ECGC against the relevant GR / PP form. It will be in order for authorised dealers to certify the duplicate GR/PP form on the basis of the certificate issued by ECGC and submit them to Reserve Bank. The certificates issued by ECGC may also be attached to the duplicate GR / PP forms while forwarding them to Reserve Bank.

(d) Where a part of export proceeds are credited to EEFC account (paragraph 6E.1), the GR / PP / SOFTEX duplicate forms may be certified as under:

'Proceeds amounting to ......... representing ....... % of the value of shipment credited to EEFC account maintained by the exporter with..........'

(ii) The manner of disposal of PP forms is the same as that for GR forms. Postal authorities will allow export of goods by post only if the original copy of the form has been countersigned by an authorised dealer. PP forms should, therefore, be first presented by exporter to an authorised dealer for countersignature. Authorised dealers will countersign the forms in accordance with regulations explained in paragraph 6C.1 and return the original copy to the exporter, who should submit the form to the post office with the parcel. The duplicate copy of PP form will be retained by the authorised dealer to whom the exporter should submit relevant documents together with an extra copy of invoice for negotiation/collection, within the prescribed period of twenty one days.

(iii) In the case of VP/COD form, only one copy is required to be completed and.submitted to post office along with the relative parcel at the time of despatch.Shut out Shipments and Short Shipments6B.2 (i) When part of a shipment covered by a GR form already filed with Customs is

short-shipped, exporter must give notice of short shipment to Customs in form and manner prescribed. In case of delay in obtaining certified short shipment notice from Customs, exporter should give an undertaking to the authorised dealer to the effect that he has filed the short-shipment notice with the Customs and that he will furnish it as soon as it is obtained. Authorised dealer should send the short shipment notice along with the GR duplicate to Reserve Bank.

(ii) Where a shipment has been entirely shut out and there is delay in making

arrangements to re-ship, exporter will give notice in duplicate to Customs in the manner and in form prescribed for the purpose attaching thereto the unused duplicate copy of GR form and the shipping bill. Customs will verify that the goods were actually shut out, certify copy of the notice as correct and forward it to Reserve Bank together with unused duplicate copy of the GR form. In this case, the original GR form received earlier from Customs will be cancelled. If the shipment is made subsequently, a fresh set of GR form must be completed.Exports by Air6B.3 In the absence of negotiable shipping documents in case of air consignments, exporters

sending goods by air run the risk of losing value of goods, if they are consigned directly to overseas buyer/consignee and not to the overseas branch/correspondent of an authorised dealer, except where they are covered by irrevocable letter of credit opened by buyer for the full value of the goods or payment towards the full value of the goods has been received in advance. Exporters will, therefore, be well advised to consign the goods in such cases to the concerned overseas branch/correspondent of the authorised dealer through whom shipping documents will be forwarded for collection, to enable the latter to instruct the overseas branch/correspondent to arrange for issue of delivery order in favour of buyer on payment or acceptance of bill drawn by the shipper.Consolidation of Air Cargo6B.4 Where air cargo is shipped under consolidation, the airline company's Master Airway

Bill will be issued to the Consolidating Cargo Agent who will in turn issue his own House Airway

Bills (HAWBs) to individual shippers. Authorised dealers will negotiate HAWBs only if the relative letter of credit specifically provides for negotiation of these documents in lieu of Airway Bills issued by airline company. Authorised dealers will, however, accept freely HAWBs where documents are to be sent on collection basis. Exporters wishing to ship air cargoes through consolidators will be well advised to provide in the relative sale contracts with their overseas buyers for payment being made against either HAWBs or the customary Airline Company's Airway Bills. When, however, a letter of credit has been opened, it is the duty of the exporter to ensure that it provides for negotiation of HAWB before forwarding the consignment.Exports by Barges/Country Craft/Road Transport6B.5 Following procedure should be adopted by exporters for filing original copies of GR forms where exports are made to neighbouring countries by road, rail or river transport:

(a) In case of exports by barges/country craft/road transport, the form should be presented by exporter or his agent at the Customs station at the border through which the vessel or vehicle has to pass before crossing over to the foreign territory. For this purpose, exporter may arrange either to give the form to the person in charge of the vessel or vehicle or forward it to his agent at the border for submission to Customs.

(b) As regards exports by rail, Customs staff have been posted at certain designated railway stations for attending to Customs formalities in respect of goods consigned to Pakistan, Afghanistan or Bangladesh. They will collect the GR forms in respect of goods loaded at these stations so that the goods may move straight on to the foreign country without further formalities at the border. The list of designated Railway Stations is obtainable from Railways. In respect of goods loaded at stations other

than the designated stations, exporters must arrange to present GR forms to the Customs Officer at the Border Land Customs Station where Customs formalities are completed.

Pp foremsART C - AUTHORISED DEALERS' OBLIGATIONS

Countersignature on PP forms6C.1 PP Forms will be presented by the exporter to an authorised dealer for

countersignature.Authorised dealers should countersign PP forms after ensuring that the parcel is being

addressed to their branch or correspondent bank in the country of import. The concerned overseas branch or correspondent should be instructed to deliver the parcel to consignee against payment or acceptance of relative bill. Authorised dealers may, however, countersign PP forms covering parcels addressed direct to the consignees, provided -

(a) an irrevocable letter of credit for the full value of the export has been opened in favour of exporter and has been advised through authorised dealer concerned;

or(b) the full value of the shipment has been received in advance by the exporter

through an authorised dealer;or

(c) the authorised dealer is satisfied, on the basis of the standing and track record of the exporter and the arrangements made for realisation of the export proceeds, that he could do so.

In such cases, particulars of advance payment/letter of credit/authorised dealer's certification of standing etc. of the exporter should be furnished on the form under

proper authentication. Any alteration in the name and address of consignee on the PP form should also be authenticated by the authorised dealer under his stamp and signature.

Exports by Government/Public Sector Undertakings, etc.6C.1A As per the procedure laid down by Government of India, export contracts by

Central/StateGovernments, Central & State Public Sector undertakings and autonomous bodies should

be made on CIF basis only in respect of transportation of Government owned/controlled cargo by foreign flag vessels (i.e. ocean transportation of cargo). In case of the contracts entered into on terms other than CIF, a `No Objection Certificate' from the Ministry of Surface Transport (MOST), Government of India is required to be obtained. While negotiating export documents on behalf of aforesaid exporters, authorised dealers should ensure that necessary No Objection Certificate from MOST has been obtained by the concerned exporters in cases of the exports made on terms other than CIF.Delay in Submission of Shipping Documents by Exporters6C.2 In cases where exporters present documents pertaining to exports after the

prescribed period of twenty one days from date of export (see paragraph 6B.1),authorised dealers may handle them without prior approval of Reserve Bank, provided they are satisfied that it was due to reasons beyond the control of exporters.Check-list for Scrutiny of Forms6C.3 (i) Authorised dealer should ensure that the number of the duplicate copy ofa GR form presented to them is the same as that of the original which is usually recorded on the Bill of Lading and the duplicate has been duly verified and authenticated by appropriate Customs authorities.

(ii) Authorised dealers may accept Bill of Lading/Airway Bill issued on 'freight prepaid'

basis where the sale contract is on f.o.b., f.a.s. etc. basis provided the amount of freight has been included in the invoice and the bill. Conversely, in the case of c.i.f., c.&f. etc. contracts where freight is sought to be paid at destination, authorised dealers should ensure that the deduction made is only to the extent of freight declared on GR form or the actual amount of freight indicated on the Bill of Lading/Airway Bill, whichever is less. Likewise, where the marine insurance is taken by the exporters on buyer's account, authorised dealer should verify that the actual amount paid is received from the buyer through invoice and the bill.

(iii ) Authorised dealers should ensure that the documents submitted do not reveal anymaterial inter se discrepancies in regard to description of goods exported, export value or country of destination.

NOTES: A. The export realisable value may be more than what was originally declared to/accepted by Customs on the GR form in certain circumstances such as where in c.i.f. or c.&f. contracts, part or whole of any freight increase taking place after the contract was concluded is agreed to be borne by buyers or where as a result of subsequent devaluation of the currency of the contract, buyers have agreed to an increase in price.

B. In certain lines of export trade, final settlement of price may be dependent on the results of quality analysis of samples drawn at the time of shipment; but the results of such analysis will become available only after the shipment has been made. Sometimes, contracts may provide for payment of penalty for late shipment of goods in conformity with trade practice concerning the commodity. In these cases, while exporters declare to Customs the full export value based on the contract price, invoices submitted along with shipping documents for negotiation/collection may reflect a different value arrived at after taking into account the results of analysis of samples or late shipment penalty, as the case may be.As such variations stem from the terms of contract, authorised dealers may accept them on production of documentary evidence after verifying that the arithmetical calculations showing the variations are correct and are based on the terms of underlying contracts.

Transfer of Documents6C.4 Authorised dealers may accept from their constituents for negotiation or collection,

shipping documents covering exports even where the original declaration on GR forms had been signed by some other party provided the constituent drawing the bill countersigns on the duplicate copy of GR form, the undertaking to deliver to the authorised dealer the foreign exchange proceeds of the shipment within the prescribed period. In case the constituent exporter is one who is placed on exporters' caution list by Reserve Bank, authorised dealer may negotiate the documents provided the shipment is covered by advance remittance or by irrevocable letter of credit where the documents conform strictly to the terms of the letter of credit.Trade Discount6C.5 (i) Bills in respect of exports by sea or air which fall short of the value declared on

GR forms on account of trade discount may be accepted for negotiation or collection by

authorised dealers only if the discount has been declared by exporter on relative GR form at the time of shipment and accepted by Customs.

(ii) In case of exports by post parcel against declaration on PP forms, post officeswill not undertake scrutiny of trade discount deductions, if any, declared on the forms. Authorised dealers may accept deductions towards trade discount in such cases, provided the discount declared is in conformity with the normal level of discount usually offered in the particular line of export trade.Advance Payments against Exports6C.6 (i) Exporters may receive advance payments (with our without interest) from

their overseas buyers provided (a) the shipments are made within one year from

the date of receipt of advance payment, (b) the rate of interest payable does not exceed LIBOR + 100 basis points and (c) the shipments made against the advance payments are monitored by the authorised dealer through whom the advance payment is received. The appropriations made against every shipment must be endorsed on the original copy of the inward remittance certificate issued for advance remittance.

(ii) In cases where exporters are unable to make shipments against advancepayments received by them for exports, authorised dealers may allow remittances towards refund thereof (partly or fully), provided the unutilised portion of the advance is refunded within a period of one year of its receipt on production of (a) a Chartered Accountant's certificate that the amount is still outstanding in the books of the exporter and has not been adjusted in any manner and (b) a declaration that the advance was not against exports to be made in pursuance of any undertaking given to Import Trade Control authorities in regard to fulfilment of export obligation. If, however, the advance payment was received in fulfilment of export obligation, the refund may be allowed on production of a 'No Objection Certificate' from Import Trade Control authorities for refund of the amount. The inward remittance certificate issued at the time of receipt of advance payment should be called for and cancelled/suitably endorsed.

NOTE: If a portion of advance payment against exports credited to EEFC account is to be refunded, the refund should be allowed by debit to the EEFC account in proportion to the amount originally credited to the account. Where the balance in the EEFC account is insufficient to cover the proportionate amount originally credited to EEFC account, exporters should be advised to arrange replenishment of funds from EEFC accounts maintained with other branches/authorised dealers. Purchase of foreign exchange from the market may be allowed only after utilising balances held in exporter's all EEFC accounts. For this purpose, a suitable declaration may be obtained from the exporter concerned.

(iii) Authorised dealers freely grant pre-shipment advances against `Red clause'letters of credit in favour of their exporter-constituents. Advances made by the letter of credit opening bank will, however, be treated as advance remittances against exports.Part Drawings6C.7 In certain lines of export trade, it is the practice of exporters not to draw bills for the

full invoice value of the goods but to leave a small part undrawn for payment after adjustment due to differences in weight, quality, etc. ascertained after arrival and inspection, weighment or analysis of the goods. In such cases, authorised dealers may negotiate bills, provided -

(a) undrawn balance is in conformity with the normal level of balance left undrawn in the particular line of export trade, subject to a maximum of 10 per cent of the full export value;

and(b) an undertaking is obtained from exporter that he will surrender/account for the

balance proceeds of the shipment within the period prescribed for realisation.Authorised dealers should obtain the above undertaking from exporter on the

duplicate copy of GR / PP form and should vigorously follow up such undertakings.NOTE: In cases where exporter has not been able to arrange for repatriation of the

undrawn balance in spite of best efforts, authorised dealers, on being

satisfied with the bona fides of the case, may submit duplicate copies of GR / PP forms to Reserve Bank duly certified for the amount actually realised, provided the exporter has realised at least the value for which the bill was initially drawn (excluding undrawn balances) or 90% of the value declared on GR / PP form, whichever is more and a period of one year has elapsed fro

Soft taxesPART D - EXPORT OF COMPUTER SOFTWARE

Declaration of Software Exports

6D.1Export of software is undertaken in physical form i.e. software prepared on magnetic tapes and paper media as well as in non-physical form i.e. direct transmission abroad through

dedicated earth stations/satellite links. As far as export of software in physical form is concerned the procedure relating to declaration of shipments on GR / PP forms, handling of export documents by authorised dealers and other allied matters is the same as applicable to export of other goods. Export of software, in non-physical form including Video/TV software and all other types of software products/packages, should be declared on SOFTEX form. Each set of SOFTEX forms comprises three copies marked Original, Duplicate and Triplicate which carry an identical pre-printed serial number. All the three forms in each set should be completed and the entire set submitted for the purpose of valuation together with relevant documents to the officials of Department of Electronics (DOE), Government of India.

6D.2 Valuation of Software Exports/Certification of SOFTEX form

The valuation of exports declared on SOFTEX form will be done by the designated official/s of the Department of Electronics (DOE) at the Software Technology Parks of India (STPI). The SOFTEX form of exporters located outside STPI as also forms in respect of export of video/TV software will also be certified by designated official/s at the nearest STPI. DOE have made

necessary arrangement for certification/valuation of the Video/TV software declared on SOFTEX form with the Ministry of Information and Broadcasting, Government of India, once in a week at the STPI. The valuation of exports declared on SOFTEX form by Units located in Export Processing Zones will be done by the designated authority of the Export Processing Zone.

6D.3 Disposal of SOFTEX forms

(i) After certifying all the three copies of the SOFTEX form, the designated officials of Government of India at STPI and designated authorities of Export Processing Zones will forward the original directly to the nearest office of the Exchange Control Department of Reserve Bank the day it is received or the next day and return the duplicate to the exporter. The triplicate will be retained by the Department of Electronics for their record.

(ii) Within 21 days form the date of certification of the SOFTEX form, the exporter should submit the duplicate copy together with a copy of each of the supporting documents to the authorised dealer for negotiation/collection. The duplicate copy of the form together with documents will be retained by the authorised dealer till full export value declared on the form or as certified by the designated officials at STPI, whichever is higher has been realised and repatriated to India and thereafter will be submitted to the Reserve Bank duly certified under cover of an appropriate R Return along with a copy/ies of invoice/s.

(iii) After the documents have been negotiated/sent for collection, authorised dealers should report the transaction to Reserve Bank in a fortnightly statement in form ENC under the cover of appropriate R Return. Entries in the ENC statement should be made in chronological order of the transactions as recorded in the internal register (Export Bills Register) of the authorised dealer.

6D.4 Terms of payment - Invoicing

(i) In respect of long duration contracts involving series of transmissions, the exporter should bill their overseas clients periodically, i.e. at least once a month, or on reaching the 'milestone' as provided in the contract entered into with the overseas client and the last invoice/bill should be raised not later than 15 days form the date of completion of the contract. It would be in order for the exporters to submit a combined SOFTEX form for all the invoices raised on a particular overseas client, including advance remittances received in a month.

(ii) In respect of contracts involving only 'one shot operation', the invoice/bill should be raised within 15 days from the date of transmission.

(iii) The exporter should submit SOFTEX form to the concerned official of Government of India at STPI for valuation/certification not later than 30 days from the date of invoice/the date of last invoice raised in a month, as indicated above.

(iv) The invoices raised on overseas clients as at (i) to (iii) above will be subject to valuation of export value declared on SOFTEX form by the designated official of Government of India (cf.

paragraph 6D.2 above) and consequent amendment made in the invoice value, if necessary.

6D.5 Time limit for realisation of export value

The full value of the software exported as declared on theSOFTEX form or as certified by the official of Government of India at STPI, whichever is higher should be repatriated to India on due date of payment or within 180 days from the date of invoice, whichever is earlier in the manner prescribed in Rule 9 of the Foreign Exchange Regulation Rules, 1974.

PART E - REMITTANCES CONNECTED WITH EXPORTS

General

6E.1Exporters are permitted to retain up to 50% (70% in the case of 100% EOUs/Units located in EPZ/Software Technology Parks/Electronic Hardware Technology Parks) of the receipts from

export of goods in a foreign currency account with an authorised dealer in India titled 'Exchange Earners' Foreign Currency (EEFC) account' (opened in terms of provisions contained in Chapter 14). The account may be maintained in any permitted currency and in any form [current, savings (without cheque facility) or term deposit account]. The balances in these accounts may be utilised for all bona fide payments of the account holder for purposes listed in Annexure I to Chapter 14 subject to the production, to the authorised dealer, of the necessary documentary evidence in support of the amount to be remitted (See paragraph 14D.4). Exporters maintaining foreign currency accounts in terms of paragraph 6A.12 are not allowed to maintain EEFC accounts.

NOTE: Release of exchange towards charges for advertisements on overseas TV media, by debit to the EEFC Account, will be subject to the following conditions/documentation:(a) An application in form ADV giving brief description of advertisement

against item 5 of the form.(b Exporter's declaration at the end o

)

f form ADV to the effect that the advertisement is aimed at promoting their exports.(c) Bill/Invoice from the overseas TV company as also their confirmation that

the advertisement has already been telecast on their media, is produced.(d) The amount of agency commission, if any, due to the Indian agent of

overseas beneficiary should be deducted before allowing the remittance.(e) No advance remittance should be allowed.(f) Production of Undertaking/certificate regarding payment of Income-tax

(cf. Paragraph 3B.10).

Agency Commission on Exports

6E.2(i) Authorised dealers may allow payment of commission, either by remittance or by

deduction from invoice value, on application submitted by the exporter. The application,

by letter, should give particulars such as Importer-Exporter code number, customs/shipping bill number and date, name of commodity, name and address of buyer/agent and export value and should be supported by an attested copy of invoice and documentary evidence in support of the amount to be remitted. The remittance may be allowed subject to the following conditions:

(a) (a) Amount of commission has been declared on GR / PP / SOFTEX form and accepted by Custom authorities or Department of Electronics, Government of India as the case may be. In cases where the commission has not been declared on GR / PP / SOFTEX form, remittance thereof may be allowed after satisfying about the reasons adduced by the exporter for not declaring commission on Export Declaration Form, provided a valid agreement/written understanding between the exporter and/or agent/beneficiary for payment of commission subsists.

(b) Rate of commission does not exceed 12.5% of invoice value.(c) Commission sought to be remitted is not on export of a canalised item,

project exports, or exports financed under lines of credit extended by Government of India or Exim Bank, or exports made by Indian partners towards equity participation in an overseas joint venture/wholly owned subsidiary.

(d) The relative shipment has already been made.(ii) Authorised dealers may allow payment of commission by Indian exporters, in

respect of their exports covered under counter trade arrangement through Escrow Accounts designated in U.S. dollar, subject to the following conditions;-

(a) The payment of commission satisfies the conditions as at (a) to (d) stipulated in paragraph 6E.2(i) above.

(b) The commission is not payable to Escrow Account holders themselves.(c) The commission should not be allowed by deduction from the invoice value.

Overprice

6E.3Overprice arrangements by exporters are prohibited and no remittance towards overprice on exports will be permitted by Reserve Bank. Cases having exceptional features may be

referred to Reserve Bank explaining why the exporter is unable to remunerate overseas intermediary by payment of agency commission instead of overprice.

Export Claims

6E.4Authorised dealers are permitted to remit export claims, by exporters, on application by letter containing particulars such as Importer-Exporter code number, GR / PP form number, date of

shipment, name of commodity, invoice value, name and address of claimant, nature and amount of claim as also documentary evidence in support of the claim, provided-

(a) the amount does not exceed 15% of invoice value;and

(b) the relative export proceeds have already been realised and repatriated to India.In case of exporters who have been in the export business for more than three years,

remittances may be allowed without any percentage ceiling, provided-(a) the exporter is not on the Exporters' caution list of Reserve Bank;

and(b) his track record is satisfactory (cf. para 6C.13)In all such cases of remittances, the exporter should be advised to surrender proportionate

incentives, if any, received by him.

Sdf forms

Genral provision of export import in documatation

EXPORTS

General

6E.1Exporters are permitted to retain up to 50% (70% in the case of 100% EOUs/Units located in EPZ/Software Technology Parks/Electronic Hardware Technology Parks) of the receipts from

export of goods in a foreign currency account with an authorised dealer in India titled 'Exchange Earners' Foreign Currency (EEFC) account' (opened in terms of provisions contained in Chapter 14). The account may be maintained in any permitted currency and in any form [current, savings (without cheque facility) or term deposit account]. The balances in these accounts may be utilised for all bona fide payments of the account holder for purposes listed in Annexure I to Chapter 14 subject to the production, to the authorised dealer, of the necessary documentary evidence in support of the amount to be remitted (See paragraph 14D.4). Exporters maintaining foreign currency accounts in terms of paragraph 6A.12 are not allowed to maintain EEFC accounts.

NOTE: Release of exchange towards charges for advertisements on overseas TV media, by debit to the EEFC Account, will be subject to the following conditions/documentation:(a) An application in form ADV giving brief description of advertisement

against item 5 of the form.(b)

Exporter's declaration at the end o

f form ADV to the effect that the advertisement is aimed at promoting their exports.(c) Bill/Invoice from the overseas TV company as also their confirmation that

the advertisement has already been telecast on their media, is produced.(d) The amount of agency commission, if any, due to the Indian agent of

overseas beneficiary should be deducted before allowing the remittance.(e) No advance remittance should be allowed.(f) Production of Undertaking/certificate regarding payment of Income-tax

(cf. Paragraph 3B.10).

Agency Commission on Exports

6E.2(i) Authorised dealers may allow payment of commission, either by remittance or by

deduction from invoice value, on application submitted by the exporter. The application,

by letter, should give particulars such as Importer-Exporter code number, customs/shipping bill number and date, name of commodity, name and address of buyer/agent and export value and should be supported by an attested copy of invoice and documentary evidence in support of the amount to be remitted. The remittance may be allowed subject to the following conditions:

(a) (a) Amount of commission has been declared on GR / PP / SOFTEX form and accepted by Custom authorities or Department of Electronics, Government of India as the case may be. In cases where the commission has not been declared on GR / PP / SOFTEX form, remittance thereof may be allowed after satisfying about the reasons adduced by the exporter for not declaring commission on Export Declaration Form, provided a valid agreement/written understanding between the exporter and/or agent/beneficiary for payment of commission subsists.

(b) Rate of commission does not exceed 12.5% of invoice value.(c) Commission sought to be remitted is not on export of a canalised item,

project exports, or exports financed under lines of credit extended by Government of India or Exim Bank, or exports made by Indian partners towards equity participation in an overseas joint venture/wholly owned subsidiary.

 

Genral provision of export and import ENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

Exports and

Imports free

unless regulated

2.1 Exports and Imports shall be free, except in cases where they are regulated by the provisions of this Policy or any other law for the time being in force. The itemwise export and import policy shall be, as specified in ITC(HS) published and notified by Director General of Foreign Trade, as amended from time to time.

Compliance with

Laws

2.2 Every exporter or importer shall comply with the provisions of the Foreign Trade (Development and Regulation) Act, 1992, the Rules and Orders made thereunder, the provisions of this Policy and the terms and conditions of any licence/certificate/permission granted to him, as well as provisions of any other law for the time being in force. All imported goods shall also be subject to domestic Laws, Rules, Orders, Regulations, technical specifications, environmental and safety norms as applicable to domestically produced goods. No import or export of rough diamonds shall be permitted unless the shipment parcel is accompanied by Kimberley Process (KP) Certificate required under the procedure specified by the Gem & Jewellery Export Promotion Council (GJEPC).

Interpretation of Policy 2.3 If any question or doubt arises in respect of the interpretation of any provision contained in this Policy, or

regarding the classification of any item in the ITC(HS) or Handbook (Vol.1) or Handbook (Vol.2), or Schedule Of DEPB Rate the said question or doubt shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.

 

If any question or doubt arises whether a licence/ certificate/permission has been issued in accordance with this Policy or if any question or doubt arises touching upon the scope and content of such documents, the same shall be referred to the Director General of Foreign Trade whose decision thereon shall be final and binding.

Procedure 2.4 The Director General of Foreign Trade may, in any case or class of cases, specify the procedure to be followed by an exporter or importer or by any licensing or any other competent authority for the purpose of implementing the provisions of the Act, the Rules and the Orders made thereunder and this Policy. Such procedures shall be included in the Handbook (Vol.1), Handbook (Vol.2), Schedule of DEPB Rate and in ITC(HS) and published by means of a Public Notice. Such procedures may, in like manner, be amended from time to time.

 

The Handbook (Vol.1) is a supplement to the EXIM Policy and contains relevant procedures and other details. The procedure of availing benefits under various schemes of the Policy are given in the Handbook (Vol.1).

Exemption from

Policy/ Procedure

2.5 Any request for relaxation of the provisions of this Policy or of any procedure, on the ground that there is genuine hardship to the applicant or that a strict application of the Policy or the procedure is likely to have an adverse impact on trade, may be made to the Director General of Foreign Trade for such relief as may be necessary. The Director General of Foreign Trade may pass such orders or grant such relaxation or relief, as he may deem fit and proper. The Director General of Foreign Trade may, in public interest, exempt any person or class or category of persons from any provision of this Policy or any procedure and may, while granting such exemption, impose such conditions as he may deem fit. Such request may be considered only after consulting ALC if the request is in respect of a provision of Chapter-4 (excluding any provision relating to Gem & Jewellery sector) of the Policy/ Procedure. However, any such request in respect of a provision other than Chapter-4 and Gem & Jewellery sector as given above may be considered only after consulting Policy Relaxation Committee.

Principles of Restriction 2.6 DGFT may, through a notification, adopt and enforce

any measure necessary for:-

 

i. Protection of public morals.ii. Protection of human, animal or plant life or

health.iii. Protection of patents, trademarks and copyrights

and the prevention of deceptive practices.iv. Prevention of prison labour.v. Protection of national treasures of artistic,

historic or archaeological value.vi. Conservation of exhaustible natural resources.

vii. Protection of trade of fissionable material or material from which they are derived; and

viii. Prevention of traffic in arms, ammunition and implements of war.

Restricted Goods 2.7 Any goods, the export or import of which is restricted under ITC(HS) may be exported or imported only in accordance with a licence/ certificate/ permission or a public notice issued in this behalf.

 

Terms and Conditions of a Licence/ Certificate/

Permission

2.8 Every licence/certificate/permission shall be valid for the period of validity specified in the licence/ certificate/ permission and shall contain such terms and conditions as may be specified by the licensing authority which may include:

(a) The quantity, description and value of the goods;

(b) Actual User condition;

(c ) Export obligation;

(d) The value addition to be achieved; and

(e) The minimum export price.

Licence/

Certificate/ Permission

not a Right

2.9 No person may claim a licence/certificate/ permission as a right and the Director General of Foreign Trade or the licensing authority shall have the power to refuse to grant or renew a licence/certificate/permission in accordance with the provisions of the Act and the Rules made thereunder.

Penalty 2.10 If a licence/certificate/permission holder violates any condition of the licence/certificate/ permission or fails to fulfil the export obligation, he shall be liable for action in accordance with the Act, the Rules and Orders made there under, the Policy and any other law for the time

being in force. 

 

 

State Trading 2.11 Any goods, the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), may be imported or exported by the State Trading Enterprise(s) as specified in the ITC(HS) Book subject to the conditions specified therein. The Director General of Foreign Trade may, however, grant a licence/certificate/permission to any other person to import or export any of these goods. 

 

In respect of goods the import or export of which is governed through exclusive or special privileges granted to State Trading Enterprise(s), the State Trading Enterprise(s) shall make any such purchases or sales involving imports or exports solely in accordance with commercial considerations, including price, quality, availability, marketability, transportation and other conditions of purchase or sale. These enterprises shall act in a non discriminatory manner and shall afford the enterprises of other countries adequate opportunity, in accordance with customary business practices, to compete for participation in such purchases or sales.

Importer-Exporter 

Code Number

2.12 No export or import shall be made by any person without an Importer-Exporter Code (IEC) number unless specifically exempted. An Importer-Exporter Code (IEC) number shall be granted on application by the competent authority in accordance with the procedure specified in the Handbook (Vol.1). However, if an IEC holder has not imported or exported in the preceding licensing year, such IEC shall be made inoperative by DGFT.

Trade with Neighbouring

Countries

2.13 The Director General of Foreign Trade may issue, from time to time, such instructions or frame such schemes as may be required to promote trade and strengthen economic ties with neighbouring countries.

Transit Facility 2.14 Transit of goods through India from or to countries adjacent to India shall be regulated in accordance with the bilateral treaties between India and those countries. 

 

 

 

 

 

 

Trade with Russia

under Debt-

Repayment

Agreement

2.15 In the case of trade with Russia under the Debt Repayment Agreement, the Director General of Foreign Trade may issue, from time to time, such instructions or frame such schemes as may be required, and anything contained in this Policy, in so far as it is inconsistent with such instructions or schemes, shall not apply.

Actual User 

Condition

2.16 Capital goods, raw materials, intermediates, components, consumables, spares, parts, accessories, instruments and other goods, which are importable without any restriction, may be imported by any person. However, if such imports require a licence/ certificate/permission, the actual user alone may import such goods unless the actual user condition is specifically dispensed with by the licensing authority.

Second Hand Goods 2.17 All second hand goods shall be restricted for imports and may be imported only in accordance with the provisions of this Policy, ITC(HS), Handbook (Vol.1), Public Notice or a licence/certificate/permission issued in this behalf.

Import of samples 2.18 Import of samples shall be governed by the provisions given in Handbook (Vol.1).

Import of Gifts 2.19 Import of gifts shall be permitted where such goods are otherwise freely importable under this Policy. In other cases, a Customs Clearance Permit (CCP) shall be required from the DGFT.

Passenger Baggage 2.20 Bonafide household goods and personal effects may be imported as part of passenger baggage. Samples of such items that are otherwise freely importable under this Policy may also be imported as part of passenger baggage without a licence/certificate/permission. Exporters coming from abroad are also allowed to import drawings, patterns, labels, price tags, buttons, belts, trimming and embellishments required for export, as part of their passenger baggage without a licence/certificate/permission.

Import on Export basis 2.21 New or second hand capital goods, equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds

may be imported for export without a licence/certificate/permission on execution of Legal Undertaking/Bank Guarantee with the Customs

Authorities provided that the item is freely exportable without any conditionality/requirement of licence/ permission as may be required under ITC(HS) Schedule II.

Re-import of goods repaired abroad

2.22 Capital goods, equipments, components, parts and accessories, whether imported or indigenous, may be sent abroad for repairs, testing, quality improvement or upgradation or standardisation of technology and re-imported without a licence/certificate/permission.

Import of goods used in projects abroad

2.23 After completion of the projects abroad, project contractors may import, without a licence/ certificate/ permission, used goods including capital goods provided they have been used for at least one year.

Sale on High Seas 2.24 Sale of goods on high seas for import into India may be made subject to this Policy or any other law for the time being in force.

Import under Lease Financing

2.25 Permission of licensing authority is not required for import of new capital goods under lease financing.

Clearance of Goods from Customs

2.26 The goods already imported/shipped/arrived, in advance, but not cleared from Customs may also be cleared against the licence/ certificate/ permission issued subsequently.

Execution of BG/LUT 2.27 Wherever any duty free import is allowed or where otherwise specifically stated, the importer shall execute a Legal Undertaking (LUT)/Bank Guarantee (BG) with the Customs Authority before clearance of goods through the Customs, in the manner as may be prescribed. In case of indigenous sourcing, the licence/ certificate/ permission holder shall furnish BG/LUT to the licensing authority before sourcing the material from the indigenous supplier/nominated agency.

Private/ Public Bonded 

Warehouses

for Imports

2.28 Private/Public bonded warehouses may be set up in the Domestic Tariff Area as per the terms and conditions of notification issued by Department of Revenue. Any person may import goods except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such private/public bonded warehouses. Such goods may be cleared for home consumption in accordance with the provisions of this Policy and against Licence/certificate/ permission, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, the importer of such goods shall re-export the goods.

Free Exports 2.29 All goods may be exported without any restriction except to the extent such exports are regulated by ITC(HS) or any other provision of this Policy or any other law for the time being in force. The Director General of Foreign Trade may,

however, specify through a public notice such terms and conditions according to which any goods, not included in the ITC(HS), may be exported without a licence/ certificate/ permission.

Export of Samples 2.30 Export of samples and Free of charge goods shall be governed by the provisions given in Handbook (Vol.1).

Export of

Passenger

Baggage

2.31 Bonafide personal baggage may be exported either along with the passenger or, if unaccompanied, within one year before or after the passenger's departure from India. However, items mentioned as Restricted in ITC(HS) shall require a licence/certificate/permission, except in the case of edible items.

Export of Gifts 2.32 Goods, including edible items, of value not exceeding Rs.1,00,000/- in a licensing year, may be exported as a gift. However, items mentioned as restricted for exports in ITC(HS) shall not be exported as a gift, without a licence/certificate/permission, except in the case of edible items.

Export of Spares 2.33 Warranty spares, whether indigenous or imported, of plant, equipment, machinery, automobiles or any other goods may be exported alongwith the main equipment or subsequently but within the contracted warranty period of such goods subject to approval of RBI.

Third Party

Exports

2.34 Third party exports, as defined in paragraph 9.55 shall be allowed under the Policy.

 

 

  Export of

Imported

Goods

2.35 Goods imported, in accordance with this Policy, may be exported in the same or substantially the same form without a licence/certificate/permission provided that the item to be imported or exported is not mentioned as restricted for import or export in the ITC(HS). Exports of such goods imported against payment in freely convertible currency would be permitted against payment in freely convertible currency.

2.36 Goods, including those mentioned as restricted item for import (except prohibited items) may be imported under Customs Bond for export in freely convertible currency without a licence/ certificate/ permission provided that the item is freely exportable without any conditionality/ requirement of licence/permission as may be required under ITC (HS) Schedule II.

Export of

Replacement

Goods

2.37 Goods or parts thereof on being exported and found defective/damaged or otherwise unfit for use may be replaced free of charge by the exporter and such goods shall be allowed clearance by the customs authorities provided that the replacement goods are not mentioned as restricted items for exports in ITC(HS).

Export of 2.38 Goods or parts thereof on being exported and found

Repaired

Goods

defective, damaged or otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without a licence/ certificate/permission and in accordance with customs notification issued in this behalf.

Private Bonded

Warehouses for Exports

2.39 Private bonded warehouse exclusively for exports may be set up in DTA as per the terms and conditions of the notifications issued by Department of Revenue. Such warehouse shall be entitled to procure the goods from domestic manufacturers without payment of duty. The supplies made by the domestic supplier to the notified warehouses shall be treated as physical exports provided the payments for the same are made in free foreign exchange.

Denomination of 

Export Contracts

2.40 All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but the export proceeds shall be realised in freely convertible currency. Contracts for which payments are received through the Asian Clearing Union (ACU) shall be denominated in ACU Dollar. The Central Government may relax the provisions of this paragraph in appropriate cases. Export contracts and Invoices can be denominated in Indian rupees against EXIM Bank/ Government of India line of credit.

Realisation of

Export Proceeds

2.41 If an exporter fails to realise the export proceeds within the time specified by the Reserve Bank of India, he shall, without prejudice to any liability or penalty under any law for the time being in force, be liable to action in accordance with the provisions of the Act, the Rules and Orders made thereunder and the provisions of this Policy.

Free movement

of export goods

2.42 Consignments of items meant for exports shall not be withheld /delayed for any reason by any agency of the Central/State Government. In case of any doubt, the authorities concerned may ask for an undertaking from the exporter.

No seizure of 

Stock

2.42.1 No seizure of stock shall be made by any agency so as to disrupt the manufacturing activity and delivery schedule of export goods. In exceptional cases, the concerned agency may seize the stock on the basis of prima facie evidence. However, such seizure should be lifted within 7 days.

Export

Promotion

Council

2.43 The basic objective of export promotion councils 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 list of the councils, and their main functions are given in Handbook (Vol.1).

SETTING UP BUSINESS IN INDIA BY FOREIGN COMPANIESA foreign company planning to set up business operations in India has the following TWO options:

1. AS AN INDIAN COMPANY

A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through:

a. Joint Ventures; or b. Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained on a specific request. (Click here for making a specific request).

1. a) Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.

Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resource of the Indian partners Established contacts of the Indian partners which help

smoothen the process of setting up of operations

1. b) Wholly Owned Subsidiary Company

Foreign companies can also set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.

Incorporation of Company For registration and incorporation, set of applications have to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

Click here for a flow chart of steps involved in formation of a company

Click here for Company Formation in India

SETTING UP BUSINESS IN INDIA BY FOREIGN COMPANIESA foreign company planning to set up business operations in India has the following TWO options:

1. AS AN INDIAN COMPANY

A foreign company can commence operations in India by incorporating a company under the Companies Act, 1956 through:

c. Joint Ventures; or d. Wholly Owned Subsidiaries

Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to equity caps in respect of the area of activities under the Foreign Direct Investment (FDI) policy. Details of the FDI policy, sectoral equity caps & procedures can be obtained on a specific request. (Click here for making a specific request).

1. a) Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.

Joint Venture may entail the following advantages for a foreign investor:

Established distribution/ marketing set up of the Indian partner

Available financial resource of the Indian partners Established contacts of the Indian partners which help

smoothen the process of setting up of operations

1. b) Wholly Owned Subsidiary Company

Foreign companies can also set up wholly owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.

Incorporation of Company For registration and incorporation, set of applications have to be filed with Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies.

Click here for a flow chart of steps involved in formation of a company

Click here for Company Formation in India

2. AS A FOREIGN COMPANY

Foreign Companies can set up their operations in India through:

Liaison Office/Representative Office Project Office Branch Office

Such offices can undertake any permitted activities. Companies have to register themselves with Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

2. a) Liaison Office/ Representative Office

Liaison office acts as a channel of communication between the principal place of business or head office and entities in India. Liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers. It can promote export/import from/to India and also facilitate technical/financial collaboration between parent company and companies in India.

Approval for establishing a liaison office in India is granted by Reserve Bank of India (RBI).

2. b) Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has now granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI.

2. c) Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:

i. Export/Import of goods ii. Rendering professional or consultancy services

iii. Carrying out research work, in which the parent company is engaged.

iv. Promoting technical or financial collaborations between

Indian companies and parent or overseas group company. v. Representing the parent company in India and acting as

buying/selling agents in India. vi. Rendering services in Information Technology and

development of software in India. vii. Rendering technical support to the products supplied by

the parent/ group companies. viii. Foreign airline/shipping company.

A branch office is not allowed to carry out manufacturing activities on its own but is permitted to subcontract these to an Indian manufacturer. Branch Offices established with the approval of RBI, may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines Permission for setting up branch offices is granted by the Reserve Bank of India (RBI).

 

Once the entity is set-up in India:

We provide complete, online back office operations. From recruitment of personnel, to general office maintenance, to pay roll and other legal & statutory formalities.

Bank account opening

Assistance and signatory services for opening and operating Bank account in India with all major international banks are also provided. Tell us the preference of Bank you want to have bank account with and we will get back to you with complete information.

Growing Successfully

India limited companies are required by law to place on public record their statutory annual accounts, which must often be audited. These must comply with a range of detailed disclosure requirements set out in the Indian Companies Act. D. Batra & Co. , Chartered Accountants ensure that all disclosure requirements are met, and are authorised to carry out independent statutory audits. Our approach to audit concentrates effort where it’s most needed, keeping costs to a minimum and providing a useful management tool. Our advice isn’t just an annual event – clients rely on our experience all year round. As your profits grow, we advise on corporate tax planning and compliance, and will negotiate with the Inland Revenue on your behalf. For more about our Legal & Tax compliance service click here. Whenever cross border intra group transactions arise, the difficult issue of transfer pricing is never far behind. We can help you to determine fair prices and ensure that the documentation required by the tax authorities is in place. Financial and tax planning for business owners and key employees is just as important to us – our personal tax, financial planning and trust departments aim to maximise your financial

growth and minimise tax bills. Our administrators can perform credit checks on potential customers, assist with customs and shipping documentation and arrange all the appropriate insurance. As you establish a India presence, we can follow up on our initial market strategy with regular marketing reviews.

The Advantages

Our service list allows you to pick and choose to specifically match your needs. Our outsourcing capability allows you to achieve India fiscal compliance cost-effectively. We look after the peripheral issues leaving your company time to concentrate on what’s really important: succeeding in the India.

Click here to contact us for company formation in India. Copyright © 2010 D. Batra & Co.Privacy Policy 6/24, East Patel Nagar, New Delhi - 110 008, IndiaResources | Site Map | Contact Us

Locatng buyer

ges in the export industry have occurred in the last decade and are not reflected in the content below.

Developing an Export Strategy

The most common methods of exporting are indirect selling and direct selling (see Chapter 1). In indirect selling, an export intermediary such as an export management company (EMC) or an export trading company (ETC) normally assumes responsibility for finding overseas buyers, shipping products, and getting paid. In direct selling, the U.S. producer deals directly with a foreign buyer. The paramount consideration in determining whether to market indirectly or directly is the level of resources a company is willing to devote to its international marketing effort. Other factors to consider when deciding whether to market indirectly or directly include:

The size of your firm; The nature of your products; Previous export experience and expertise; Business conditions in the selected overseas markets.

Approaches to Exporting

The way your company chooses to export its products can have a significant effect on its export plan and specific marketing strategies. The basic distinction among approaches to exporting relates to the company's level of involvement in the export process. There are at least four approaches, which may be used alone or in combination:

1. Passively filling orders from domestic buyers who then export the product. These sales are indistinguishable from other domestic sales as far as the original seller is concerned. Someone else has decided that the product in question meets foreign demand. That party takes all the risk and handles all of the exporting details, in some cases without even the awareness of the original seller. (Many companies take a stronger interest in exporting when they discover that their product is already being sold over-seas.)

2. Seeking out domestic buyers who repre-sent foreign end users or customers. Many U.S. and foreign corporations, general contractors, foreign trading companies, foreign government agencies, foreign distributors and retailers, and others in the United States purchase for export. These buyers are a large market for a wide variety of goods and services. In this case a company may know its product is being exported, but it is still the buyer who assumes the risk and handles the details of exporting.

3. Exporting indirectly through intermediaries. With this approach, a company engages the services of an intermediary firm capable of finding foreign markets and buyers for its products. EMCs, ETCs, international trade consultants, and other intermediaries can give the exporter access to well-established expertise and trade contacts. Yet, the exporter can still retain considerable control over the process and can realize some of the other benefits of exporting, such as learning more about foreign competitors, new technologies, and other market opportunities.

4. Exporting directly. This approach is the most ambitious and difficult, since the exporter personally handles every aspect of the exporting process from market research and planning to foreign distribution and collections. Consequently, a significant commitment of management time and attention is required to achieve good results. However, this approach may also be the best way to achieve maximum profits and long-term growth. With appropriate help and guidance from the Department of Commerce, state trade offices, freight forwarders, international banks, and other service groups, even small or medium-sized firms can export directly if they are able to commit enough staff time to the effort. For those who cannot make that commitment, the services of an EMC, ETC, trade consultant, or other qualified intermediary are indispensable.

Approaches 1 and 2 represent a substantial proportion of total U.S. sales, perhaps as much as 30 per-cent of U.S. exports. They do not, however, involve the firm in the export process. Consequently, this guide concentrates on approaches 3 and 4. (There is no single source or special channel for identifying domestic buyers for overseas markets. In general, they may be found through the same means that U.S. buyers are found, for example through trade shows, mailing lists, industry directories, and trade associations.)

If the nature of the company's goals and resources makes an indirect method of

exporting the best choice, little further planning may be needed. In such a case, the main task is to find a suitable intermediary firm that can then handle most export details. Firms that are new to exporting or are unable to commit staff and funds to more complex export activities may find indirect methods of exporting more appropriate.

However, using an EMC or other intermediary does not exclude all possibility of direct exporting for your firm. For example, your company may try exporting directly to such "easy" nearby markets as Canada, Mexico, or the Bahamas while letting an EMC handle more ambitious sales to Egypt or Japan. You may also choose to gradually increase the level of direct exporting later, after experience has been gained and sales volume appears to justify added investment.

Consulting advisers before making these decisions can be helpful. The next chapter presents information on a variety of organizations that can provide this type of help - in many cases, at no cost.

 

Distribution Considerations

Which channels of distribution should the firm use to market its products abroad?

Where should the firm produce its products and how should it distribute them in the foreign market?

What types of representatives, brokers, wholesalers, dealers, distributors, or end-use customers, and so forth should the firm use?

What are the characteristics and capabilities of the available intermediaries? Should the assistance of an EMC or ETC be obtained?

Your answers from Table 1 in Chapter 1 can help you determine if indirect or direct exporting methods are best for your company.

 

Indirect Exporting

The principal advantage of indirect marketing for a smaller U.S. company is that it provides a way to penetrate foreign markets without the complexities and risks of direct exporting. Several kinds of intermediary firms provide a range of export services. Each type of firm offers distinct advantages for your company.

Confirming Houses

Confirming houses or buying agents are finders for foreign firms that want to purchase U.S. products. They seek to obtain the desired items at the lowest possible price and are paid a commission by their foreign clients. In some cases,

they may be foreign government agencies or quasi-governmental firms empowered to locate and purchase desired goods. An example is foreign government purchasing missions.

Export Management Companies

An EMC acts as the export department for one or several producers of goods or services. It solicits and transacts business in the names of the producers it represents or in its own name for a commission, salary, or retainer plus commission. Some EMCs provide immediate payment for the producer's products by either arranging financing or directly purchasing products for resale. Typically, only larger EMCs can afford to purchase or finance exports.

EMCs usually specialize either by product or by foreign market, or sometimes even both. Because of their specialization, the best EMCs know their prod-ucts and the markets they serve very well and usually have well-established networks of foreign distributors already in place. This immediate access to foreign markets is one of the principal reasons for using an EMC, since establishing a productive relationship with a foreign representative may be a costly and lengthy process.

One disadvantage of using an EMC is that a manufacturer may lose control over foreign sales. Most manufacturers are properly concerned that their product and company image be well maintained in foreign markets. An important way for a company to retain sufficient control in such an arrangement is to carefully select an EMC that can meet the company's needs and maintain close communication with it. For example, a company may ask for regular reports on efforts to market its products and may require approval of certain types of efforts, such as advertising programs or service arrangements. If a company wants to maintain this type of relationship with an EMC, it should negotiate points of concern before entering an agreement, since not all EMCs are willing to comply with the company's concerns.

Export Trading Companies

An ETC facilitates the export of U.S. goods and services. Like an EMC, an ETC can either act as the export department for producers or take title to the product and export for its own account. Therefore, the terms ETC and EMC are often used interchangeably. A special kind of ETC is a group organized and operated by producers. These ETCs can be organized along multiple or single-industry lines and can also represent producers of competing products.

Export Trading Company Act of 1982 and The Office of Export Trading Company Affairs

The Export Trading Company Act of 1982 allows banks to make equity investments in commercial ventures that qualify as ETCs. In addition, the Export- Import Bank (Ex-Im Bank) of the United States is allowed to make working capital guarantees to U.S. exporters. Through the Office of Export Trading Company Affairs (OETCA) within the International Trade Administration, the U.S. Department of Commerce promotes the formation and use of U.S. export intermediaries and issues export trade certificates of review providing limited immunity from U.S. antitrust laws.

OETCA informs the business community of the benefits of export intermediaries through conferences, presentations before trade associations and civic organizations, and publications. The major pub-lication on this subject is the Export Trading Company Guidebook, available for purchase through the U.S. Government Printing Office. OETCA provides counseling to businesses seeking to take advantage of the act.

OETCA also maintains the Contact Facilitation Service (CFS) database, a listing of U.S. producers of goods and services and of organizations that provide trade facilitation services. Under a public-private sector arrangement, the CFS database is published annually in a directory entitled The Export Yellow Pages. The directory provides users with the names and addresses of banks, EMCs, ETCs, freight forwarders, manufacturers, and service organizations and names the export products or export-related services that these firms supply. By obtaining CFS registration forms from Commerce EACs, firms can register in the database free of charge and be listed in subsequent editions of The Export Yellow Pages.

The certificate of review program provides ex-porters with an antitrust "insurance policy" intended to foster joint activities where economies of scale and risk diversification can be achieved. The act also amends the Sherman Antitrust Act and the Federal Trade Commission Act to clarify the jurisdictional reach of these statutes to export trade. Both acts now apply to export trade only if there is a "direct substantial and reasonably foreseeable" effect on domestic or import commerce of the United States or the export commerce of a U.S. competitor.

Certificates of review are issued by the Secretary of Commerce with the concurrence of the U.S. Department of Justice. Any U.S. corporation or partnership, any resident individual, or any state or local en-tity may apply for a certificate of review. A certificate can be issued to an applicant if it is determined that the proposed "export trade activities and methods of operation" will not result in a substantial lessening of domestic competition or restraint of trade within the United States. For the conduct covered by the certificate, its holder and any other individuals or firms named as members are given immunity from government suits under U.S. federal and state antitrust laws. In private party actions, liability is reduced from treble to single damages, greatly reducing the probability of nuisance suits. Moreover, in the event of private litigation involving conduct covered by the certificate of review, a prevailing certificate holder re-covers the costs of defending the suit, including rea-sonable attorney's fees.

If you are interested in additional information, contact the Office of Export Trading Company Affairs, U.S. Department of Commerce, International Trade Administration, Washington, DC 20230; telephone 202-482-5131.

Export Agents, Merchants, or Remarketers

Export agents, merchants, or remarketers purchase products directly from the manufacturer, packing and marking the products according to their own specifications. They then sell these products overseas through their contacts in their own names and assume all risks for accounts.

In transactions with export agents, merchants, or remarketers, a U.S. firm relinquishes control over the marketing and promotion of its product. This situation could have an adverse effect on future sales efforts abroad if the product is

underpriced or incorrectly positioned in the market, or if after-sales services are neglected. On the other hand, the effort required by the manufacturer to market the product overseas is very small and may lead to sales that otherwise would take a great deal of effort to obtain.

Piggyback Marketing

Piggyback marketing is an arrangement in which one manufacturer or service firm distributes a second firm's product or service. The most common piggy-backing situation is when a U.S. company has a contract with an overseas buyer to provide a wide range of products or services.

Often, this first company does not produce all of the products it is under contract to provide, and it turns to other U.S. companies to provide the remaining products. The second U.S. company thus piggybacks its products to the international market, generally without incurring the marketing and distribution costs associated with exporting. Successful arrangements usually require that the product lines be complementary and appeal to the same customers.

 

Direct Exporting

The advantages of direct exporting for a U.S. company include more control over the export process, potentially higher profits, and a closer relationship to the overseas buyer and marketplace. However, these advantages do not come easily since the U.S. company needs to devote more time, personnel, and corporate resources than indirect exporting requires.

When a company chooses to export directly to foreign markets, it usually makes internal organizational changes to support more complex functions. A direct exporter normally selects the markets it wishes to penetrate, chooses the best channels of distribution for each market, and then makes specific foreign business connections in order to sell its product.

Organizing for Exporting

A company new to exporting generally treats its export sales no differently than its domestic sales, using existing personnel and organizational structures. As international sales and inquiries increase, the company may separate the management of its exports from that of its domestic sales.

The advantages of separating international from domestic business include the centralization of specialized skills needed to deal with international markets and the benefits of a focused marketing effort that is more likely to increase export sales. A possible disadvantage is that segmentation might be a less efficient use of corporate resources.

When a company separates international from domestic business, it may do so at different levels in the organization. For example, when a company first begins to export, it may create an export department with a full or part-time manager who reports to the head of domestic sales and marketing. At later stages, a company may choose to increase the au tonomy of the export department to the point of creating an international division that reports directly to the president.

Larger companies at advanced stages of exporting may choose to retain the international division or to organize along product or geographic lines. A company with distinct product lines may create an inter-national department in each product division. A company with products that have common end users may organize geographically. For example, it may form a division for Europe and another for the Pacific Rim. A small company's initial needs may be satisfied by a single export manager who has responsibility for the full range of international activities. Regardless of how a company organizes its exporting efforts, the key is to facilitate the marketer's job. Good marketing skills can help the firm operate in an unfamiliar market. Experience has shown that a company's success in foreign markets depends less on the unique attributes of its products than on its marketing methods.

Once your company is organized to handle exporting, a proper channel of distribution needs to be carefully chosen for each market. These channels include sales representatives, agents, distributors, retailers, and end users.

Sales Representatives

Overseas, a sales representative is the equivalent of a manufacturer's representative in the United States. The representative uses the company's product literature and samples to present the product to potential buyers. A representative usually handles many complementary lines that do not conflict. The sales representative usually works on a commission basis, assumes no risk or responsibility, and is under contract for a definite period of time (renewable by mutual agreement). The contract defines territory, terms of sale, method of compensation, reasons and procedures for terminating the agreement, and other details. The sales representative may operate on either an exclusive or a nonexclusive basis.

Agents

The widely misunderstood term "agent" means a representative who normally has authority, perhaps even a power of attorney, to make commitments on behalf of the firm he or she represents. Firms in the United States and other developed countries have stopped using the term and instead rely on the term "representative," since agent can imply more than intended. It is important that any contract state whether the representative or agent does or does not have legal authority to obligate the firm.

Distributors

The foreign distributor is a merchant who purchases goods from a U.S. exporter (often at a substantial discount) and resells it for a profit. The foreign distributor generally provides support and service for the product, thus relieving the U.S. company of these responsibilities. The distributor usually carries an inventory of products and a sufficient supply of spare parts and also maintains adequate facilities

and personnel for normal servicing operations. Distributors typically handle a range of non-conflicting but complementary products. End users do not usually buy from a distributor; they buy from retailers or dealers.

The terms and length of association between the U.S. company and the foreign distributor are established by contract. Some U.S. companies prefer to begin with a relatively short trial period and then extend the contract if the relationship proves satisfactory to both parties.

Foreign Retailers

A company may also sell directly to foreign retailers, although in such transactions, products are generally limited to consumer lines. The growth of major retail chains in markets such as Canada and Japan has created new opportunities for this type of direct sale. This method relies mainly on traveling sales representatives who directly contact foreign retailers, although results might also be achieved by mailing catalogs, brochures, or other literature. The direct mail approach has the benefits of eliminating commissions, reducing traveling expenses, and reaching a broader audience. For optimal results, a firm that uses direct mail to reach foreign retailers should support it with other marketing activities.

American manufacturers with ties to major domestic retailers may also be able to use them to sell abroad. Many large American retailers maintain overseas buying offices and use these offices to sell abroad when practical.

Direct Sales to End Users

A U.S. business may sell its products or services directly to end users in foreign countries. These buyers can be foreign governments; institutions such as hospitals, banks, and schools; or businesses. Buyers can be identified at trade shows, through international publications, or through Commerce's Export Contact List Service. (Contact your local EAC for more details).

The U.S. company should be aware that if a product is sold in such a direct fashion, the company is responsible for shipping, payment collection, and product servicing unless other arrangements are made. Unless the cost of providing these services is built into the export price, a company could have a narrower profit than originally intended.

 

Locating Foreign Representatives and Buyers

A company that chooses to use foreign representatives may meet them during overseas business trips or at domestic or international trade shows. There are other effective methods that can be employed without leaving the United States.

Ultimately, the exporter may need to travel abroad to identify, evaluate, and sign overseas representatives; how-ever, a company can save time by first conducting background research in the United States. The Commercial Service contact programs, banks and service organizations, and publications are available to help in this manner. (For more information on these methods, see Chapter 13).

Contacting and Evaluating Foreign Representatives

Once your company has identified a number of potential representatives or distributors in the selected market, it should write and/or fax directly to each. Just as the U.S. firm is seeking information on the foreign representative, the representative is interested in corporate and product information on the U.S. firm. The prospective representative may want more information than the company normally provides to a casual buyer. Therefore, the firm should provide full information on its history, resources, personnel, product line, previous export activity, and all other pertinent matters. The firm may wish to include a photograph or two of plant facilities and products, and even product samples when practical. You may also want to consider inviting the foreign representative to visit its operations. Whenever the danger of piracy is significant, the exporter should guard against sending product samples that could be easily copied. (For more information on correspondence with foreign firms see Chapter 15).

A U.S. firm should investigate potential representatives or distributors carefully before entering into an agreement. (See Table 3 for an extensive checklist of factors to consider in such evaluations). The U.S. firm also needs to know the following points about the representative or distributor's firm:

Current status and history, including background on principal officers; Methods of introducing new products into the sales territory; Trade and bank references; Data on whether the U.S. firm's special requirements can be met; and A view of the in-country market potential for the U.S. firm's products. This

information is not only useful in gauging how much the representative knows about the exporter's industry, it is valuable market research in its own right.

A U.S. company may obtain much of this information from business associates who currently work with foreign representatives. However, U.S. exporters should not hesitate to ask potential representatives or distributors detailed and specific questions. Suppliers have the right to explore the qualifications of those who propose to represent them overseas. Well-qualified representatives will gladly answer questions that help distinguish them from less-qualified competitors. Your company should also consider other private-sector sources for credit checks of potential business partners.

In addition, the U.S. company may wish to obtain at least two supporting business and credit reports to ensure that the distributor or representative is reputable. By using a second credit report from a different source, the U.S. firm may gain new or more complete information. Reports from a number of companies are available from commercial firms and from the Department of Commerce's International Company Profiles (see Chapter 12). Commercial firms and banks are also sources of credit information on overseas representatives. They can provide information directly or from their correspondent banks or branches overseas. Directories of international

companies may also provide credit information on foreign firms.

If the U.S. company has the necessary information, it may wish to contact a few of the foreign firm's existing U.S. clients to obtain an evaluation of the representative's character, reliability, efficiency, and past performance. To protect itself against possible conflicts of interest, it is also important for the U.S. firm to learn about other product lines that the foreign firm represents.

Once the company has prequalified some foreign representatives, it may wish to travel to the foreign country to observe the size, condition, and location of offices and warehouses. In addition, the U.S. company should meet the sales force and try to assess its strength in the marketplace. If traveling to each distributor or representative is difficult, the company may decide to each of them at U.S. or at worldwide trade shows.

 

Negotiating an Agreement with a Foreign Representative

When the U.S. company has found a prospective representative that meets its requirements, the next step is to negotiate a foreign sales agreement. EACs can provide counseling to firms planning to negotiate foreign sales agreements with representatives and distributors. The International Chamber of Commerce also provides useful guidelines and can be reached at 212-206-1150.

Most representatives are interested in the company's pricing structure and profit potential. Representatives are also concerned with the terms of payment, product regulation, competitors and their market shares, the amount of support provided by the U.S. firm (sales aids, promotional material, advertising, etc.), training for sales and service staff, and the company's ability to deliver on schedule.

The agreement may contain provisions that the foreign representative:

Not have business dealings with competing firms (because of anti-trust laws, this provision may cause problems in some European countries);

Not reveal any confidential information in a way that would prove injurious, detrimental, or competitive to the U.S. firm;

Not enter into agreements binding to the U.S. firm; and, Refer all inquiries received from outside the designated sales territory to the

U.S. firm for ac-tion.

To ensure a conscientious sales effort from the foreign representative, the agreement should include a requirement that it apply the utmost skill and ability to the sale of the product for the compensation named in the contract. It may be appropriate to include performance requirements such as a minimum sales volume and an expected rate of increase.

In the drafting of the agreement, special attention must be paid to safeguarding the supplier's interests in cases where the representative proves less than satisfactory. (See Chapter 8 for recommendations on specifying terms of law and arbitration). It is vital to include an escape clause in the agreement, allowing the supplier to end the relationship safely and cleanly if the representative does not fulfill the firm's expectations. Some contracts specify that either party may terminate the agreement with written notice 30, 60, or 90 days in advance. The contract may also spell out

Monday, 22 June 2009

Mate's receipts

The role of the Mate's receipts issued by the Master to the shipper is to prepare the bills of lading. The Mate's receipts are returned back to the Master in exchange for the signed bills of lading. (it is advisable for the Master to have a copy of all Mate's receipts on board to be able to compare with the bills of lading presented for signature ). Obviously the description of the goods in Mate's receipts should reflect the factual cargo being loaded. Otherwise Mate's receipts can be claused before signing. The Mate's receipt is the evidence in its own right of the condition of the goods as well as when same are received.

If the bills of lading can not be prepaired by the time of vessel's departure (e.g. the cargo has not been sold yet), the Captain may be requested to authourise his agent and/or shippers to sign bills of lading on his behalf. The Master issues a letter of authorisation to the agent and/or charterer, and ensures that cargo description and the date of shipment are accurate in Mate's receips. He also ensures that the mate's receipts contain all details and remarks that the bills of lading should contain. (The letter of authorisation clearly states that the bills of lading shall be signed in accordance with mate's reeipts. ) If the charterer and/or agent refuses to sign the bills of lading in accordance with Mate's receipts (or accep the letter of authorisation), the Captain shall issue a letter of protest and inform his management.

Insurance

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Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination..

Cargo insurance — discussed here — is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability.

Contents

1 Origins of formal marine insurance 2 Practice 3 Protection and indemnity 4 Actual total loss and constructive total loss 5 Average 6 Excess, deductible, retention, co-insurance, and franchise 7 Tonners and chinamen 8 Specialist policies 9 Warranties and conditions 10 Salvage and prizes 11 Marine Insurance Act, 1906 12 See also 13 References 14 External links 15 Bibliography

Origins of formal marine insurance

Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable risk from seasons and pirates.[1]

The modern origins of marine insurance law in English law were in the law merchant, with the establishment in England in 1601 of a specialized chamber of assurance separate from the other Courts. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant and common law principles. The establishment of Lloyd's of London, competitor insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers, bankers, surveyors, loss adjusters, general average adjusters, et al), and the growth of the British Empire gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. The growth of the London insurance market led to

the standardization of policies and judicial precedent further developed marine insurance law. In 1906 the Marine Insurance Act was passed which codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance.

In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication.

Within the overall guidance of the Marine Insurance Act and the Institute Clauses parties retain a considerable freedom to contract between themselves.

Marine insurance is the oldest type of insurance. Out of it grew non-marine insurance and reinsurance. It traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (cargo) risks, and in this form is known by the acronym "MAT".

Practice

The Marine Insurance Act includes, as a schedule, a standard policy (known as the "SG form"), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses.

Because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...]. In legal terms, liability under the policy is several and not joint , i.e., the underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim.

Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as "Hull and Machinery" (H&M). A more restricted form of cover is "Total Loss Only" (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss.

Cover may be on either a "voyage" or "time" basis. The "voyage" basis covers transit between the ports set out in the policy; the "time" basis covers a period of time, typically one year, and is more common.

Protection and indemnity

Main article: Protection and indemnity insurance

A marine policy typically covered only three-quarter of the insured's liabilities towards third parties. The typical liabilities arise in respect of collision with another ship, known as "running down" (collision with a fixed object is an "harbour"), and wreck removal (a wreck may serve to block a harbour, for example).

In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks.

Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial "call" (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more "supplementary calls" may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status.

Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.

Actual total loss and constructive total loss

These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss occurs where the damages or cost of repair clearly equal or exceed the value of the property. A constructive total loss is a situation where the cost of repairs plus the cost of salvage equal or exceed the value.

The use of these terms is contingent on there being property remaining to assess damages, which is not always possible in losses to ships at sea or in total theft situations. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of "the adventure", with insurers having a stake and an interest in the vessel and/or the cargo rather than simply an interest in the financial consequences of the subject-matter's survival.

Average

The term "Average" has one meaning:

Average in Marine Insurance Terms is "an equitable apportionment among all the interested parties of such an expense or loss."

1. General Average stands apart for Marine Insurance. In order for General Average to be properly declared, 1) there must be an event which is beyond the shipowners control, which imperils the entire adventure; 2) there must be a voluntary sacrifice, 3) there must be something saved.

The voluntary sacrifice might be the jettison of certain cargo, the use of tugs, or salvors, or damage to the ship, be it, voluntary grounding, knowingly working the engines that will result in damages.

"General Average" requires all parties concerned in the maritime venture (Hull/Cargo/Freight/Bunkers) to contribute to make good the voluntary sacrifice. They share the expense in proportion to the 'value at risk" in the adventure.

"Particular Average" is the term applied to partial loss be it hull or cargo.

1. Co-insurance – is the situation where an insured has under-insured, i.e., insured an item for less than it is worth, average will apply to reduce the amount payable.

An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. An Average Adjuster in North America is a 'member of the association of Average Adhjusters' http://www.usaverageadjusters.org

To insure the fairness of the adjustment an General Average adjuster is appointed by the shipowner and paid by the insurer.

Excess, deductible, retention, co-insurance, and franchise

An excess is the amount payable by the insured and is usually expressed as the first amount falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed in either monetary or percentage terms. An excess is typically used to discourage moral hazard and to remove small claims, which are disproportionately expensive to handle. In marine The term "excess" signifies the "deductible" or "retention".

A co-insurance, which is typically governs non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim in percentage terms and applied to the entirety of a claim.

Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported. As an example:

A vessel actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will be subject to the underreporting penalty. the insured will receive 750000/1000000th (75%) of the claim made less the deductible.

Tonners and chinamen

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the main market, by which time, they had become nothing more than crude bets.

A "tonner" was simply a "policy" setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A "chinaman" applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.

Specialist policies

Various specialist policies exist, including:

Newbuilding risks: This covers the risk of damage to the hull while it is under construction.

Yacht Insurance: Insurance of pleasure craft is generally known as "yacht insurance" and includes liability coverage. Smaller vessels such as yachts and fishing vessels are typically underwritten on a "binding authority" or "lineslip" basis.

War risks: General hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf War. The war risks areas are established by the London-based Joint War Committee, which has recently moved to include the Malacca Straits as a war risks area due to piracy. If an attack is classified as a "riot" then it would be covered by war-risk insurers.

Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel.

Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was famously underwritten on the doorstep of Lloyd's.

Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such as frozen food, frozen meat, and particular commodities such as bulk oil, coal, and jute. Often these insurance conditions are developed for a specific group as is the case with the Institute Federation of Oils, Seeds and Fats Associations (FOFSA) Trades Clauses which have been agreed with the Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses which are used for the insurance of shipments of cocoa, coffee, cotton, fats and oils, hides and skins, metals, oil seeds, refined sugar, and tea and have been agreed with the Federation of Commodity Associations.

Warranties and conditions

This section may be confusing or unclear. Please help clarify the article. Suggestions may be on the talk page. (May 2011)

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of legality of the insured voyage (section 41).[2]

Salvage and prizes

The term "salvage" refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally "a place of safety", with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a "sue and labour" clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss.

At sea, a ship in distress will typically agree to "Lloyd's Open Form" with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed "No cure — no pay"; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.

The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of

Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QCs.

A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again, this risk is covered by standard policies.

Marine Insurance Act, 1906

Main article: Marine Insurance Act 1906

The most important sections of this Act include:

§4: a policy without insurable interest is void.

§17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e., that questions must be answered honestly and the risk not misrepresented.

§18: the proposer of the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment (there are minor differences in the two terms) and renders the insurance voidable by the insurer.

§33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

§34(2): where a warranty has been broken, it is no defence to the insured that the breach has been remedied, and the warranty complied with, prior to the loss.

§34(3): a breach of warranty may be waived (ignored) by the insurer.

§39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for the purpose of it (voyage policy only).

§39(5): no warranty that a vessel shall be seaworthy during the policy period (time policy). However if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not liable for losses caused by unseasworthiness.

§50: a policy may be assigned. Typically, a shipowner might assign the benefit of a policy to the ship-mortgagor.

§§60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.)

§79: deals with subrogation, i.e., the rights of the insurer to stand in the shoes of an indemnified insured and recover salvage for his own benefit.

Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.

See also

History of insurance Classification society Legal definitions of wreckage Inland marine insurance

References

1. ̂ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns Hopkins University Press, 2001), 273-278.

2. ̂ see also: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. ("The Good Luck") [1991] 2 WLR 1279 and at 1294-5

External links

UK case relating to legal definitions (The No. 1 Dae Bu)

Bibliography

Birds, J. Birds' Modern Insurance Law. Sweet & Maxwell, 2004. (ISBN 0-421-87800-2) Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average

and the York-Antwerp Rules. Sweet & Maxwell, 1990. (ISBN 0-420-46930-3) John, A. H. "The London Assurance Company and the Marine Insurance Market of the

Eighteenth Century," Economica New Series, Vol. 25, No. 98 (May, 1958), pp. 126–141 in JSTOR Roover, Florence Edler de. "Early Examples of Marine Insurance," Journal of Economic History

Vol. 5, No. 2 (Nov., 1945), pp. 172–200 in JSTOR Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp

Rules. British Shipping Law Library: Sweet & Maxwell. ISBN 0-421-56450-4.

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Transport of document

Transport Documentation

By Martin Murray, About.com Guide

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transportation freight cargo distribution

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Introduction

When items are transported either domestically or internationally the delivery must be accompanied by the relevant documentation. The amount of documentation varies depending if the shipment is within the US or to another country. As far as interstate transportation of goods in the US, there are three documents that are of greatest importance; the bill of lading, freight bill, and the Free On Board (FOB) terms of sale.

Bill of Lading

The bill of lading is the most important document that is used in transporting goods. The legal definition of a bill of lading is a contract for the carriage of goods and a document of title to them. It provides any and all information that the carrier will need to transport the items. It contains the shipment origin and the contract terms for the transportation and is required by a carrier before the shipment is taken.

The bill of lading should include the name and address of the consignor and consignee, and often it will have the routing instructions for the carrier. It will contain a description of the goods to be transported, the quantity for each of the commodities, and the commodity class and rate.

The bill of lading will contain the terms of contact for the movement of goods by a common carrier. This is the contract between the shipper and the carrier to transport the goods on the bill of lading to the consignee, i.e. the buyer. The bill of lading contract has nine terms;

1. Common Carrier Liability – the carrier is liable for loss and damage of the goods being transported, except if the goods were improperly packed by the shipper or if the goods themselves would be liable to normal loss like through evaporation. The carrier is not liable for acts of God, public enemy or public authority.

2. Delay in Transit – the carrier cannot be held liable if the loss or damage is due to a delay in the transportation of the goods.

3. Freight Not Accepted – if the goods are not accepted within the time allocated, the carrier can store the goods at a cost to the owner.

4. Extraordinary Value – the carrier is not liable and does not have to carry items of extraordinary value that are not on the rated in the published classifications or tarriffs unless a special agreement with the shipper has been negotiated.

5. Explosives – the carrier has to be given full written disclosure when they are shipping dangerous material, otherwise they are not liable for any losses.

6. Recourse – the carrier cannot make additional charges to the shipper after making a delivery. 7. Substitute Bill of Lading – if the bill of lading is a substitute or exchange for another bill of lading

then the current bill of lading has to include all the clauses from previous documents. 8. Alterations – the carrier must note any changes or additions to ensure that they can be

enforceable. 9. Claims – this clause specifies the details on how to file a claim against the shipper and the time

period after delivery in which the claim will be accepted.

Freight Bill

The freight bill is the carriers invoice to the shipper for all the charges that the carrier has incurred. The carrier’s freight bill will include the details of the shipment, the items being shipped, the consignee, the origin and destination, as well as total weight and total charges.

Some carriers can ask for prepayment from the shipper if the value of the items being shipped is less than the total expected freight charges. If the charges are not prepaid then the carrier can present a freight bill on collect. This implies that the carrier will present the freight bill on the day of delivery.

FOB Terms of Sale

Free on Board (FOB) terms of sales documents which party will be liable for the transportation costs, which party is in control of the movement of the goods, and when the title passes to the buyer.

If the FOB terms of sale indicates that it is FOB Delivered then this implies that the shipper will be responsible for all of the carrier’s costs. If the terms of sale shows FOB Origin, then this means that the buyer will take title for the goods when they are shipped and they will incur all the transportation costs.

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This article may require cleanup to meet Wikipedia's quality standards. No cleanup reason has been specified. Please help improve this article if you can. (November 2009)

A Certificate of Origin (often abbreviated to C/O or COO) is a document used in international trade. It is a printed form, completed by the exporter or its agent and certified by an issuing body, attesting that the goods in a particular export shipment have been wholly produced, manufactured or processed in a particular country.

Certificate of Origin: This coal was recovered from the wreck of R.M.S. Titanic during the 1994 Titanic Research and Recovery Expedition

The “origin” does not refer to the country where the goods were shipped from but to the country where they were made. In the event the products were manufactured in two or more countries, origin is obtained in the country where the last substantial economically justified working or processing is carried out. An often used practice is that if more than 50% of the cost of producing the goods originates from one country, the "national content" is more than 50%, then, that country is acceptable as the country of origin.[1]

When countries unite in trading agreements, they may allow Certificate of Origin[2] to state the trading bloc, for example, the European Union (EU) as origin, rather than the specific country. Determining the origin of a product is important because it is a key basis for applying tariff and other important criteria. However, not all exporters need a certificate of origin, this will depend on the destination of the goods, their nature, and it can also depend on the financial institution involved in the export operation.

Contents

1 Historical background 2 Types of certificates of origin 3 Certificates of origin around the world 4 See also 5 References 6 External links

Historical background

The background and history of CO dating back to 1898

The first certificate of origin was issued by the Marseille Province Chamber of Commerce at the end of the 19th century. The formalization in the role of chambers of commerce as issuing agencies for certificates of origin (CO) can be traced back to the 1923 Geneva Convention relating to the Simplification of Customs Formalities (Article 11),[3] and has been reinforced with the updated Kyoto Convention. Under these Conventions, signatory governments were able to allow organizations “which possess the necessary authority and offer the necessary guarantees” to the State to issue certificates of origin. Thus due to the widespread network of the chamber of commerce community, in most countries, chambers of commerce were seen as these organizations allowed to issue certificates of origin. As such, seen as “competent authorities”, chambers began to more widespreadly issue non-preferential certificates of origin. In 1968, at the Uruguay Round, an agreement was reached on Rules of Origin which led to more transparent regulations and practices regarding rules of origin (RoO). Later on, in 1999, the Revised Kyoto Convention added an Annex on the Simplification and Harmonization of Customs Procedures to further facilitate the transfer of legal documents in international trade. By 2008, 350 Free Trade Agreements had been reached with provisions on preferential treatment; 400 Free Trade Agreements are expected by 2012, seeing an expansion on the issuance of preferential certificates of origin.

Types of certificates of origin

Non- preferential

Non-preferential certificates of origin[4] are the most common type of certificate. These certificates of origin see that goods do not benefit from any preferential treatment and do not emanate from a particular bilateral or multilateral free trade agreement. Chambers that are authorized to issue certificates of origin are most frequently authorized to issue non-preferential certificates of origin. The fees charged for the issuing will vary depending on several factors, such as the nature of the merchandise, and may also vary if the exporter’s a member. Indeed, exporters whose companies are member of the chamber often benefit from a preferential price, which is lower than that of non-member firms.

Preferential

A preferential certificate of origin[5] 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, ASEAN 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 Origin Protocols of any given FTA will determine a rule for each manufactured product, based on its HTS (Harmonized Tariff Schedule) code. Each and every rule will provide several options to calculate whether the product has preferential origin or not. Each rule is also accompanied by an exclusion rule that defines in which cases the product cannot obtain preferential status at all. A typical value based rule might read: raw materials, imported from countries that are not members of this FTA, used in production do not make up for more than 25% of the Ex-Works value of the finished product. A typical tariff shift rule might read: none of the raw materials, imported from countries that are not members of this FTA, used in production may have the same HTS code as the finished product.

In several countries, customs authorities are delegating the right to issue preferential certificates of origin on their behalf to chambers of commerce. These countries include New Zealand, Australia, Sweden and the United Kingdom.

Electronic Certificates of Origin

Chambers of commerce issue millions of Certificates of Origin (CO) per year. To keep pace with the rapid shift to e-business and improve their efficiency in serving their business community, the implementation of total eCO is a top priority for Chambers. Increasing concerns on fraud and the need to improve the supply chain security, eCOs are seen as a means not only to facilitate and provide a secure trading environment but also save time, costs and increase transparency. A range of eCO platforms have been developed by chambers and other organizations. Some of the solutions available in the marketplace can be found at the ICC World Chambers Federation CO website.

Certificates of origin around the world

Issuing bodies

The certificate of origin must be signed by the exporter, and, for many countries, also validated by a Chamber of Commerce, and in the case of certain destination countries, also by a consulate. Chambers of Commerce offer certificate of origin services, amongst other organizations. Companies may consult the Chamber Directory on the World Chambers Network, the official global portal of Chambers of Commerce dedicated to electronic international trade, to find their nearest chamber who may offer this service.

Chambers of commerce

Despite the vast chain of chambers present around the world, not all certificates of origin issuing practices are harmonized or even alike. Actually, laws and requirements relating to this practice may vary within the country, depending on the authority the chamber derives from. In this

perspective, ICC World Chambers Federation has established an international certificate of origin Guidelines to standardize procedures by chambers around the world. This publication is available in six languages – Arabic, Chinese, English, French, Russian and Spanish. Based upon these guidelines, chambers are collaborating in creating a global CO Chain to reinforce their integrity and credibility as competent the trusted competent third parties in the issuance of certificates of origin. Chambers who have signed up for this chain have recognized that they are mutually responsible and globally interconnected with their peers, bringing reassurance to business, traders, banks and Customs Administrations that all COs are issued according to internationally accepted best practices. Self Certification In some countries, Self Certification by exporter is also accepted.

See also

ATA Carnet Trade facilitation Customs Chamber of Commerce International Trade

References

General

1. ̂ "WTO Analytical Index: Rules of Origin" World Trade Organization2. ̂ "Certificates of Origin" International Chamber of Commerce3. ̂ "International Convention on the Simplification and Harmonization of Customs Procedures"

World Customs Organization4. ̂ "Non-preferential origin Introduction" European Commission5. ̂ "General aspects of preferential origin" European Commission

Specific ^ http://www.cbsa-asfc.gc.ca/publications/forms-formulaires/b232-eng.pdf

External links

World Chambers Federation ICC WCF International Certificate of Origin Guidelines International Chamber of Commerce World Customs Organization

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