Professional Documents
Culture Documents
Assignment - A
Question 1: What are INCO terms? Explain all INCO terms indicating the
responsibility of the buyer and seller at various stages of the export cycle.
Answer: INCOTERMS are designed to create a bridge between different members of
the industry by acting as a uniform language they can use. Each INCOTERM refers to a
type of agreement for the purchase and shipping of goods internationally. There are 13
different terms, each of which helps users deal with different situations involving the
movement of goods. For example, the term FCA is often used with shipments involving
Ro/Ro or container transport; DDU assists with situations found in intermodal or courier
service-based shipments.
INCOTERMS also deal with the documentation required for global trade, specifying
which parties are responsible for which documents. Determining the paperwork required
to move a shipment is an important job, since requirements vary so much between
countries. Two items, however, are standard: the commercial invoice and the packing
list.
INCOTERMS were created primarily for people inside the world of global trade.
Outsiders frequently find them difficult to understand. Seemingly common words such as
"responsibility" and "delivery" have different meanings in global trade than they do in
other situations.
EX-Works
One of the simplest and most basic shipment arrangements places the minimum
responsibility on the seller with greater responsibility on the buyer. In an EX-Works
transaction, goods are basically made available for pickup at the shipper/seller's factory
or warehouse and "delivery" is accomplished when the merchandise is released to the
consignee's freight forwarder. The buyer is responsible for making arrangements with
their forwarder for insurance, export clearance and handling all other paperwork.
FOB (Free On Board)
One of the most commonly used-and misused-terms, FOB means that the shipper/seller
uses his freight forwarder to move the merchandise to the port or designated point of
origin. Though frequently used to describe inland movement of cargo, FOB specifically
refers to ocean or inland waterway transportation of goods. "Delivery" is accomplished
when the shipper/seller releases the goods to the buyer's forwarder. The buyer's
responsibility for insurance and transportation begins at the same moment.
FCA (Free Carrier)
In this type of transaction, the seller is responsible for arranging transportation, but he is
acting at the risk and the expense of the buyer. Where in FOB the freight forwarder or
carrier is the choice of the buyer, in FCA the seller chooses and works with the freight
forwarder or the carrier. "Delivery" is accomplished at a predetermined port or
destination point and the buyer is responsible for Insurance.
FAS (Free Alongside Ship)*
In these transactions, the buyer bears all the transportation costs and the risk of loss of
goods. FAS require the shipper/seller to clear goods for export, which is a reversal from
past practices. Companies selling on these terms will ordinarily use their freight
forwarder to clear the goods for export. "Delivery" is accomplished when the goods are
turned over to the Buyers Forwarder for insurance and transportation.
CFR (Cost and Freight)
This term formerly known as CNF (C&F) defines two distinct and separate
responsibilities-one is dealing with the actual cost of merchandise "C" and the other "F"
refers to the freight charges to a predetermined destination point. It is the shipper/seller's
responsibility to get goods from their door to the port of destination. "Delivery" is
accomplished at this time. It is the buyer's responsibility to cover insurance from the port
of origin or port of shipment to buyer's door. Given that the shipper is responsible for
transportation, the shipper also chooses the forwarder.
CIF (Cost, Insurance and Freight)
This arrangement similar to CFR, but instead of the buyer insuring the goods for the
maritime phase of the voyage, the shipper/seller will insure the merchandise. In this
arrangement, the seller usually chooses the forwarder. "Delivery" as above, is
accomplished at the port of destination.
CPT (Carriage Paid To)
In CPT transactions the shipper/seller has the same obligations found with CIF, with the
addition that the seller has to buy cargo insurance, naming the buyer as the insured
while the goods are in transit.
CIP (Carriage and Insurance Paid To)
This term is primarily used for multimodal transport. Because it relies on the carrier's
insurance, the shipper/seller is only required to purchase minimum coverage. When this
particular agreement is in force, Freight Forwarders often act in effect, as carriers. The
buyer's insurance is effective when the goods are turned over to the Forwarder.
DAF (Delivered At Frontier)
Here the seller's responsibility is to hire a forwarder to take goods to a named frontier,
which usually a border crossing point, and clear them for export. "Delivery" occurs at this
time. The buyer's responsibility is to arrange with their forwarder for the pick-up of the
goods after they are cleared for export, carry them across the border, clear them for
importation and effect delivery. In most cases, the buyer's forwarder handles the task of
accepting the goods at the border across the foreign soil.
DES (Delivered Ex Ship)
In this type of transaction, it is the seller's responsibility to get the goods to the port of
destination or to engage the forwarder to the move cargo to the port of destination uncleared. "Delivery" occurs at this time. Any destination charges that occur after the ship
is docked are the buyer's responsibility.
DEQ (Delivered Ex Quay)
In this arrangement, the buyer/consignee is responsible for duties and charges and the
seller is responsible for delivering the goods to the quay, wharf or port of destination. In
a reversal of previous practice, the buyer must also arrange for customs clearance.
DDP (Delivered Duty Paid)
DDP terms tend to be used in intermodal or courier-type shipments. Whereby, the
shipper/seller is responsible for dealing with all the tasks involved in moving goods from
the manufacturing plant to the buyer/consignee's door. It is the shipper/seller's
responsibility to insure the goods and absorb all costs and risks including the payment of
duty and fees.
DDU (Delivered Duty Unpaid)
This arrangement is basically the same as with DDP, except for the fact that the buyer is
responsible for the duty, fees and taxes.
Question 2: Examine the steps involved in processing of an export order.
Answer: Among the most important Acts/publications which should be consulted by an
exporter in connection with the processing of an export order, its execution and its
fulfillment are the:
Customs Act
Carriage of Goods by Sea Act;
Foreign Exchange Regulation Act ;
Schedule of Charges of Goods in respect of the port of shipment;
Handbook of Export Promotion; Import-Export Policy Volumes I and II; and
Handbook of Import-Export Procedures.
The main parties involved in processing are the exporter, the foreign buyer, the
negotiating bank, the shipping company, the insurance company, the Reserve Bank of
India, the Chief Controller of Imports & Exports, the Collector of Customs, the Port
Commissioners and the clearing and forwarding agents. Before processing the export
order, a businessman/firm has to undertake certain activities which will enable him/it to
accomplish his export obligation. These are as follows:
Steps that need to be followed to process an export order:
Step 1
Scrutinize the order with reference to the terms and conditions of the contract. The
export order must specify the mode of payment in unmistakable terms such as the Letter
of Credit, Documents, on Payment, Documents against Acceptance. The most important
documents required by an importer are: a) Bill of Exchange b) Commercial Invoice c) On
Board Clean Bill of Lading d) Marine Insurance Policy e) Packing list and f) Certificate of
Origin. These should be given to the negotiating bank.
Step 2
For a manufacture-exporter, after the export order has been confirmed, a `delivery note'
should be sent to the works manager.~ This note should contain all relevant details
pertaining to the specifications/requirements of the importer. Nothing should be left at
the discretion of the works/factory manager. A merchant-exporter, who purchases the
required goods from the market or gets them produced by other manufacturers, also has
to provide the necessary specifications/requirements/instructions to the supplier of the
goods to be exported.
Step 3
After the goods have been manufactured/procured, the following is to be done:
Clearance from the Central Excise authorities by obtaining the Gate Pass (GP)-1 form
if goods are to be removed under claim for rebate of duty, GP-2 form if goods are to be
removed under a bond i.e. as per the terms and conditions of the Collector of Customs
or AR-4/AR-4A form if the exporter wishes to avail the services of the Central Excise
Officer for the purpose of having a physical verification at the factory and thereafter
sealing of packages;
The concerned Export Inspection; c) A Railway Receipt has to be obtained if the goods
are dispatched by train to the port of shipment.
Step 4
Once the goods have been dispatched to the port, the Works/Factory manager is
supposed to send a `dispatch advice' to the firm's Export Department. Then marine
insurance cover is solicited. At this stage, formalities regarding floor price regulations,
canalization, certificate of origin, ECGC (Export Credit Guarantee Commission) cover
need to be completed. Thereafter, the Export Department sends the following
documents to its Clearing & Forwarding agent (henceforth called the agent):
Commercial Invoice
Original Export order
Original Letter of Credit
GR from showing RBI Code Number of the exporter
AR_4A/AR-4form
Excise gate pass
Packing & Weight Lists
Certificate of Inspection
Declaration form
Invoice
Export License where necessary
Purchase Memo
Railway receipt.
Step 5
After the agent has taken control of the consignment, a shipping bill is prepared by him.
Three kinds of shipping bills are to be prepared depending on the category of export
goods. These are Free, Dutiable and Drawback shipping bills.
Step 6
Once the shipping bill has been cleared by Customs, the agent forwards a copy of the
shipping bill to the Shed Superintendent of the concerned Port Trust and thereafter a
Dock Challan is made, which is then released to the agent after debiting the exporter's
account with the concerned Port Commissioners.
Step 7
A Mate's Receipt is prepared by the ship's export clerk and is given to the agent once
port charges have been paid. The agent then forwards the relevant documents to the
exporter.
Step 8
After receiving the above documents from the agent, the exporter files a claim with the
Maritime Collector of Central Excise forbade of excise duty.~ In the meantime, a
shipment advice should be sent to the importer. Documents are then presented to the
negotiating bank. Thereafter the documents are transmitted to the banker of the
importer, after which the importer would take custody of the consignment once the
goods reach their destination and other relevant formalities are completed are completed
at that end.
After processing of the documents, shipped bill and SDF/GRI form (original
copies) are detached from the set of documents.
At this stage export cargo is brought in accordance with carting order issued by
the airlines to allow entry of cargo in the warehouse
After the goods have been received in the warehouse the same are specified to
physical examination. The superintendent of customs directs the inspector to
physically inspect the goods and record on the duplicate and triplicate copy of the
shipping bill.
The superintendent of custom will finalize the record and on the basis the cargo
is cleared for export
The cargo is then shifted to the shed of airlines (in case of air shipment), in care
of ICD the cargo is shifted to the container for shipment to the port. The
customer, shipping company and railway authorities shall affix the seal on the
container.
After loading of cargo, bill of loading/ airway bill is issued by the shipping
company/ airlines.
Lastly, the exporter shall receive back export promotion copy of the shipping bill
and duplicate copy of SDF/GR form as well as other documents.
Question 4: Discuss various methods that are used for making payment in
International Trade
Answer: There are many ways in which an importer can pay to the exporter. But the
four basic mode of payments, which takes various shapes of payments, are Payment in
Advance, Open Account Payment, Documentary Collections and Documentary Credits /
Letter of Credit. Each method is explained below:
Payment in Advance
In 'payment in advance' method, the entire risk is put on the importer. Under this term of
purchase, the importer makes full payment to the supplier before the shipment of goods
are done. The importer trusts the supplier that the shipment of the product will be on
time and the goods will be as advertised. This method of payment generally takes place
under the following circumstances:
This method of payment do not involve any commercial bank and is therefore
inexpensive. But, the buyer faces a high degree of payment risk as he can do nothing if
the seller sends poor quality goods or incorrect or incomplete documentation.
Open Account Payment
This method allows the importer to make payments to the exporter at some specific date
in the future without issuing any negotiable instrument, only evidencing his legal
commitment to pay at the committed time. Usually, this method takes place when either
the importer has a strong credit history or is well-known to the seller.
This mechanism do not offers the seller any protection in case of non-payment.
However, the exporter can structure this sale to minimize the risk of non-payment. He
can reduce the repayment period and can retain title to the goods until the payment is
made.
Though all the risks but still open account payment is more prevailing in the international
trade. Those exporters who offer such terms are increasingly obtaining credit insurance
to mitigate the potential open account credit risks.
Documentary Collections
This term of payment offers an important bank payment mechanism. It serves the need
of both, the exporter as well as the importer. In this mode of payment, the sale
transaction is settled by the bank through an exchange of documents. Hence, it enables
the payment and transfer of title simultaneously.
Documentary Credits / Letter of Credit
It is a credit instrument like letter of credit or back-to-back letter of credit. In this mode of
payment, the buyer's bank undertakes to pay the seller when the terms and conditions
have been met. The bank issues documentary credits to a customer according to his
creditworthiness. Documentary credits are subject to the international rules, Uniform
Customs and Practice (UCP 500) - issued on 01 January 1994.
FEMA - is an act that provides guidelines for the free flow of foreign
exchange in India. It has brought a new management regime of foreign exchange
consistent with the emerging frame work of the World Trade Organization (WTO).
Foreign Exchange Management Act was earlier known as FERA (Foreign
Exchange Regulation Act), which has been found to be unsuccessful with the proliberalization policies of the Government of India.
(c)
Assignment - B
Question 1: What are the features of Export Processing Zones / Special Economic
Zones? How are they helpful in promoting export from India?
Answer: EPZs in India were set up by the government of India with the aim to initiate
infrastructural development and tax holidays in various industrial sectors in the country.
EPZ has incessantly accelerated the economic growth of the country by ensuring a
flourishing export production.
The export processing zones in India came into existence soon after the political
independence, when India proclaimed the first Industrial Policy Revolution in the year
1948. It was from then that the actual industrial growth begun in India, which resulted in
the constitution of the export processing zones later. Export promotion has always been
the chief concern of the government of India and it strictly follows the ISI policy while
carrying out all its activities. These brought about many industries that were given tax
holidays and are devoid of all kinds of duties, levies and taxes.
SEZ in India was introduced last April 2000 considering the need to enhance foreign
investment and promote exports from the country and realizing the need that level
playing field must be made available to the domestic enterprises and manufacturers to
be competitive globally, the Government of India in April 2000 announced the
introduction of Special Economic Zones policy in the country deemed to be foreign
territory for the purposes of trade operations, duties and tariffs. To provide an
internationally competitive and hassle free environment for exports, units were allowed
be set up in SEZ for manufacture of goods and rendering of services. All the
import/export operations of the SEZ units are on self-certification basis. The units in the
Zone are required to be a net foreign exchange earner but they would not be subjected
to any pre-determined value addition or minimum export performance requirements.
Sales in the Domestic Tariff Area by SEZ units are subject to payment of full Custom
Duty and as per import policy in force. Further Offshore banking units are being allowed
to be set up in the SEZs.
Question 2: What is EPCG scheme? What are the main provisions in the scheme?
How has the scheme helped in promoting export from our country?
Answer:
The Export Promotion Capital Goods Scheme allows import of capital goods for pre
production, production and post production (including CKD/SKD thereof as well as
computer software systems) at 5% Customs duty subject to an export obligation
equivalent to 8 times of duty saved on capital goods imported under EPCG scheme to
be fulfilled over a period of 8 years reckoned from the date of issuance of license.
Capital goods would be allowed at 0% duty for exports of agricultural products and their
value added variants. The scheme aims to consolidate and accelerate Indias export
growth in order to expand the manufacturing base for Indias exports including the small
scale sector; incentives to status holders with premium on high growth; removal of
restrictions to exports; measures to facilitate investments in Special Economic Zones
(SEZs); reoriented export cluster development scheme and procedural simplification
aimed at drastic reduction of transaction costs in order to make India globally
competitive.
Insurance Declaration Insurance against loss or damage to goods, where the insured
person informs the insurer of the value of these goods every month. Also, the cost of
insuring them is based on their average value during the year.
Application for Certificate of Origin is a process wherein an exporter applies for a
Certificate of Origin for goods to be exported to another country.
Mates Receipt is a document signed by an officer of vessel that substantiates receipt
of shipment onboard the vessel. It is not a document of title and is issued as an interim
measure until a proper bill of lading can be issued.
Case Study
Question: Prepare a feasibility report to make your product more competitive in
the export market by availing the provisions in the Foreign Trade Policy.
Feasibility Report:
Answer:
Scope:
Upgrade of production facility to increase percentage of exported gold from current rate
of 15%. Affected area will be selling in the domestic market. Also, to avail of incentives
as amended by the Foreign Trade Policy. The government will have to relinquish
controls to promote entrepreneurship and improvement of export trade.
Pros:
-
Cons:
- Facility may be relocated to fit larger area.
- High costs in purchase of machines and equipments.
- Local market will be affected as the company will be concentrating on exports.
Summary:
This report aims to study the possibility of shifting the companys concentration from
import to export of Gold and Diamond Jewelry. It will also tackle the viability of the move
to which the company will be undertaking.
With the onset of the Foreign Trade Policy, the incentive schemes available supports
export trade to a degree wherein which the exporter enjoys reduced cost of expenses
from taxes to duties. The proliferation of Special Economic Zones and Export Processing
Zones makes it easier for a company to transition from its current location to a more
viable area for production and export. Advantages can be observed as the government
along with its regulation strongly supports export of goods. Limitations are present as
well to help protect from exploitation and unfair trading.
Under the FTP, it will help exporters to upgrade their technologies for export
infrastructure. The company can adopt a green policy as the policy provides additional
incentives for it. Incentives under the FMS have been increased as well making it more
profitable to export items rather than produce for local consumption. Regulatory and
Principal Documents requirements were also made relaxed for better compliance.
Increased life of existing machinery and plant equipments, export obligation on import
spares, moulds etc. under the EPCG scheme has been reduced to 50% of normal
specific export obligation. It is also in the best interest of the company to start exports of
Gems and Jewelry as Duty Drawbacks has been allowed in the said items. Further,
value limits of personal carriage have been increased from $2M to $5M in case of
participation of overseas exhibitions. The limit in case of personal carriage, as samples,
for export promotion tours, has also been increased from $100,000 to $1M.
Conclusion:
Summarizing all the factors and weighing the pros and cons, the companys change of
direction is beneficial both the organization and the countrys export trade as well. The
inclusion of incentives and other government regulations that support exports outweighs
the overhead costs to update the facility and it will lead to employment opportunities.
Assignment - C
1. Special Economic Zones were created to :a) Boost manufacturing , Augment exports & Generate employment
b) Promote production for consumption in the domestic market
c) Promote import into the country
d) Promote imports from some special zones
2. Under Advance License goods imported cannot be used in the unit of :a) License Holder
b) Jobber
c) Supporting manufacturer
3. Which of the following is not a major functions of Export Promotion Council (EPC)
a) Provide commercial information
b) Organize trade fairs, exhibitions
c) Promote
interaction
between
trade
and
Government
Determine Import duty
d) Provide pre shipment finance
4. The WTO Agreement on agriculture provide for:a) Reduction of Domestic Subsidies.
b) Reduction in expert subsides
c) Binding to provide market access
a) All of above
5. According to the Foreign Trade Policy of 2009-2014 Advance Authorizations
necessitate exports with a minimum value addition
a) 15 %,
b) 20%
c) 25%
d) 10%
6.
9. Special Economic Zones will located in areas which will be technically treated as
________.
Foreign Territory for applicability of domestic legislations
a) Financially independent
b) DTA
c) Custom Bonded Warehouse
10. What does FOB stand for?
a) free on board
b) for billing
c) free original barbecue
d) For on board
11. Free alongside ship (FAS) means that...
a) The goods have to be delivered by sailboat.
b) The seller has to pay for the transport until the goods are being
unloaded at the port of destination.
c) The goods don't belong to anybody as long as they are alongside the ship.
d) The buyer is responsible for the transportation of his goods as soon as they
are being loaded aboard.
12. Which terms apply to DDP?
a) The seller pays all costs, including customs duty.
b) The seller pays all the costs and bears the risk until the goods have
been delivered on his side of the border.
c) The buyer has to cover all the costs, including marine insurance and customs
duty.
d) The seller pays insurance and transport costs up to the port of destination.
13. Match the definition with the INCO terms:
"The seller pays the transport costs up to the port of shipment. He bears the risk until the
goods have dpassed the ship's rail at the port of shipment."
a) EXW
b) FOB
c) DDP
d) FAS
e) CIF
14. Which terms are cheapest for the seller?
a)
FAS
b)
EXW
c)
CIF
d)
DDP
15. Which of the statement(s) about EXW is (are) true?
a) The buyer pays transport costs from the seller's premises on.
b) The seller makes the goods available at his premises.
c) The buyer makes the goods available at his premises.
d) The seller pays the transport costs up to the port of shipment.
16. Which of the following is a regulatory Document?
a) Packing List
b) Shipping Instructions
c) Insurance Declaration
d) GR Form
24. Premier Trading House should have minimum export performance of Rs.________.
a) 10000 Crs
b) 7500 Crs
c) 5000 Crs
d) 9000 Crs
25. Under Market Development Assistance Government does not provides-a) Expenses for participation in trade fairs abroad
b) Expenses for participation in buyer /sellers meet
c) Foreign travel
d) Importing Capital Goods
26. Vitamin A as a drug can canalized through
a) MMTC
b) ITPO
c) STC
d) EPI
27. Which of the following is not a type of letter of credit
a) Revocable Letter of Credit
b) Standby Letter of Credit
c) Moving Letter of Credit
d) Back-to-back Letters of Credit
28. Exports and Imports come under the purview of :
a) Ministry of Finance
b) Ministry of Commerce
c) Ministry of External Affairs
d) Ministry of Home Affairs
e) Ministry of SSI
29. Export Promotion Capital Goods scheme helps in promoting through
a) Import of Capital Goods
b) Import of raw material
c) Participation in trade fairs
d) Export of capital goods
30. Objective of DEPB is to
a) Allow duty free import of inputs which are physically incorporated in export
product
b) Neutralize incidence of customs duty on import content of export
product
c) Provide assistance to states for export promotion activities
d) Control dumping in the India
31 Tripur in Tamil Nadu is Town of Export Excellence for
a) Hosiery Products
b) Sea food
c) Handicrafts
d) Coir Products
32. Main objective of Served from India Scheme is to promote export of
a) Services
b) Tea
c) Coffee
d)
Handicrafts