import trade procedure ii bcom ib

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IMPORT TRADE PROCEDURE II BCOM IB – UNIT 3

PREPARED BY

DR.GB.KARTHIKEYAN ASSISTANT PROFESSOR AND HEAD DEPARTMENT OF COMMERCE (IB) GOVT ARTS COLLEGE,CBE - 641018

Reference : Foreign Trade Theory, Practices, Procedures and Documentation – Dr.Khushpat Jain, Dr.Apexa V.Jain

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PRE- IMPORT PROCEDURE

(a) Selecting the Commodity: An importer should select the commodity for import after considering various commercial factors as well as legal considerations including the regulations contained in the Foreign Trade Policy. Imports may be made freely except to the extent they are regulated by the provisions of the FTP . Prohibited goods cannot be imported at all, restricted items can be imported through a valid license while canalised items can be canalised through specified State Trading Enterprises (STEs).

b) Selecting the Overseas Supplier: Imports can be made from any country of the world except Iraq. However, there shall be no ban on the import of items from Iraq in case where the prior approval of the concerned sanction committee of the UN Security Council has been obtained. The information regarding overseas suppliers can be obtained from various, generals, international trade fairs and exhibitions and trade directories Consulate chamber of commerce.

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c) Capability and Creditworthiness of Overseas Supplier: Successful completion of an import transaction mainly depends upon of the overseas supplier to fulfil his contract. Therefore it is advisable to verily the creditworthiness of the overseas supplier and his Capacity to fulfil the contract through confidential reports about him from the banks and Indian embassies abroad. It is advisable to finalise contract through indenting agents of overseas suppliers situated in India.

(d) Role of Overseas Suppliers Agents in India: Some reputed overseas suppliers have their indenting agents stationed in India. These agents procure orders from the Indian parties and arrange for the supply of goods from their principal abroad. It is advisable to import through such agents as they can be readily contacted in case there is any dispute regarding quality or quantity of goods imported, receipt of payment, documentation formalities, etc.

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e) Inquiry, Offer and Counter-offer: It is advisable that before finalising the terms of import order, one should call for the samples or catalogue and other relevant literature and the specifications of the items to be imported. Import of samples of goods is exempted from import duties under 'Geneva' Convention of 7th November 1952. After satisfying himself with the samples and the creditworthiness of the overseas supplier, the importer should proceed to finalise the terms of the contract to be entered into.

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LEGAL DIMENSIONS OF IMPORT PROCEDURE

(a) Finalisation of the Terms of Contract: The import contract should be carefully and comprehensively drafted incorporating therein precise terms as well as all relevant conditions of the trade deal. There should not be any ambiguity regarding the exact specifications of the goods and terms of the purchase including import price, mode of payment, type of packaging, port of shipment, delivery schedule, license and permits, discounts and commission, insurance, arbitration, etc.

(b) Mode of Pricing and INCO TERMS: While finalising terms of import contract, the importer should, inter-alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As regards mode of pricing, the overseas supplier should quote the terms prevailing in international trade. International

Chamber of Commerce, Paris, has given detailed of a few standard terms popularly known as ‘INCO TERMS'. These terms have almost universal acceptance.

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(c) Mode of Settlement of Payment: There are mainly three modes of settling international transactions depending upon the creditworthiness of the importer or exporter, demand for the commodity in the international market, exchange control regulations prevailing in the importer or exporter countries. Three modes are :

• Advance Payment.

• Payment or Acceptance against Documents.

• Payment under Letter of Credit.

(d) Obtaining IEC Number: In India, it is obligatory for every importer and exporter to register themselves with the Director General of Foreign Trade (DGFT) and obtain Import-Export Code Number (IEC No.) can be made online using DGFT portal. The application form for IEC number should be

accompanied by a fee of Rs. 1000 and two copies of passport size photographs of the applicant duly attested by the banker of the applicant and other relevant documents.

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(e) Obtaining Import Licence: If the item to be imported falls in the prohibited list, then such item cannot be imported at all. However, if it falls in restricted list then the necessary clearance must be obtained from appropriate licensing authority. Similarly, if it is subject to the canalisation through State Trading Enterprises (STEs), then the necessary formalities are to be completed pertaining to imports must be complied with.

(f) Obtaining Foreign Exchange: In India, all foreign exchange transactions are regulated by the Exchange Control Department of the Reserve Bank of India (RBI). Therefore, every importer is required to make an application to the Reserve Bank of India (RBI) for getting sanction for making overseas payments. The Exchange Control Department scrutinises the application and if satisfied, sanctions necessary foreign exchange for the import transaction.

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(g) Arranging Finance for Import: It is advisable that the financial planning for imports should be done in advance in order to avoid huge demurrages on the imported goods lying uncleared for want of payment. Banks normally do not extend any fund based assistance to importers. However, they enable industrial units and others to have access to imported inputs and machinery by establishing letters of credit in favour of the overseas suppliers.

(h) Obtaining Import L/C Limit: Import L/C limits are sanctioned by the banks on submission of complete loan proposal as in the case of other types of credit facilities. This requires advance financial planning so as to retire import bills under L/C on time. Any delay in retirement of bills not only strains the relations of the importer with his bank but also results in additional costs by way of extra commission, penal interest, demurrage charges, etc.

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(i) Despatching Letter of Credit: If the term of payment agreed between the importer and the overseas supplier is a letter of credit then the importer should obtain the letter of credit from his bank and forward it to the overseas supplier well within the time agreed for the same. The importer must see to it that the letter of credit has been prepared in the strict conformity of the import contract entered with the overseas supplier.

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RETIREMENT OF IMPORT DOCUMENTS

(a) Loading of Goods and Receipt of Shipment Advice:

On loading of goods the overseas supplier despatches the shipment advice to the importer informing him about the shipment of goods. The shipment advice contains invoice number, bill of lading, airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity and the date of sailing of the vessel.

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(b) Retirement of Import Documents: After shipping the goods, the overseas supplier prepares the necessary documents as per the terms of contract and letter of credit and hands them over to his bank for their onward negotiation to importer in the manner as specified in the VC. The set normally contains bill of exchange, commercial invoice, bill of lading, packing list, certificate of origin, marine insurance policy, etc.

The importer is required to submit the following documents to his bank for the retirement of documents:

• A letter authorising his bank to debit the equivalent Indian rupees to the value of documents including bank charges.

• Exchange control Copy of the Import Licence, if applicable.

• Form A1 duly completed for the remittance in foreign exchange.

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(c) Acceptance of Bill of Exchange:

Bill of Exchange accompanied by the above documents is known as the Documentary Bill of Exchange. It is of two types

• Documents against Payment (Sight Drafts):

In case of sight draft, the drawer instructs the bank to hand over the relevant documents to the importer only against payment.

• Documents against Acceptance (Usance Draft):

In case of usance draft, the drawer instructs the bank to hand over the relevant documents to the importer against his 'acceptance' of the bill of exchange.

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(d) Scrutiny of Documents Received under L/C : After receipt of import documents from the exporter's bank, the importer's bank will scrutinises the

documents as to their correctness as per the terms and conditions of L/C and hands over them to the importer after payment. The importer should also scrutinise the documents and ensure that there are no discrepancies.

(e) Appointment of C&F Agent: In India, the procedure for clearance of imported goods is very lengthy, time consuming and involves many legal formalities.

Therefore, it is advisable to hire the services of C&F agents who are well versed with such formalities. The C&F Agent prepares the bill of entry containing details of goods to be cleared from the customs.

In case, the C&F agent does not have relevant information about the goods to be cleared, he prepares a bill of sight in order to enable himself to physically check the goods imported and prepare bill of entry on that basis.

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REFERENCE :

Foreign Trade- Theory, Procedures, Practices and Documentation.

Dr. Khushpat S. Jain Dr. Apexa V. Jain

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THANK YOU