INTERNATIONAL
BUSINESS 2
Export /import trade has to comply with
several formalities. In order to boost international business, the government
provides various incentives and concession. It has also set up various
organizations to educate those engaged in foreign trade. International agencies
like World Bank, IMF, WTO, etc.., accelerate the pace of development and trade
amongst different nations.
Types
of foreign trade
Import: purchase of goods from foreign country for domestic
use.
Export: sales of domestic goods to a foreign country
Entrepot: goods imported from a foreign country for re-
export to another country
Export procedure:
Obtain importers exports code (IEC) number
Importers
exporters’ code number should be obtained first. This number should be shown in
all export- import documents. Regional import export licensing authority issues
this number when applied for in the prescribed form.
Obtaining regulations –cum- membership certificate (RCMC)
This
certificates is issued by export promotion council/ commodity board /
federation of Indian export organization / marine products export development
agency, etc. this is needed to obtain facilities , benefits or concessions
offered the export- import policy (EXIM) policy.
Market research
The exporter
tries to explore foreign markets by conducting surveys and market research to
procure export order.
Receiving and confirming the export order
After
receiving the export order the exporter gives the conformation to the importer
after careful scrutiny.
Manufacturing goods
The exporter
then manufactures or procures the goods required by the importer. He should
adhere to the specification given by the importer of goods.
Excise clearance
The goods
manufactured are subject to excise duty. But export gods are either exempted or
if paid, it s later refunded to the exporter. So, the exporter has to apply to
the excise commissioner along with the documents like invoice and AR4/AR5 forms.
Pre- shipment inspection and quality control
In foreign trade, quality of goods must
conform to international standards. In India quality control and inspection act
insists on compulsory quality control and pre-shipment inspection
Customs clearance
No country will allow goods to cross its
border without the permission of the custom authority. This is to ensure that
Ø The
export and import are lawful
Ø The value
of export and import is authenticated
Ø Duty is
properly assessed
Ø The
regulatory provision are complied with
Ø The data
of export and import are available for compilation
Custom authority grants permission through a document called ‘shipping
bill’. This is prepared by the exporter or his agent. This is submitted to the
customs office along with other documents like invoice, license, inspection
certificate, etc. these documents are checked by the customs officials. The
goods may be physically verified by them at the dock. When the port formalities
are over, permission is granted for shipment of goods. The exporter puts ‘let
ship order’ on the shipping bill. The permission is shown to the master of the
ship who allows the goods to be loaded on the ship. When the goods are loaded,
the captain of the ship misuses a receipts known as ‘mate receipt ‘. This
document is proof of shipment of goods.
Port procedures
The exporter has to hire a space in the ship
well in advance. The agent of the exporter brings the goods near the port.
After paying the port charge and fulfillment the formalities, permission is
granted to bring the goods to the port. The shipping bill is presented and the
goods examined. if everything is in order, the officer puts “let export order’
on the shipping bill. Then the goods are loaded under the supervision of a
customs preventive officer.
Obtain bill of lading
The agent of the exporter hands over the
mate’s receipt to the shipping company official who in turn issues a bill of
lading.
Submission of document to bank
After
shipment of goods, the relevant documents like bill of lading, bill of
exchange, letter of credit, invoice, etc, are submitted to the bank by the exporter.
The bank then takes steps for completing the formalities for payment.
Import procedure
Obtaining IEC number and RCMC number
The importer has
to obtain IEC number and RCMC
Market research
Importer
undertakes market research and makes enquiries for the required items for
import. He then identifies the products to be imported. After that the enters
into the import contract.
Opening a letter of credit
Letter
of credit is an arrangement for payment to the exporter through importers bank.
When a letter of credit is opened, the bank undertakes to make payment to or to
the order of the exporter against stipulated documents and terms and
conditions. The importer approaches his bank to open a letter of credit in
favor of the exporter. The bank will issue a letter of credit taking into
account the credit worthiness of the importer.
Arrival of goods
When the goods reach the importer country, the
person in charge of the carrier informed the officer at dock. He asks him to
unload the cargo on a document called ‘import general manifest’. The details of
goods imported are given in this document.
Informing the importer
The customer
authority informs the importer about the arrival of goods. The importer of his
prepares called ‘bill of entry’ and submits it to customs authority along with
other documents. Bill of entry is a document which customs officer permits the
clearance of the imported goods.
Customs clearance
The bill of entry is marked by the customs
officers for assessment of import duty and appraisement by the appraiser. The
appraiser then examines the documents and issues the examination order. This is
then procured by the importer / agent of importer and the import duty is
remitted.
The bill of entry is handed over to an
official called ‘dock superintendent. He marks the document to the physical
examiner who examines physically the goods. The examiner gives his report on
the bill of entry. The agent of the importer presents the bill of entry to the
port manager who ensures payment of charges.
Export/ import documents
In foreign trade buyers and sellers are
separated by long distances. The business activities are carried out with the
help of documents. Documents protect the interest of both the buyers and sellers.
Documents in the export business may be divided into two, viz.
1.
Principal export document
2.
Auxiliary export document
1) Principal export documents
Commercial invoice: it contains a detailed description of
the goods supplied by the exporter. The name of buyer and seller, name of the
ship , date of sailing, quality and price, marks and numbers of packages. Etc.,
Packing list: it indicates the nature and number of goods
put in each packets/ container with distinctive numbers and marks. This is to
identify the goods contained in each packages, by the importer.
Bill of lading; it is an important document issued by the
shipping company or its agent. Thus a bill of lading is,
·
An official receipt issued by the shipping company from
goods on board.
·
An evidence of contract to carry goods
·
A document of title to goods
It is also a
quasi- negotiable instrument transferable by endorsement and delivery.
Airway bill: this is issued by an airline company in case of
air carriage. Airway bill is not a document of title : it can be prepared in
such a way that it can made a transferable document
Certificate of inspection: the certificate of inspection
issued byt eh export inspection agency ensure that the consignment is inspected
as per quality control and inspection act.
Insurance policy: exported goods are exposed to perils of
sea. So they are invariably insured by the exporter. He obtains a marine
insurance policy from an underwriters or insurance company.
Certificate of origin: it indicates the country where the
goods have been originally produced. It is generally issued by chamber of commerce,
export promotion council, trade associations etc.
Bill of Exchange; this is document related to the payment
for the goods exported. As bill of exchange is also called ‘draft’ or ‘hundi’.
It has three parties, viz., the drawer, the drawee and the payee.
A bill of
exchange may be:
·
Sight bill: payable at sight or on presentation
·
Usance bill; payable after a stated number of days
2) Auxiliary export documents
These documents are needed in the presentation
of the principal export documents
Performa invoice: it is a quotation sent by the seller to a
potential foreign buyer. It gives description of goods, m price and other terms
and conditions.
Intimation for inspection; this document is given by the
export inspection agency. The exporter informs the agency on this document for
the inspection of the export goods.
Shipping instructions; it is on this document that the
exporter provides various instructions, connected with the export of goods, 6o
the shipping agent.
Insurance declaration; it is on this document that the
exporter, who requires insurance , makes a declaration related to the insurance
policy
Shipping order; it is through this document that the
shipping company intimates the exporter about the reservation of space on board
the ship.
Mate’s receipt; it is issued by the chief officer of the
ship and is an acknowledgement of the goods on ship.
Application for certificate of origin: this application is
submitted to the chamber of commerce/ export promotion council. It shown the
origin of goods.
Letter to the bank for collection / negotiation of documents:
this contains details about shipping documents of the negotiation/ collection.
3) Import documents
The principal
import document is bill of entry. The goods imported are cleared on the
strength of this document.
Bill of entry for home consumption: when the importer wants
to clear the goods in one lot on payment of full customs duty, this document,
which is white in color, is used.
Bill of entry for warehousing; when the importer does not
want to pay the duty on imported goods and want the goods to be transferred to
customs recognized bonded warehouses, this document is used.
Ex-bond bill of entry; this document is used when the
importer clears the goods from a bonded warehouse on payment of duty. Its color
is green.
Important terms:
1.
Free on board (FOB) : in FOB contracts , the responsibility
of exporter ends with the delivery of goods on the ships rail at the named port
of shipment .
2.
Cost and freight
(CFR): In these types of contract, exporter has to bear all the costs and
freight to bring the goods to the named port of destination.
3.
Cost, insurance and freight(CIF) in this type of counteract,
the exporter bear all costs and freight for brining the goods to the named port
of destination together with the cost of insurance against the risk of loss or
damage to the goods during the carriage.
Foreign
trade promotion: incentives and organizational support
Ø Export
promotion / incentives
Government has taken various measures to improve the export position.
for this purpose it announces EXIM policy from time to time. Important such
measures adopted are as follows:
1.
Export processing zones (EPZs) EPZs have been set up to
provide internationally competitive duty free environment for exports. Govt.
has taken initiative to provide infrastructural facilities in these zones to
produce goods at lower cost. Custom=ms clearances and other formalities
simplified. No import license is needed to import capital goods , raw –
materials etc., the units in these zones are given exemption for payment of
excise duty from these zones are given exemption for payment of excise duty for
these items bought from domestic market.
2.
Cent per cent export oriented units: these units are set up
for the export of the entire products; they can be set up anywhere in India.
They get all the benefits provided to units in the EPZ.
3.
Special economi
3.
c zones
(SEZ): it has been created to encourage fr5ee trade. It is treated as a deemed
foreign territory for duty purposes. Goods going into the SEZ area from the
domestic tariff area (DTA) is treated as deemed exports. Goods coming from the
SEZ area to the DTA are considered as imported goods.
4.
Export houses trading houses, star trading houses and super
star trading houses: these export
houses, in different names, are given national recognition so that they can
take all out efforts to promote exports. The recognition is granted based on
their export performance.
5.
Export of services:
to promote the export of services, various categories of service houses
have been given recognition. Here also recognition is granted based on their
export performance.
6.
Export promotion capital goods (EPCG) scheme: the idea
behind this is to encourage import of capital goods for export production.
7.
Deemed exports: deemed exports refer to those transactions
in which goods supplied are not supposed to leave the country. If goods are
supplied to specific categories of organizations like EPZ, EOV projects funded
by United Nations agencies, etc. they are treated as deemed exports.
8.
Duty exemption/ remission schemes: these schemes are aimed
at facilitating import for the purpose of export production. The duty exemption
enables import of inputs for export production.
9.
Duty drawback: under this scheme of duty drawback customs
and excise duties on raw materials and components used in export products are
refunded to the exporters.
10.
Export finance: export finance is provided to the exporters
at concessional rate. There are two types of finance requirements, viz.,
·
Pre-shipment finance/ packing credit
·
Post –shipment credit
11. Market
development assistance: under this
scheme assistance is given for marketing Indian products in the international
markets.
12. Tax relief: tax exemption is allowed to boost exports.
Under this scheme, export profits and foreign exchange earnings from other
specified sources are exempted from income tax.
Brand promotion and quality awareness; quality is the most
important element of export marketing. In order to promote Indian brands in the
overseas market, India brand equality fund (IBEF) trust has been established in
1996.
Export Processing Zones
These are set up
increases production for export. These are industrial estates which from enclaves
within the national customs territory. They are usually located near the
international air port or sea port. There are seven export processing zones in India.
1.
Kandla export processing zone, kandla,Gujarat.
2.
Santa Cruz electronic export processing zone (SEEPZ), Santa Cruz,
Bombay.
3.
Noida export processing zone (NEPZ) noida , UP
4.
Madras export processing zone (MEPZ), Chennai, Tamil nadu.
5.
Cochin export processing zone (FEPZ) falta, cochin , Kerala
6.
Falta export processing zone (FEPZ) , west Bengal.
7.
Visakhapatnam export processing zone (VEPZ), Visakhapatnam.
The major objectives of these zones
are:
1.
To earn foreign
exchange
2.
To provide employment
3.
To acquire and update labour and management skills.
4.
To create links between EPZ industries and the domestic
economy.
Special
Economic Zones
These are set up in different parts
of the country to provide an internationally competitive free environment for
export production. They may be set up in the public, private, joint sector or
by the state government. The activities in these zones may be trading,
manufacturing or service. They enjoy exemption from industrial licensing for
manufacture of items reserved for SSIs. They are also exempt form sectarian ceilings
on FDI. It is a deemed foreign territory for purpose of trade operations and
duties and tariffs. Goods going into SEZ from DTA are treated as deemed
exports.SEZ are exempted from duty on import of raw materials and capital
goods. If these are procured from DTA, excise duty is also not payable.
Features
1.
A duty free enclave has been created which is treated as
foreign territory for trade operations.
2.
Units can be set up for manufacturing, trading and service activities.
3.
Units are exempted from routine examination of import and
export of cargo by customs
4.
Units should be a positive foreign exchange earner in three
years
5.
Sale in domestic market is permitted on payment of duty
6.
Duty free goods are allowed to be utilized within the
approval period of 5 years
7.
Subcontracting of production is allowed
8.
100%foreign direct investment is permitted through automatic
route in the manufacturing sector.
ORGANIZATIONAL SUPPORT
The government of
India has taken initiative in setting up various institutions to promote and
facilitate foreign trade in our country.
Department of commerce
Department of commerce,
coming under the ministry of commerce, is the apex body in this direction.
Department of commerce helps to better commercial relation with other countries
and enhance export promotional measures and regulations of certain export – oriented
industries and products. it formulates policies on foreign trade –import and
exports –of our country.
Export Promotion Councils (EPCS)
These are
registered either as joint stock companies under the companies act or the
societies registration Act. These are non-profit organizations. The basic objective
of these councils is to promote and develop exports of particular products
under their jurisdiction. There are 21 EPCs at present, dealing with different
products.
Commodity boards
These
boards are supplementary to EPCs. These are specially established by the
government of India for the development of production of certain traditional
commodities.
Export inspection
council (EIC)
It was set up by the central government as
per section 3 of the export quality control and inspection act, 1963. It aim at
development of export trade adhering to strict quality slandered and
pre-shipment inspection. All the commodities meant for export must have the
quality specification prescribed by the EIC, excepting certain items.
Indian Trade
Promotion Organization (ITPO)
ITPO was formed by merging two erstwhile
entities, viz., trade development authority and trade fair authority of India.
IT WAS SET UP IN 1992 BY REGISERING AS PER COMPANIES Act, under the ministry of
commerce. Its headquarters is at New Delhi. Being a service organization it
always keeps in touch with trade, industry and the government. It organizes
trade fairs and exhibitions in India and outside. It assists export firms to
participate in international trade fairs and exhibitions.
Indian Institute of
Foreign Trade (IIFT)
It was set up
in 1963 by the government of India and is registered under the societies
registration Act. It is an autonomous body. IIFT was formed with the prime
objective of introducing professionalism in the country’s foreign trade
management.
Indian Institute of Packaging (IIP)
It was set up in
1966 as a national institute jointly by the ministry of commerce and the Indian
packaging industry. It acts as the training –cum-research centre for packaging
and testing. It caters to the needs of both domestic and foreign markets.
State Trading Corporation
Domestic
firms find it difficult to complete in the international market. Existing trade
channels are either unsuitable for promotion of exports or are failing in
bringing about diversification of trade with countries other than European
countries. Forming of state trading corporation (STC) in 1956 was to set these shortcomings.
The main objective of STC is to stimulate export trade among different trading
partners across the globe.
World Bank / International Bank for Reconstruction and
Development (IBRD)
The World Bank was
reacted at the 1944 Bretton woods conference. Although many countries were
represented at that conference, the US and UK dominated the negotiations. It is
based in Washington D.C. the IBRD is commonly known as World Bank. The IBRD was
established with the original mission of financing the reconstruction of
European nations following world war2. After the reconstruction of Europe it
turned its attention towards eradicating poverty around the world. In 1960, the
international development association (IDA) was set up to serve as the banks
concessional lending arm and provide low and no-cost finance and grants to the
poorest nations whose per capita incomes were below a critical level. The IBRD
began investing in development projects and in social sector of underdeveloped
nations like health and education.
World Bank is a group
of five international organizations
·
International bank for reconstruction and development(IBRD)
1944
·
International Finance Corporation(IFC)1956
·
International Development Association (IDA)1960
·
Multinational Investment Guarantee Agency(MIGA)1988
·
International Centered For Settlement Of Investment Disputes
(ICSID)1966
Functions of World Bank
Ø Granting reconstruction
loans to war-torn nations
Ø Granting
development loans to underdeveloped nations
Ø Providing
loans to government for agriculture , irrigation, power , transport, water
supply, education , health, etc.,
Ø Providing
loans to concerns for specified projects
Ø Promoting
foreign investment by guaranteeing loans provided by other organizations.
Ø Providing
technical, economic and monitory advice to member countries for specific
projects
Ø Encouraging
industrial development of underdeveloped countries by promoting economic
reforms.
International development association (IDA)
The IDA, set up in
1960, is the part of the World Bank that helps the world’s poorest countries. it
helps these countries to reduce poverty by providing no-interest loans and
improving living conditions.
Objectives
ü To
provide development finance to the less developed countries on easy and
flexible terms
ü To
promote economic development , increase productivity , raise the standard of
living in the less developed countries
ü To
supplement the objectives and activities of the world bank
ü To extend
macroeconomic management services in areas
International Finance Corporation (IFC)
IFC is an affiliated
institution of the World Bank established on July 20, 1956. It assists private
enterprises in developing countries by providing them with risk capital .all
the members of the world bank are eligible to become members in IFC.
Objectives
Accelerate the pace of economic development of the member
countries in underdeveloped areas
Invest in private productive enterprises in association with
private investors.
Bring together investment opportunities , privae capital,
both foreign and domestic and experienced management
Stimulate productive investment of private capital in the
developing countries.
Multinational investment guarantee agency (MIGA)
MIGA is a member of the world bank group . it was
established in 1988 as an investment insurance facility to encourage confident
investment in developing countries.
Objectives
To promote foreign direct investment (FDI) into developing
countries
To provide insurance facility to investors against political
risks
To provide guarantee against non-commercial risks
To target projects that Endeavour to create new jobs,
develop infrastructure and generate new tax revenues.
International Monetary Fund (IMF)
It is the second international organization next to the World
Bank. It was initiated in 1944 at the Britton woods conference and formally
created in 1945 with 29 member countries. Its headquarters is at Washington D.C
.the IMF,s goal was to assist in the reconstruction of the world’s
international payment system post world war 2. The IMF is an organization of 188
countries working to foster global monitory cooperation , secure financial
stability , facilitate international trade, promote high employment and
sustainable economic forth and reduce poverty all over the world.
Objectives
v To
promote exchange rate stability among the different countries
v To make
an arrangement of goods exchange between the countries
v To
promote short term credit facilities to the member countries
v To assist
in the establishment of international payment system
v To make
the member countries balance of payment favorable
v To
facilities the foreign trade
v To
promote the international monetary corporation
World Trade Organization (WTO)
The WTO, the
principal international institution for the management of international trade,
was created at the Uruguay round of trade talks in 1994. It was to transform
the general agreement on tariffs and trade (GATT) into a permanent institution.
GATT negotiations started in Uruguay in 1986 meant for promotion of free trade.
It was the origin of the WTO and a range of multilateral agreement. It
currently has 160 member states. The WTO is responsible for providing a forum
for trade negotiations, handing trade disputes and monitoring national trade
policies.
Functions of WTO
It was only a legal arrangement. The WTO is a new international
organization set up as a permanent body. It is designed to play the role of a
watchdog in the spheres of trade in goods, trade in services, foreign investment,
intellectual property rights, etc.,
§ The WTO shall
facilitate the implementation , administration and operation and further the
objectives of this agreement and of the multilateral trade agreements
§ The WTO
shall providing the forum for negotiations among its members concerning their
multilateral trade relations
§ The WTO
shall administer the understanding on rules and procedures governing the
settlement of disputes
§ The WTO
shall administer trade policy review mechanism
Objectives of WTO
a)
To implement the world trade system as visualized in the
agreement
b)
To promote world trade in a manner that benefits every
country
c)
To ensure that developing countries secure a better balance
in the sharing of the advantages resulting from the expansion of international
trade corresponding to their developmental needs
d)
To demolish all hurdles to an open world trading system and
usher in international economic renaissance
e)
To enhance competitiveness among all trading partners so as
to benefits consumers and help in global integration
f)
To increase the level of production and productivity with a
view to ensuring level of employment in the world
g)
To expand and utilize world resources to the best
h)
To improve the level of living for the global population and
speed up economic development of the member nations.
Benefits
of WTO
Ø Lower
prices for consumers. removing tariffs enables to buy cheaper imports
Ø Free
trade encourages greater competitiveness.
Ø Law of
comparative advantage
Ø Economies
of scale
Ø Free
trade can help increase global economic growth.
Agreements
The General Agreement on Tariffs and Trade (GATT)
It was a multilateral agreement regulating international trade.
Employment and was the outcome of the failure of negotiating government to
create the international trade organization (ITO). GATT was signed in 1947,
took effect in 1948, and lasted until 1994; it was replaced by the world trade
organization in 1995.
The Agreement on Agriculture (AOA)
It is an international treaty of the world trade organization. It was
negotiated during the Uruguay round of the general agreement on tariffs and
trade, and came into force with the establishment of the WTO on January 1,
1995.
The agreement on trade – related aspects of intellectual
property rights (TRIPS)
It is
an international agreement administered by the world trade organization (WTO)
that sets down minimum standards for many forms of intellectual property (IP) regulation
as applied to nationals of other WTO members. Intellectual property refers to
information with commercial values like ideas, inventories, creative expression
and others.
The general agreement on trade in services (GATS)
It
is a treaty of the world trade organization (WTO) that entered into force in
January 1995 as a result of the Uruguay round negotiations. The treaty was
created to extend the multinational trading system to service sector, in the
same way the general agreement on tariffs and trade (GATT) provides such a
system for merchandise trade.
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