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DRIVE-FALL 2013

PROGRAM/SEMESTER-MBADS (SEM 3/SEM 5) / MBAN2 / MBAFLEX (SEM 3) /PGDIB


(SEM 1)
SUBJECT CODE & NAME-IB0013 Export Import management
Q1. Enumerate the various steps involved in processing of an export order. Discuss
them in brief.
(Steps in processing of export order) 10 marks
Answer.
Various steps involved in processing of an export order
Various steps involved in processing of an export order are discussed below:
Step I
The exporter should write a simple letter to the overseas buyer acknowledging the receipt of the
export order and stating that the confirmation of the same would be sent soon. It may be
mentioned here that acknowledgement is different from confirmation.
Step II
The export (purchase) order should be examined carefully and its contents scrutinized in terms of
the following aspects before sending its confirmation.
i) Item (product). The order has been received for the product for which quotation/offer was sent
and the exporter is still in a position to supply the product. The exporter should reconfirm the
source(s) of the supply of the product.
ii) Sizes & specifications should be same as per your offer/quotation. Even slightest variation
could create problems for the purchaser and supplier at a later stage.
iii) Pre-shipment inspection should be either by exporter himself or an agency easily available. If
the buyer desires the inspection to be done by an agent/agency of his choice, financial and
physical aspects of inspection should be examined and communicated to the buyer.
iv) Payment conditions are same as stipulated. If the payment is through letter of credit (L/C),
check that an irrevocable L/C has been opened and preferably confirmed by a bank in India. The
exporter should focus on the following aspects:
a) L/C issued by a foreign bank must be confirmed by its correspondent bank in India.
b) Documents required in L/C will be submitted to bank, preferably exporters bank.
c) Whether draft (bill of exchange) to be drawn under the L/C is to be sight or usance and to be
drawn on the bank of the buyer.
d) Payment is permissible according to exchange control requirements.
v) Special packaging, labeling and marking requirements, if any, should be noted for compliance
and particular attention should be paid to the individual packaging of consumer goods required
for direct sale to the consumers.
vi) Shipment and delivery date is in conformity with the exporters production plan and whether
a) Part shipment is allowed.
b) Trans-shipment is permissible.
c) Port of shipment/destination is same.
vii) Documents particularly those which are required with the bill of exchange like
a) Commercial invoice is the usual or there is any specific notation required therein.
b) Certification of the commercial invoice by any authority. For instance, it may require
certification by Embassy/Consulate of the foreign country.
c) Bill of lading `straight or `to order, shipped or to order, shipped
or received for shipment direct or through etc.
d) Certificate of origin whether the usual one issued by a trade association or chamber of
commerce or special ones like that required for availing of GSP concessions or other preference.
Also, whether necessary certification on commercial invoice would suffice or a separate certificate
of origin is required.

e) Packing list.
f) Insurance policy or certificate.
Step III
If the exporter is satisfied with various aspects referred to above, a formal confirmation of the
export order should be sent to the buyer.
Step IV
If the exporter is not completely satisfied with the terms of the export order, clarifications should
be sought from the buyer before its confirmation. The clarifications could be in terms of quantity,
delivery schedule, terms of payment etc. The delivery period should be specific and not vague
like immediate delivery or as soon as possible. Similarly, payment should be
made in the country of exporter even if a foreign bank is involved. The exporter may specify a
reasonable time for clarifications to the buyer. The confirmation of export order should be sent
after receiving clarifications sought from the buyer. Once all the clarifications have been received
to the satisfaction of the exporter, a letter of confirmation must be sent. It is desirable to reiterate
terms of contract in the letter of confirmation.
Step V
The exporter should make reservation of cargo space for air freighting or sea freighting of the
export consignment as per the delivery period commitments made to the buyer. The services of
clearing and forwarding agents can be obtained for this purpose. A note on the services of
clearing and forwarding agents is given at the end of this section.
Step VI
In case the exporter himself is a manufacturer of the item to be exported, a delivery note (in
duplicate) containing details of the product, specifications, quantity etc. should be sent to the
Production Department. It may be a good idea not to disclose the exact date of shipment to
Production Department and an advanced date may be communicated. Information on packaging
and packing should also be provided to the Packing Department.
Step VII
In case the exporter needs to procure from outside all or part of the quantity to be exported,
purchase order with complete specifications etc. should be placed with the supplier(s). It would be
a good idea to discuss special requirements and production schedule with the supplier(s).
Step VIII
The exporter should apply for the grant of export authorization if the item is mentioned as
Restricted in the ITC (H.S.) Classification of Import-Export items. The application is to be made in
the prescribed Form to the Director General of Foreign Trade for a license. A copy of the confirmed
export order should be enclosed.
Q2. What do you understand by SEZ? Explain the special features of SEZ units.
(Meaning-4 marks, Features-6 marks) 10 marks
Answer.
Special Economic Zones (SEZ)
Special Economic Zones are duty free enclaves which are set up separately from the Domestic
Tariff Area (DTA) for the purpose of production of goods at low cost, meant for export, provided
with facilities like infrastructure, machinery, customs, expertise, etc. Goods and services coming
from DTA to SEZ area are treated as exports and goods and services coming from SEZ area to DTA
are considered imports. In view of the growing importance and great potentials for exports an Act
called SEZ Act, 2005 was enacted in India. The policy relating to Special Economic Zones is
governed by SEZ Act, 2005 and the Rules framed there under.
The special features of SEZ
i) SEZ units may import/procure from DTA units without payment of duty all types of inputs and
capital goods.
ii) Gems and Jewellery units of SEZ may source gold/silver/platinum through nominated agencies.

iii) SEZ units may also procure goods from bonded warehouses in the DTA and International
Exhibitions held in India, without payment of duty.
iv) SEZ units may procure without payment of duty and services from DTA units, for setting up,
operation and maintenance of units in the SEZ.
v) SEZ units may import/procure, from DTA, without payment of duty, all types of goods for
creating a central facility for use by units in SEZ.
vi) SEZ units may also source capital goods from a domestic or foreign leasing company, without
payment of duty.
Approvals, Monitoring and Management
Application for setting up a unit in SEZ except services sector shall be approved or rejected by the
Units Approval Committee. In case the SEZ unit requires an industrial license, the approval will be
granted by the Development Commission after clearance of proposal by SEZ Board of Approval
and Department of Industrial Policy and Promotion. The performance of SEZ units shall be
monitored by the Unit Approval Committee as per guidelines. SEZ units will be under the
administrative control of the Development Commissioner. All activities of such units, unless
otherwise specified, shall be through self-certification procedure.
Exit from SEZ Scheme
A SEZ unit may exit from the SEZ scheme with the approval of the Development Commissioner.
The existing units shall be subject to payment of applicable customs and excise duties on the
imported and indigenous goods and raw materials and finished goods in stock. In addition, if the
unit has not achieved Net Foreign Exchange Earning (NFE), the exit shall also be subject to
penalty. SEZ units may also be allowed exit, on payment of duty, under the EPCG scheme.
Net Foreign Exchange Earning (NFE)
SEZ units shall be Net Foreign Exchange earner. NFE shall be calculated cumulatively for a period
of five years from the date of commencement of production.
Inter-unit Transfers
i) SE units may transfer manufactured goods including partly processed, semi-finished goods and
services from one SEZ unit to another EOU/SEZ/EHTP/STP/BTP unit.
ii) Goods imported or procured by a SEZ unit may be transferred or given on loan to another
EOU/SEZ/EHTP/STP/BTP unit.
iii) Capital goods imported or procured by a SEZ unit may be transferred or given on loan to
another EOU/SEZ/EHTP/STP/BTP unit with prior permission of Development Commissioner and
Customs authorities concerned.
The SEZ units shall have to maintain proper records of all such transfers.
Q3. What is Bill of entry and what are its features? List the documents to be filed with
B/B.
(Meaning-3 marks, Feature-4 marks, Listing-3 marks)10 marks
Answer.
Bill of Entry
The documents involved in Import trade in India are discussed below: There are three types of Bill
of Entry:
White Bill of Entry or Home Consumption B/E.
Yellow Bill of Entry or Warehouse B/E.
Green Bill of Entry or Ex-bond B/E.
B/E must be presented to the customs for Noting in the Import Deptt. Of Customs House
after the item-wise document called Import General Manifest (IGM) is filed by the steamer
agent. The facility to file B/E prior to Import Manifest 30 days before the arrival of vessel is
permitted Under Section 46(3) of Customs Act, but the custom department applies prior
entry stamp on the B/E.
Documents to be filed with B/E
Invoice.
Packing list.

Insurance policy.
Original Bill of Lading or Airway Bill (Delivery Order)
Copy of L/C or contract.
Certificate of Origin.
Product Details.
Custom Copy of Import Authorization or Customs Clearance Permit in Original.
Features of B/E:
The salient features of Bill of Entry are as follows:
Assessable Value: The value is arrived at as provided under the Customs Act, insurance and
freight (if not included in the invoice), loading and local agency commission, miscellaneous
charge and landing charges. The rate of exchange (conversion) should be the one applicable for
the currency fixed by the customs.
Codes: For statistical purposes the codes should be mentioned for following information: Port,
Custom House Agent (CHA), and IE Code, Country of Origin / Consignment, Unit Code and
Currency Code.
Description of Goods: The information about the goods must include no. & marks of packages,
weight, volume etc. and total no. of packages. The description of goods should be product wise
for the assessment of duties.
Origin: The origin of goods is given to assess the value of duty as there may be duty concession
for some countries etc. or antidumping duties may be levied on import of goods of certain origin.
Vessel Details: The shipment details like B/L No., Date, Port of Shipment, Vessel name, and
Rotation No. and line No. are to be given.
Q4. Explain the meaning of exchange risk. What can be done to mitigate this risk?
Discuss.
(Meaning-3 marks, Protection against exchange risk-7 marks) 10 marks
Answer.
Exchange Risk Meaning
Any person who has dealings in foreign currency is exposed to exchange risks. For an exporter the
exchange risk is that the foreign currency in which
the transaction is conducted may depreciate in future and the exporter may realize less than the
expected in local currency. Similarly, an importer also faces exchange risk. The foreign currency in
which the transaction is
designated, may appreciate in terms of local currency resulting in payment of higher amount in
local currency than what was contemplated originally.
The above risk arises because of the fact that exchange rate is constantly changing and no one
can be certain about the exchange rate that will prevail on the future date. This uncertainty
about the exchange rate that would prevail on a future date is exchange risk.
Protection against exchange risk
Forward Contracts:
Forward exchange contract is used by exporters and importers to get adequate protection against
exchange risk. In a forward exchange contract a banker and a customer or two banks enter into a
contract to buy or sell a fixed amount of foreign currency on a specified future date at a
predetermined rate of exchange.
Under forward contracts, date of delivery will be as under:
i) For export documents negotiated, purchased or discounted; date of negotiation, purchase or
discount.
ii) In case of export documents sent on collection; date of payment of Indian Rupees to the
exporter.

iii) In case of retirement/crystallization of import bills; date of retirement or crystallization of the


bill whichever is earlier.
Exchange Control Regulations Governing Forward Contracts:
Forward contracts in India are governed by Foreign Exchange Management (Foreign Exchange
Derivatives Contracts) Regulations, 2000. The regulations are as under: A person resident in India
may enter into a forward contract with an authorized dealer in India to hedge an exposure to
exchange risk in respect of a transaction for which sale and/or purchase of foreign exchange is
permitted under the Act, or rules or regulations or directions or orders made or issued there
under, subject to following terms and conditions.
Q5. What is custom duty and what are its types? Explain with example how custom
duties are levied.
(Meaning and types-4 marks, Modes of levying duty-3 marks, Example-3 marks)
10marks
Answer.
Customs Duty
As soon as the importer gets the notice of arrival of vessel, he is obliged to arrange for filing the
B/E. The date of filing of B/E is called noting. The date of noting is important because the duties
will be levied as applicable on the date of noting in case of home consumption B/E.
The B/E is then presented to the Appraising Department with all relevant documents. The B/E, if
found correct, is signed by the appraiser and forwarded to Asst. Collector. It is then forwarded to
the license department, for debiting the license and getting it audited. Then the B/E is returned to
the importer for the payment of duty. After recovery of duty, the original B/E is retained by the
accounts department and the other copies are returned to the CHA or importer for getting the
goods examined at the docks. At the docks the shed appraiser/examiner shall examine the goods
and if satisfied issues Out of Charge orders to take the goods from the custody of port trust
authorities. This method of clearance is called Second Check Method whereby the physical
examination is conducted at the second stage. Sometimes, the appraiser gives order for
examination of goods before payment of the custom duty; this is called First Check Method. In
this method, the goods are examined first at the docks and B/E is given back to the appraiser for
the completion of remaining formalities. In the First Check Method the out of charge accounts
department issues slip. First Check Method is used in those cases where the customs have either
no experience about the product or they are unable to complete the process on the basis of
documents available with them.
Type of Custom Duties
Various types of custom duties are as follows:
i) Basic Duty: All goods are chargeable to duty as prescribed in First Schedule of Custom Tariff Act.
The duty could either be levied on percentage or value terms.
ii) Additional Duty: The rate of duty is equal to excise duty on goods produced in India.
iii) Special Additional Duty: It is levied at present at the rate of 4%.
iv) Antidumping Duty: Duties levied to check dumping of goods in India.
For example, Citric Acid from China.
v) Safeguard Duty: Levied to safeguard Indian Industry.
vi) Excise Education Cess
vii) Customs Education Cess
Modes of Levy of Duty
Custom duties are levied in 3 ways:
Specific Rate of Duty: At the rate prescribed per unit of item.
Ad- Valorem Duty: Levied on value.
Specific and Ad Valorem : Applied together

Q6. Write short notes on:


a) ECGC
b)Packing credit
( Role and benefits of ECGC-5 marks, meaning and benefits of packing credit-5
marks)10 marks
Answer.
Export Credit Guarantee Corporation (ECGC)
Two main functions of ECGC are:
1. It covers the risk of non-payment due to commercial and political risks arising in respect of
exports on credit terms.
2. It issues guarantees to banks underwriting a major part of the loss that may arise in respect of
advance or other support they extend to exporters in connection with their export business.
ECGC would accept liability for shipment made in each of the policy years, for both commercial
and political risks.
Commercial Risks are covered subject to a Credit Limit approved by the ECGC on each buyer to
whom shipments are made on credit terms. The exporter has, therefore, to apply for a suitable
Credit Limit on each buyer.
ECGC will approve a Credit Limit which is the limit up to which it will pay claim on account of
losses arising from commercial risk.
ECGC spends a considerable amount of effort for obtaining reports on overseas buyers from
banks and credit information agencies abroad in order to assess their credit standing and
approves credit limits based on such assessment. ECGC charges a Status Enquiry fee at the
prescribed rates for each credit limit application.
The ECGC normally pays 90% of the loss, whether it arises due to commercial risks or political
risks. The remaining 10% has to be borne by the exporter himself. A lower percentage of cover
may be offered in certain cases.
Pre-Shipment / Packing Credit Finance
Pre-shipment finance is concerned primarily with the grant of packing credit to enable the eligible
exporters to procure raw materials and for processing, manufacturing, packing, transportation
and all such expenditure to enable them to prepare the export consignment and ship it.
Broad guidelines of Reserve Bank of India with regard to packing credit finance are as under:
Persons Eligible for Packing Credit
As a general rule, packing credit can be granted to an exporter, who has export order or L/C in his
own name, and who will actually export the goods. However, as an exception to this rule, packing
credit can be granted to supporting manufacturers or suppliers of goods, who do not have export
order or L/C in their own name and are exporting through merchant exporters or export houses.
Basis/Criteria for Granting Packing Credit
Since export finance is a purpose-oriented finance, it is granted to the eligible exporters or the
manufacturers, against evidence/lodgment of irrevocable L/C, established/transferred through the
medium of a reputed bank or confirmed orders/contracts placed by overseas buyers for export of
goods from India.
Purpose of Finance

Packing credit finance, being purpose oriented finance, is granted (whether to exporters or
manufacturers)
for
the
specific
purpose
of
procuring
raw
materials/purchasing/manufacturing/processing/transporting/warehousing/
packing and shipping the goods.
Form of Finance
Packing Credit as normally referred to, means a funded advance. However, non-funded facilities
can also be granted as may be required, to enable the exporters to manufacture and export the
goods. Funded advances bear different nomenclatures, in different banks such as packing credit
loan or shipping loan etc.
Quantum of Finance
There is no fixed formula for determining the quantum of finance to be granted to an exporter,
against a specific L/C or an export order. The only guiding principle to be applied is the concept of
"NEED BASED" finance. Banks can determine the percentage of margin, depending on the nature
of order, commodity capability of exporter, to bring in the requisite contribution etc. keeping in
view various relaxations suggested by RBI for export finance. Normally, the pre-shipment advance
granted to an exporter should not exceed the FOB value of the goods or domestic market value of
the goods, whichever is lower.
Period of Finance
Pre-shipment finance, being working capital finance, is basically a short-term finance. Maximum
period for which pre-shipment finance can be extended at concessive rates is determined by RBI.
At present, banks can allow credit at concessional rates of interest up to 270 days.
Rates of Interest
It is obligatory on the part of the banks to charge interest on export credit, at the concessional
rates stipulated by RBI. Rates of interest presently in force,