International Trade

Procedures
Introduction
• If you walk into a supermarket and can buy South
American bananas, Brazilian coffee and a bottle of
South African wine, you are experiencing the effects of
international trade.
• International trade allows us to expand our markets for
both goods and services that otherwise may not have
been available to us. It is the reason why you can pick
between a Japanese, German or American car. As a
result of international trade, the market contains greater
competition and therefore more competitive prices,
which brings a cheaper product home to the consumer.
• Maritime transport is essential to the world’s economy as
over 90% of the world’s trade is carried by sea and it is,
by far, the most cost-effective way to move en masse
goods and raw materials around the world.
Basic ImpEx Procedures

1. Market Research and Setting Objectives of Distribution

• Selecting target markets, methods of exportation and
channels
• Setting foreign market objectives on pricing and terms

2. Trade Regulations
• Export regulations and requirements
• Overseas import regulations and requirements
• Patent, trademark and copyright

3. Making Contacts
• Enquiries from interested overseas buyers
• Checking buyer's background banks etc
4. Quotation and Terms
• Making offers and quotation for potential buyers
• Costs, quotations and pro forma invoices, and terms of
sale

5. Sales Contract
• Confirming the sales contract and terms of transaction
such as payment terms

6. Contract Execution
• Producing or sourcing goods
• Packing and labelling
• Arranging shipment
• Preparing exports documentation
• Arranging insurance, if necessary
7. Customs Clearance
• Arranging export declaration and applying for export
licence when necessary

8. Getting Paid
• Subject to the payment terms specified in the sales
contract, the exporter should present the required
documents to the relevant parties for payment
Documentary Credit Procedure
 The International trade procedure in which the credit
worthiness of an importer is substituted by the guaranty
of a bank for a specific transaction.
 Under documentary credit arrangement (also called
letter of credit arrangement) a bank (usually in the
importer's country) undertakes to pay for a shipment,
provided the exporter submits the required documents
(such as a clean bill of lading, certificate of insurance,
certificate of origin) within a specified period.
 In many countries this arrangement is called
'commercial letter of credit.
Advantages:
1. For Importer/Buyer/Applicant
 Reasonable cost of funding
 Financing of up to 100% of contract value
 Easier to do business with unknown sellers
 No payment is made until documentary evidence is
received showing shipment details
 Documents are examined in compliance with ICC
rules and the terms of the L/C
 Preservation of acting discounts of suppliers

2. For Exporter/Seller/Beneficiary
 Certainty of payment
 Financial standing of the buyer is replaced by the
issuing bank
 In case of confirmed LC, additional assurance from
the Confirming bank
The process of a documentary credit

1. The contract is made between the importer and the

exporter.
2. The importer asks its bank to issue a documentary
credit to the exporter.
3. The importer's bank sends the documentary credit to
the exporter's bank (advising bank).
4. The exporter's bank advises the exporter of the issue of
the documentary credit.
5. After dispatch of the goods, the exporter delivers the
required documents to its bank. The documents are
examined against the terms and conditions stipulated
in the documentary credit. If the requirements have
been complied with, the exporter will be able to
obtain payment.
6. The exporter's bank sends the documents to the
importer's bank and receives payment either at sight or
term.
7. The importer's bank delivers the documents to the
importer upon reimbursement, after which the goods
may be handed over.
 Documentary Credit Procedure
(1) Contract of Sale
Buyer Seller
(Importer) (Exporter)
(5) Delivery of Goods

(2) (8) Documents (6) (4)

Request & Claim for Documents Letter of
to Provide Payment Presented Credit
Credit Delivered

(7) Documents Presented to

issuing Bank
(9) Payment Correspondent
Importer’s Bank
(Issuing Bank) Bank
(3) Credit Sent to Correspondent
Documentation
• Export documentation plays a vital role in international
marketing as it facilitates the smooth flow of goods and
payments thereof across national frontiers.
• Exporters are required to follow certain formalities and
procedures, using a number of documents.
• Each of these documents serves a specific purpose and
hence carries its own significance.
• A clear understanding of all documents and their
purpose, how to prepare these, number of copies
required, when and where to file, is a must for all export
professionals.
• The ADS (Aligned Documentation System) is the
Internationally accepted documentation system.
• The ADS is a methodology of creating information on a
set of standardized forms printed on paper of the same
size and in such a way that items of identical information
occupy the same position on each form.
• This enables to prepare one Master Document
embodying the information common to all documents
included in the aligned system and to zerox all the
aligned documents from the same Master Document
with the help of suitable masking and reproduction
technique.
• The mask consists of a transparent polyester film with
white opaque patches to blank out such information as
is not required in a particular document. Separate mask
is required for each document. Any information which is
specific to a document can either be pre-printed or
added as and when required.
• Export documentation is complex in nature as the
number of documents to be filled-in is very large, so also
is the number of the concerned authorities to whom the
relevant documents to be submitted.
• Under the ADS documents have been classified as
Commercial Documents and Regulatory Documents.
• Commercial documents are those which by customs of
trade are required for effecting physical transfer of
goods and their title from exporter to the importer and
the realization of export sale proceeds.
• Regulatory pre-shiprnent export documents are those
which have been prescribed by different Government
bodies in compliance of the requirements of various
rules and regulations under relevant laws governing
export trade such as export inspection, foreign
exchange regulation, export trade control and customs.
Commercial documents may be classified as Principal
Export Documents and Auxiliary Documents.
Principal Export Documents are eight documents required
to be sent by the exporter to the importer. These are:

1. Commercial invoice
2. Packing list
3. Certification of inspection/quality control
4. Bill of lading/Combined Transportation
Documentation
5. Shipping Advice
6. Certificate of origin
7. Insurance Certificate/Policy (In case of CIF export
sales contract)
8. Bill of Exchange
Auxiliary Export Documents: The remaining eight
documents, other than principal export documents, are
known as auxiliary export documents. These are:

1. Proforma invoice
2. Intimation for Inspection
3. Shipping Instructions
4. Insurance Declaration
5. Shipping Orders
6. Mate’s Receipt
7. Application for Certificate of Origin and
8. Letter to the Bank for Collection/Negotiation of
Documents
Regulatory Documents
These are those which have been prescribed by different
government departments and bodies in the context of
export trade.
These documents are meant to comply with the various
rules and regulations under relevant laws governing export
trade such as export inspection, foreign exchange
regulations, export trade control and customs etc.
There are 9 regulatory documents associated with the pre-
shipment stage of an export transaction.
Out of them, only 4 have been standardized. The
regulatory documents are as follows:
1. Gate Pass-I/Gate Pass II - Central Excise forms
2. ARE-1 - Central Excise forms
3. Shipping Bill/Bill of Export – Central Excise forms
• For export of goods
• For export of duty free goods
• For export of dutiable goods
• For export of goods under claim for duty
drawback
4. Export Application/Dock Challan - Port Trust forms
5. Receipt for Payment of Port Charges
6. Vehicle Ticket
7. Exchange Control Declaration Forms – RBI forms
8. Freight Payment Certificate
9. Insurance Premium Payment Certificate
DOCUMENTS RELATED TO GOODS
1. Proforma Invoice
Proforma invoice is the starting point of an export
contract. As and when the exporter receives the trade
inquiry from the importer, exporter submits the Proforma
invoice to the importer.
The Proforma invoice contains details such as:
• name and address of the exporter,
• name and address of the intending importer,
• nature of goods,
• mode of transportation,
• unit price in terms of internationally accepted
quotation,
• name of the country of origin of goods,
 • name of the country of final destination,
• period required for executing contract after receipt
of confirmed order and finally,
• signature of the exporter.

The importance and Significance of Proforma Invoice are

two fold:

a) It forms basis of all trade transactions and further

negotiation or contract is made on this basis.
b) It helps the importer to obtain the import licence,
where required, and obtain foreign exchange for
completion of the contract.
2. Commercial Invoice
A commercial invoice is the seller’s bill for merchandise or
goods sold by him. This contains all the particulars and
details in respect of:
• name and address of seller exporter),
• name and address of buyer (importer),
• date,
• exporter’s reference number,
• importer’s reference number,
• description of goods,
• price per unit at particular location,
• quantity,
• total value,
• packing specifications, terms of sale (FOB, CIF etc),
 • identification marks of the package,
• total number of packages,
• name and number of the vessel or flight,
• bill of lading number,
• place and country of destination,
• country of origin of goods,
• reference to letter of credit, if opened,
• terms of payment, and finally
• signature of the exporter

The commercial invoice is an important and basic export

document. It is also known as ‘DOCUMENT OF CONTENTS’
as it contains all the important information necessary for
the preparation of other export documents. For many
countries, there are no prescribed special invoice forms.
Significance of Commercial Invoice

a) It is prima facie evidence of the contract of sale and

purchase of goods. On the basis of the invoice, all the
other documents, in the context of export, are
prepared as it is the basic document.
b) Invoice constitutes the main document for various
export formalities such as pre-shipment inspection,
quality, excise and customs procedures.
c) It is useful for accounting purposes, both by the
exporter and importer.
d) This document is required in collection/negotiation of
documents through the bank.
e) For claiming incentives, this document is essential.
3. Consular Invoice
• Some of the importing countries insist that the invoice is
to be signed by the importing county’s consular
located in the exporter’s country – the consular invoice.
• The exporter has to pay a certain fee – that varies
between countries - to obtain the certificate/invoice.
• The main purpose is to secure authentication of
information contained in the invoice.
• Once the invoice is signed by the consulate of the
country, the importer gets comfort and confidence in
respect of accuracy of information in respect of
quality, source of goods, volume and grade.
• Normally, on arrival of the goods, it is necessary to
convince the customs authorities of the importing
country that the goods stated in the invoice and the
actually imported goods are one and the same.
• If the customs authorities get suspicious or not
convinced, they open the packages of the imported
goods. If this happens, considerable delay takes place.
• The importer is put to hardship by delayed receipt of
goods.
• To avoid all these problems, importer insists on the
exporter to obtain the consular invoice from the
consulate stationed in the exporter’s country.
• The consulate invoice is, generally, prepared in three
copies. One copy is retained by the consulate office,
the second copy is sent to the customs of the importing
country and the third copy is given to the exporter to
forward the same along with other documents through
the banker for collection/negotiation.
• This information also facilitates in assessing import duties
and also would be useful for statistical purposes.
Significance of Consular Invoice
Importance to the Exporter
1. With the signed invoice, the exporter is assured that
there are no import restrictions in the importer’s
country for the goods and that there would be no
problem in realization of export proceeds or foreign
exchange.
2. It enables prompt clearance from the customs of
exporter’s country for shipping the goods.
Importance to the Importer
1. In the importer’s country, the customs do not normally
open the packages. It helps the importer to get
speedy delivery of goods.
2. Lot of unnecessary hardship which importer faces
once the packages are opened is avoided.
Importance to the Customs
1. The customs of the exporting country can easily clear
the goods.
2. The customs of the importing country need not open
the packages for checking and can easily calculate
the import duties.

4. Certificate of Origin
• As the very name indicates, certificate of origin is a
certificate that specifies the name of the country
where goods are produced.
• This is absolutely necessary where the importing country
has banned the entry of goods of certain countries to
ensure that the goods from those countries are not
allowed to enter in.
• At the time of arrival of the goods in the importer’s
country, this certificate is necessary for the customs to
permit preferential tariff.
• Certain countries offer preferential tariff to goods
produced and imported from India. In such a case, this
is a must for the importer to claim preferential tariff and
the importer insists on this document from the exporter.
• This enables the importer’s country to regulate the
concessional tariff only to select countries and deny to
the rest of the countries.
• A certificate of origin can be obtained from Chamber
of Commerce, Export Promotion Council and various
trade associations which have been authorized by
Government of India to issue.
• The agency from which certificate of origin is obtained
should conform to the terms of letter of credit.
Significance of Certificate of Origin
1. Certificate of origin is required for availing concession
under Commonwealth Preferences (CWP) as well as
Generalized System of Preferences (GSP).
2. It facilitates the importer to adhere to the rules and
regulations of his country.
3. Customs in the importer’s country allow the
concessional tariff only on production of this
certificate.
4. When goods from some countries are banned,
importing country requires this certificate to ensure
that goods from banned countries are not entering
into the country.
5. Exporting country may insist on this certificate to
ensure that the goods imported are not reshipped
again.
5. Mate’s Receipt
A mate’s receipt is issued by the mate after the cargo is
loaded into the ship. It is an acknowledgment that the
goods have been received on board the ship. The Mate’s
receipt contains the details about
1. Name of the vessel,
2. Date of shipment,
3. Berth,
4. Marks,
5. Numbers,
6. Description and condition of goods at the time they
are shipped, port of loading,
7. Name and address of the shipper,
8. Name and address of the importer(consignee) and
9. Other required details.
Types of Mate’s Receipts
Mate’s receipt can be clean or qualified.
(A) Clean Mate’s Receipt: Mate of the ship issues a clean
mate’s receipt if the condition, quality of the goods and
their packing are proper and free from defects.
(B) Qualified Mate’s Receipt: If the mate’s receipt
contains any adverse remarks as to the quality or
condition of the goods/packing, it is known as ‘Qualified
Mate’s Receipt’. On the basis of the mate’s receipt, the
Bill of Lading is prepared by the shipping agent.
If there are adverse remarks in the mate’s receipt, the
same will be incorporated in the Bill of Lading, which may
turn to become a claused Bill of Lading, and this may not
be acceptable for negotiation.
Mate’s receipt is first handed to the Port Trust Authorities
who hands over to the exporter soon after he clears their
dues. This procedure is adopted to facilitate for collection
of port dues from the exporter.

Significance of Mate’s Receipt

1) Mate’s receipt is an acknowledgment of goods. It is
not a document of title.
2) It is issued to enable the exporter or his agent to secure
the bill of lading from the shipping company.
3) Bill of Lading, which is the title to the goods, is
prepared on the basis of Mate’s receipt so it should be
obtained without any adverse remarks.
4) Port Trust Authorities are enabled to collect their dues
as it is routed through them.
6. Bill of Lading

Next Module

Module Ends
Sea waybill
A transport document for maritime shipment which serves
as evidence of the contract of carriage and as a receipt
for the goods, but is not a document of title. The sea
waybill indicates the on board loading of the goods and
can be used in cases where no ocean bill of lading and
no other document of title is required. For receipt of the
goods, presentation of the sea waybill by the consignee
named therein is not required, which can speed up
processing at the port of destination.