Module 3: Export Import Procedures and Ethics in IB 10 Hours 

Documentation in international trade  Export contract  Export order processing  Methods of

payment in international trade  Main Provisions of FEMA  Procedure and documentation for
availing export incentives.  Ethics in International Business  Code of conduct for MNCs
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Foreign Trade Policy : Drafted by Director General of Foreign Trade under the Ministry of
Commerce. As far as implementation is concerned, the co-relation of Foreign Trade Policy with the
following Acts, Laws and Regulations must be taken into account

Barriers to trade: Countries have several barriers to protect domestic industries from competition
from foreign firms

Tariff- (a) Export Tariff (b) Import tariff (c) Transit Tariff
Non tariff- (a) Quotas (b) Subsidies (c ) others

OTHERS:

1. Product and testing standards

2. Embargoes
3. Local content requirement
4. Administrative delays
5. Currency controls

Tariff barriers: A tariff is a tax imposed on goods involved in international trade. When taxes is levied
on imports they are called import tariffs. When taxes are levied on exports they are called Exports
tariffs. Transit tariff are levied on goods which pass through a country which is bound to reach another
country.

Tariff are transparent and are typically set as ad valorem (Value of goods or service)- For example,
Japan levies 15% on automobiles imported from the USA. So, the value of the automobiles increases by
15% on the actual value of the automobile. So, the price of a vehicle which costs $15,000 is now values
at $16,500 to the Japanese consumers. This cost increase protects domestic producers from being
undercut, but also keeps costs artificially high for Japanese car shoppers.

Specific tariff is on the weight and quantity.-For example, India may levy a tariff of Rs. 1500 as tax
on each pair of shoes imported, and may demand a tariff of Rs. 3000 on each computer imported.

Combined tariff may also be levied and shall be calculated partly as percentage of value and partly rate
per unit.

Quotas: They refer to numerical limits on the quantity of goods that may be imported into a country
during a specific period. Quotas may also be levied on Value (ad valorem). They are mainly fixed on
textile products.

Export controls:
 o They are invoked on national security potential- arms and ammunition.
o They are imposed on dual use products like computers and trucks which is both for
security and civilian use.
o They are also put on products which are very essential to the local industry and armed
forces like oil industry.

NON Tariff barriers:

o Administrative barriers include requiring international air carriers to land at inconvenient

airports,
o Mandating stringent product inspection which might damage the product itself,
o understaffing customs department to cause undue delays,
o necessity social license that take long time to obtain
o Sugar mills export.

License: For example, there could be a limitation on the cheese to be imported, and licenses would only
be granted to certain enterprises that may import cheese from foreign markets.

Subsidies: A subsidy takes several forms including cash grants, low interest loans, tax breaks and
government equity participation in local firms.

Foreign Trade Policy:

 Customs Act, 1962
 Customs Tariff Act, 1975
 Foreign Exchange Management Act, 1999
 Central Excise Act, 1944
 Excise Tariff Act, 1985
 Industrial Policy Resolution, 1956.
 Industries Development and Regulation Act, 1951
 Laws of Weights and Measures

3.1 Documents are categorized into two categories, namely Commercial

Documents and Regulatory Documents

Commercial Regulatory

Commercial Invoice Shipping Bill

Inspection Certificate ARE1 from (Excise)

Insurance Certificate RBI Declaration Forms (GR/PP)

Bill of Lading / AWB Application for remittance of currency

Certificate of Origin Various Licenses

Bill of Exchange Bill of Entry

Shipment Advice

Packing List

Principal Documents These are:

1. Commercial Invoice : It is a basic document which gives full details of the contents of the shipment
and serves as seller's bill of goods and, therefore, sets out the terms of sale. An exporter is required to
prepare this complete document which must fully identify the overseas shipment and serve as a basis for
the preparation of all other documents which, in greater or lesser detail reproduce information from it.
2. Packing List- Exporters are required to prepare an accurate packing list showing, item by item, the
contents of the packages or cases so as to enable the receiver of the shipment to carry out a check. The
packing list should give a description of the goods, number and marks on the packages, quantity per
package, net and gross weight, measurement, etc. Properly prepared, these packing lists ensure
movement of goods and avoid unnecessary unpacking.
3. Marine Insurance Policy/Certificate - A marine insurance policy/certificate is a document
associated with transit of goods in trade, whereby the insurer undertakes to indemnify the assured
against damage for loss of goods due to risks/hazards in transit, to the extent and in the manner
mentioned in this document.
4.. Bill of Exchange - An exporter can send a bill of exchange for the value, of the invoice of goods for
export through the banking system for payment by an overseas buyer on presentation. Exporter prepares
a bill of exchange (which looks something like a cheque) which is drawn on an overseas buyer, or even
on a third party as designated in the export contract, for the sum agreed as settlement.
5. Letter of Credit - A letter of credit is a written undertaking by a bank, the issuing bank, to the seller,
the beneficiary in accordance with the instructions of the buyer, the applicant, to effect payment upto a
prescribed amount, within a prescribed time period against prescribed documents, provided these are
correct and in order i.e. they conform with the instructions of the applicant.
Revocable and Irrevocable Letter of Credit: A revocable letter of credit is rather rare now-a-days
because it means that the terms of the credit can be cancelled or amended by an overseas buyer without
prior notice to the exporter.
irrevocable which means that once buyer's conditions in the letter have been agreed by an exporter,
they constitute a definite under taking by the buyer's bank and cannot be revoked without the exporter's
agreement.
Confirmed and Unconfirmed Letter of Credit: A confirmed letter of credit carries the confirmation
of another bank, generally, in the country of the exporter. Such confirmation, added at the request of the
issuing bank, binds the confirming banker to negotiate the drafts drawn under the credit provided the
terms and conditions thereof are fulfilled.
Without Resource and with Resource: A `without recourse to drawer' letter of credit is one under
which the negotiating bank cannot have a recourse against the exporter if the draft is subsequently not
taken up or reimbursed by the issuing bank provided, of course, the negotiation is without recourse.
Sight and Usance: Documentary credit may provide for payment at sight or for acceptance of a usance
bill of exchange by either issuing bank in a buyer's country or the correspondent bank in exporter's
country.
Transferable: A transferable letter of credit is one which can be transferred by the beneficiary named
therein in favour of another party. A credit can be transferred only if it is expressly designated as
transferable by the issuing bank.
Straight and Negotiation Credit: A negotiation credit enables either a specifically nominated bank (or
any bank, if the words "Freely negotiable by any bank" are used in the credit) to check the documents
and, if they are in order, to pay them less the interest for the time it will take to obtain reimbursement
from the issuing bank.
Revolving Letter of Credit: A revolving letter of credit is one which revolves to its face value as soon
as the bill negotiated under the credit is paid. Letters of credit can be made revolving on certain other
conditions, e.g. negotiation of draft without waiting for the bill to be paid, at fixed periods-say monthly
or every quarter, etc.
Red Clause Credits: Red clause credits contain an authorization by the issuing bank to the advising or
confirming bank to make advances to the beneficiary before presentation of documents. The description
red clause arises from the colour of the ink that is used to draw attention to the credit's special
condition..
Green Clause Credit: Green clause credit is similar to red clause but advance is given only against a
warehouse receipt given by the beneficiary.
Back to Back Letter of Credit: A letter of credit issued on the strength of another letter of credit. It is
in effect, an extension of the terms and conditions of the backing credit. Usually, the beneficiary, under
such credit is a supplier to the beneficiary of the backing credit.
6. Bill of Lading- Bills of lading are prepared by the shippers on printed forms supplied by the
shipping company concerned and necessary particulars are entered therein the blank spaces provided for
the purpose. Normally, a bill of lading shows the date of shipment., port of shipment, name of the
carrying vessel, name of the consignor, consignee and notify party, port of discharge, number, contents
and identification marks of packages and goods shipped, and the amount of freight `paid' or to 'pay'.
Bills of lading are normally issued in sets of four
7. Airway Bill - In air carriage, the transport document is known as the Air Way Bill (AWB) or Air
Consignment Note. The AWB merely evidences the air carrier's receipt of the goods on the terms of the
contract of carriage and does not represent the goods/title of goods.
8. Combined Transport Document - Exporters situated in interior parts of the country face the
problem of delay in submitting shipping' documents pertaining to the exports made by them to their
bankers for negotiation as they have to depend on their shipping agents functioning at sea ports to
obtain, shipping documents, especially, the marine bill of lading.
9. GR/PPNPP/COD/SOFTEX Forms - [Link] are issued by Reserved Bank of India to regulate
and monitor foreign exchange transactions against export of goods under physical forms. Exporter has
to collect blank [Link] from RBI. The forms are in duplicate. PP forms are used under export
through Post office. If you effect shipment through post office, PP form need to be filed up by exporter
duly signed and sealed. SOFTEX forms are to be filed with STPI to regulate inward outward remittance
by Reserve Bank under export of goods in non-physical form, either domestic or offshore. The products
includes computer software, export of Video and TV software and all other types of software products
and packages which are falling under goods of nonphysical form.
10. Export Inspection Certificate -The Export Inspection Council (EIC) is the official export –
certification body of India which ensures quality and safety of products exported from India
11. AR4/AR5 Forms - The exporters prepare six copies of AR4/AR5 forms. The exporters are now
allowed to remove the goods for export on their own without getting the goods examined or after the

examination by the Central Excise Officers.

12. Shipping Bill - Shipping bill is the main document on the basis of which the customs office gives
the permission for export. Shipping bill contains particulars of the goods being exported, the name of
the vessel, the port at which goods are to be discharged, country of final destination, exporter's name
and address, and so on. Exporter prepares the shipping bill for obtaining customs clearance. Thus, we
can say that the shipping bill is the bill which is prepared by the exporter and required for the customs
clearance.
13. Certificate of Origin- A Certificate of Origin (CO) confirms the 'nationality' of a product and
serves as a declaration to satisfy customs or trade requirements. COs are mostly required for customs
clearance procedures to determine duties or legitimacy of imports
14. Shipment Advice- A shipment advice is a commercial document , which is issued by the exporter,
who is the beneficiary of the letter of credit, in order to give shipment details to the importer, who is the
applicant of the letter of credit
15. Consular Invoice-A consular invoice is a document specifying the contents and details of a
shipment certified by the consul of the country the merchandise is being sent to. Customs officials use
the invoice to confirm what's in the shipment, the number of goods, and the cost—and thus determine
the import duty.
Auxiliary Documents -These documents may be required for the preparation or procurement of some
of the principal documents or for arranging some of the preliminaries in effecting shipment of goods,
such as giving shipping instructions to freight forwarders, arranging preshipment inspections, marine
insurance cover, shipping space, procurement of bills of lading etc. Documents normally required are:
1. Shipping Instructions Form
2. Application for Export Inspection Agency
[Link] Order
[Link] Receipt and
[Link].

EXPORT IMPORT PROCEDURE 2023-24

Export-Import in India FY 2023: Trends and Key Procedures- Procedure to set up an export-import
unit in India

 Establishing a unit: To start the export business, first a sole proprietary concern, partnership
firm, or a company has to be set up as per procedure.
 Opening a bank account: A current account with a bank authorized to deal in foreign exchange
should be opened.
 Obtaining permanent account number (PAN): It is necessary for every exporter and importer
to obtain a PAN from the Income Tax (IT) Department.
 Obtaining importer-exporter code (IEC) number: As per the FTP, it is mandatory to obtain
the IEC for export and import from India. An application for IEC is filed online with
the DGFT as per ANF 2A, and an online payment of application fee of INR 500 through net
banking or credit/debit card must be made along with submission of requisite documents as
mentioned in the application form.
 Registration cum membership certificate (RCMC): Exporters are required to obtain RCMC
granted by the concerned Export Promotion Councils (EPCs), Federation of Indian Export
Organization (FIEO), Commodity Boards, or authorities in order to avail authorization to export-
import or any other benefit or concession under FTP 2015-2020. RCMC is also required to avail
the services and guidance from EPCs.
 Covering risks through ECGC: Risks involved in international trade owing to buyer or
country insolvency can be covered by an appropriate policy from the Export Credit Guarantee
Corporation Ltd (ECGC). Where the buyer is placing order without making advance payment or
opening Letter of Credit, it is advisable to procure credit limit on the foreign buyer from ECGC
to protect against risk of non-payment.
Export-import documentation in India

All the export or import applications must be filed with the DGFT. As per the Foreign Trade Policy
2015-20, following are the mandatory documents needed for an EXIM unit to export or import from
India:

Mandatory documents for export and import in India

Export Import

Bill of Lading, Airway Bill, Lorry Receipt,

Bill of Lading, Airway Bill, Lorry
Railway Receipt, Postal Receipt in Form CN-22 or
Receipt, Railway Receipt, Postal Receipt
CN-23

Commercial Invoice cum Packing list Commercial Invoice cum Packing list

Shipping Bill, Bill of Export, Postal Bill

Bill of Entry
of Export

Apart from the above-mentioned mandatory documents, additional documents like certificate of origin
and inspection certificate may be required on case-to-case basis.

Other important export import procedures and documentation include the following:

 GST Return Forms (GSTR 1 and GSTR 2) and GSTR Refund Form
 Exchange Control Declaration
 Bank Realization Certificate
 RCMC

Import Procedure in India

Obtaining import license and quota-The importer must attach the following documents to their
application form:

 Receipt which shows that import license fee has been paid.
 Certificate from a Chartered Accountant (CA) showing the total value of goods to be imported.
 Verification certificate for income tax

The Indian Trade Classification – Harmonized System (ITC-HS) allows for the free import of most
goods without a special import license. Most items fall within the scope of India’s export-import policy
regulation of Open General License. This means that products can be freely importable without
restrictions and without a license unless they are regulated by the provisions of the policy or applicable
laws. However, certain goods that fall under the following categories require special permission or
licensing.

Imports of items not covered by Open General License are regulated and fall into three
categories:

 Banned or prohibited items: These goods are strictly prohibited from import and include
tallow fat, animal rennet, wild animals, and unprocessed ivory.
 Restricted items requiring an import license
 Canalized items: Canalized items can only be imported via specific transportation channels and
methods or through government agencies such as the State Trading Corporation (STC). These
include petroleum products, bulk agricultural products, such as grains and vegetable oils, and
some pharmaceutical products.

Following authorities are responsible for issuing import license for respective commodities:

 Department of Electronics for computer and computer-related systems

 Department for the Promotion of Industry and Internal Trade (DPIIIT – Technical Support
Wing) for organized sector units registered under it, except for computers and computer-based
systems
 Ministry of Defense for defense-related items
 DGFT for small-scale industries not covered above

Obtaining foreign exchange

Before placing any order, the importer must apply to the Exchange Control Department (ECD) of
Reserve Bank of India (RBI) for the release of requisite foreign exchange. The importer should forward
the application through their bank. The ECD verifies the application of the importer, and if found valid,
sanctions the foreign exchange for the particular transaction.

Placing an order-

The importer may either place the order directly or through an agent. In case of canalized items, they
must obtain the imports through the canalizing agency. The importer cannot directly import such
canalized items. They have to place an order with the canalizing agency who shall import and supply
the same.
Dispatching Letter of Credit: After getting the confirmation from the supplier regarding the supply of
goods, the importer requests their bank to issue a Letter of Credit in favor of the supplier.

Appointing clearing and forwarding agents

The importer must make arrangements to appoint clearing and forwarding agents to clear the goods
from the customs.

Receipt of shipment device

At this stage, the importer receives the shipment advice from the exporter, which states the date on
which the goods are loaded on the ship. This shipment advice helps the importer to make arrangements
for clearance of goods.

Receipts of documents

The importer’s bank receives the documents from the exporter’s bank. These documents include bill of
exchange, a copy of Bill of Lading, certificate of origin, commercial invoice, consular invoice, packing
list, and other relevant documents. The importer makes payment to the bank (if not paid earlier) and
collects the documents.

Bill of Entry-Every importer is required to begin by submitting a Bill of Entry under Section 46 of the
customs Act, 1962. This document certifies the description and value of goods entering the country. The
Bill of Entry should be submitted as follows:

 The original and duplicate for customs

 A copy for the bank
 A copy for the importer
 A copy for making remittances

Under the Electronic Data Interchange (EDI), no formal Bill of Entry is required (as it is recorded
electronically) but the importer is required to file a cargo declaration after prescribing particulars
required for the processing of the entry for customs clearance. Bills of entry can be one of three types:

 Bill of Entry for home consumption: This form is used when the imported goods are to be
cleared on payment of full duty. Home consumption means use within India. It is white colored
and hence often called the ‘white Bill of Entry’.
 Bill of Entry for warehousing: If the imported goods are not required immediately on arrival at
port, importers may store the goods in a warehouse without the payment of duty under a bond
and clear them from the warehouse when required on payment of duty. This enables the
deferment of payment of the customs duty until goods are actually required. This Bill of Entry is
printed on yellow paper and is thus often called the ‘yellow Bill of Entry’. It is also called the
‘into bond Bill of Entry’ as the bond is executed for the transfer of goods in a warehouse without
paying duty.
 Bill of Entry for ex-bond clearance: The third type is for ex-bond clearance. This is used for
clearance from the warehouse on payment of duty and is printed on green paper.

Extra documentation may be required if a Bill of Entry is filed without using the Electronic Data
Interchange system. These are:
  Signed invoice
 Packing list
 Bill of Lading or delivery order/air waybill
 GATT declaration form
 Importer/CHA declaration
 Import license wherever necessary
 Letter of Credit/bank draft
 Insurance document
 Industrial license, if required
 Test report, in case of chemicals
 Ad hoc exemption order
 Duty Exemption Entitlement Certificate (DEEC) / Duty Entitlement Pass Book (DEPB) in
original, where applicable
 Catalogue, technical write up, literature in case of machineries
 Spares or chemicals as may be applicable
 Separately split up value of spares, components, and machinery
 Certificate of Origin, if preferential rate of duty is claimed

Delivery order

The clearing agents obtain the delivery order from the office of the shipping company. Once the
payment of freight, if any, is completed

Clearing of goods

The clearing agents are required to pay the necessary dock or port trust dues and obtain the Port Trust
Receipt in two copies. Thereafter, the clearing agent approach the Customs House and presents one
copy of Port Trust Receipt and two copies of Bill of Entry to the customs authorities. The customs
officer endorses the Bill of Entry Forms and one copy of Bill of Entry is handed back to the importer.
The importer then pays the customs duty and clears the goods. In case, the customs duty is not paid,
then the goods are stored in the bonded warehouses. As and when the duty is paid, the goods are cleared
from the docks.

Payment to clearing and forwarding agent

Once the goods have been cleared from the docks, the importer makes the necessary payment to the
clearing agent for his various expenses and fees.

Payment to exporter

The importer is obligated to make payment to the exporter who usually draws a bill of exchange. The
importer has to accept the bill and make payment.

How to export goods from India?/ Export Order processing

Once an exporting unit has been incorporated and an IEC and RCMC has been obtained, exporters must
also get inspection certifications. According to the Export (Quality and Inspection) Act of 1963, it is
critical to ensure the effective functioning of India’s export trade. The Indian Export Inspection Council
will assist in obtaining inspection certificates.
The following steps must be followed to successfully export products from India.

Authorized Dealer (AD) Code registration

AD code must be registered with any scheduled commercial bank in India before filing any export bill.
The scheduled bank will generate the AD code using the IEC code. In addition, the exporter must
register their IEC and AD codes with customs officials. The AD code is used to determine whether or
not export proceeds have been realized.

Goods and Services Tax (GST) registration

Every exporter can register with their GSTIN in Part A of Form GST REG-01 on the shared platform,
regardless of their turnover. Exports of goods and services are classified as zero-rated supplies under
GST. If GST is paid at any point of supply against exports from India, a trader may either export
without the payment of IGST under bond or letter of undertaking, or may pay the IGST and claim
refund later.

Product and market selection

Apart from a few goods on the restricted or prohibited list, the rest of the products can be freely
exported. Following a thorough examination of the trends in the export of various items from India, a
proper selection of the product(s) to be exported can be made. Furthermore, after researching market
size, competition, quality criteria, payment arrangements, etc., the overseas market should be chosen.

Identifying buyers and providing sample products

Participation in trade fairs, buyer-seller meetings, exhibitions, business-to-business (B2B) portals, and
web browsing are efficient mechanisms to locate buyers. Export Promotion Councils (EPCs), and
overseas chambers of commerce can also assist in securing potential target buyers. Once they have been
identified, providing customized samples to meet the needs of foreign buyers can assist in the gaining
of export orders. FTP 2015-2020 provides for unlimited exports of genuine trade and technical
specimens of freely exportable commodities.

Obtain the services of a freight forwarder

The goods can be transported by sea, land, or air. The following three factors determine the freight
rates:

 Mode of transport
 Port of arrival
 Quantity of shipment

Proforma invoice (PI)

Following the initial discussion with the customer, the exporter should send the buyer a proforma
invoice with details such as quality, goods description, payment method, mode of shipping, packing
material etc. When the buyer receives the proforma invoice, they must approve it before moving on to
the next phase.
Shipping instructions (SI)

Depending on the nature of the goods, they must be shipped according to specified guidelines. Items
which are hazardous, perishable, etc. must be shipped following various international treaties. The
freight forwarder provides shipping instructions after learning about the many aspects of the shipment.

Commercial invoice (CI)

A commercial invoice is similar to a standard sales invoice and should be prepared when the buyer has
confirmed the export order.

Labeling, packing, and marking

Export items must be labelled, wrapped, and packed following the buyer’s precise instructions. Address,
package number, port and place of destination, weight, handling instructions, and other markings offer
identification and information about the cargo packed.

Certificate of origin

While clearing customs, the customs authority seeks the certificate of origin, which establishes the
product’s origin. The name and address of the exporter, characteristics of the goods, package number or
shipping marks, and quantity, if applicable, are generally included on a certificate of origin.

Shipping bill

A shipping bill is generated when the commercial bill, PI, or other documents are submitted. The
shipping bill must then be lodged with the appropriate port. The shipment bill can be submitted via the
ICE gate website. Following receipt of the shipping bill, the assessing officer must verify the accuracy
of the information supplied and the exportability of the products as per procedure.

Let export order (LEO)

Once the evaluating officer is satisfied, a Let Export Order will be issued.

Loading of goods in container

The shipping bill and LEO must be provided to the shipping agent, who will then contact the Proper
Officer to request shipping permission. Customs officials supervise the loading of commodities onto the
ship.

Bill of Lading (BL)

After the items have been loaded, the carrier vessel issues a BL. It specifies the items’ name, means of
transportation, mode of payment, and packing content, among other things. BL will be given to the
buyer of the products to claim the items when they arrive in their country.

Insurance
A marine insurance policy covers the danger of loss or damage to the products while they are in transit.
Exporters generally arrange insurance for CIF contracts, whereas buyers obtain insurance for cost and
freight (C&F) and Free On Board (FOB) contracts.

Export general manifest (EGM)

Within a week of the cargo sailing, shipping lines or agents submit the EGM to customs. The EGM
contains a list of all goods loaded or present on the ship as it sailed away from the port and serves as the
final confirmation of the goods’ physical export. This also aids in the approval of duty exemptions.

Submission of documents to bank

Following shipment, the paperwork must be presented to the bank within 21 days for forwarding to the
foreign bank for payment arrangements.

The following documents should be submitted:

 Invoice
 Packing List
 Airway Bill/Bill of Lading
 Bill of exchange
 Certificate of origin
 Declaration under Foreign Exchange
 Letter of Credit

Document transmission from bank to bank

The negotiating bank will examine the shipping documents and forward them to the importer’s banker
so that they can clear the consignment. It is expected of such authorised dealers to assure receipt
of export proceeds, which must be communicated to the RBI by quarterly returns.

Receipt of bank certificate

Once payment is received, authorised dealers will issue bank certificates to the exporter, and only with
the issuance of the bank certificate will the export transaction be completed. Exporters are required to
negotiate shipping documentation exclusively through approved Reserve Bank dealers. Only through
this system can the RBI secure receipt of export revenues for products transported out of the country.

3.2Export contract
Export contract or sales contact has no specific format. Export contacts is a sum total of terms and
condition with buyer and seller or importer and exporter. In internationally there is no standard format
regarding sales contract. Export contract may be vary from buyer to buyer and seller to seller, individual
to individual. Elements of export contract or sales contracts depend upon the various natures of
products. Export contract is used for the international sale of certain products (industrial supplies, raw
materials, manufactured goods), which are predictable for sale, where the buyer is a trader, importer,
distributor or wholesaler that will sell the products to another company or merchant.
 Some of the elements of the export contract are common. These elements are:

1. Name and addresses of the parties: Mention clearly and fully the parties to the contract.(i.e. importer
and exporter, buyer and seller).

2. Product, standards and specifications: State the product name, technical names (if any); sizes in
which the product is to be supplied (if relevant); applicable national or international standards and
specifications; specific buyer requirements; and sample specifications etc.

3. Quantity: Specify units of measure in both figures and words.

4. Inspection: State the nature, manner and focus of the envisaged inspection, and the inspection agency.
A number of goods are now subject to pre-shipment inspection by designated agencies, and foreign
buyers may stipulate their own inspection agencies and conditions for inspection.

5. Total value: State the total contract value in words and figures, and specify the currency.

Terms of delivery: Specify the delivery terms, based on one of the Incoterms 1990.

Note: a new version of Incoterms will be applicable 1 January 2000.

EXW"- Ex Works
Title and risk pass to buyer including payment of all transportation and insurance cost from the seller's
door. Used for any mode of transportation Seller . In EXW shipment terms the Seller (Exporter)
provides the goods for collection by the Buyer (Importer) on the seller or exporter's promise.
Responsibility for the seller is to put the goods, in a good package which is adaptable and disposable by
the. transport.
Buyer : The buyer or Importer arranges insurance for damage transit goods. The Buyer or importer has
to bear all costs and risks involved in shipment transactions.

"FCA"- Free Carrier named point

"FCA"- Free Carrier named point: Title and risk pass to buyer including transportation and insurance
cost when the seller delivers goods cleared for export to the carrier. Seller is obligated to load the goods
on the Buyer's collecting vehicle;
"FAS"- Free Alongside Ship
FAS- Free Alongside ship: Title and risk pass to buyer including payment of all transportation and
insurance cost once delivered alongside ship by the seller. Used for sea or inland waterway
transportation. The export clearance obligation rests with the seller.

In FAS has price includes all the costs incurred in delivering the goods alongside the vessel at the port
or nominated place of the buyer but there is not applicable charges to the seller for loading the goods on
board of vessel and no ocean freight charges and marine insurance.

"FOB" - Free On Board

 The FOB (Free on Board) price is inclusive of Ex-Works price, packing charges, transportation charges
upto the place of shipment., Seller also responsible for o clear customs dues, quality inspection charges,
weight measurement charges and other export related dues. It is important that the shipment term in the
Bill of Lading must carry the wording "Shipped on Board' it must bear with signature of transporter or
carrier or his authorized representative with the date on which goods were "Boarded".

"CFR"- Cost And Freight

In this term the exporter bears the cost of carriage or transport to the selected destination port, in this
term the risk transferable to the buyers at the port of shipment.
"CIF"- Cost, Insurance And Freight
CIF- Cost, Insurance and Freight: Title and risk pass to buyer when delivered on board the ship by seller
who pays transportation and insurance cost to destination port. Used for sea or inland waterway
transportation.
"CPT"- Carriage Paid To
CPT- Carriage Paid To: Title, risk and insurance cost pass to buyer when delivered to carrier by seller
who pays transportation cost to destination. Used for any mode of transportation.

CIP- Carriage and Insurance Paid To: Title and risk pass to buyer when delivered to carrier by seller
who pays transportation and insurance cost to destination. Used for any mode of transportation..

"DAF"- Delivered At Frontier

DAF- Delivered At Frontier: Title, risk and responsibility for import clearance pass to buyer when
delivered to named border point by seller. Used for any mode of transportation.

DES"- Delivered Ex-Ship

DES- Delivered Ex-Ship: Title, risk, responsibility for vessel discharge and import clearance pass to
buyer when seller delivers goods on board the ship to destination port. Used for sea or inland waterway
transportation.

DEQ"- Delivered Ex-Quay

DEQ- Delivered Ex-Quay: Title and risk pass to buyer when delivered on board the ship at the
destination point by the seller who delivers goods on dock at destination point cleared for import. Used
for sea or inland waterway transportation.

"DDU"- Delivered Duty Unpaid

DDU- Delivered Duty Unpaid: Seller fulfills his obligation when goods have been made available at the
named place in the country of importation.

"DDP"- Delivered Duty Paid

DDP- Delivered Duty Paid: Title and risk pass to buyer when seller delivers goods to the named
destination point cleared for import.

7. Taxes, duties and charges: Clarify responsibility for all taxes. The prices quoted by the seller may be
inclusive of taxes, duties, and charges.
8. Delivery: Specify the place of dispatch and delivery. Also state whether the period of delivery will run
from the date of the contract, from the date of notification of the issue of an irrevocable letter of credit,
or from the date of receipt of the notice of issuance of the import license by the seller.

9. Shipment: Part-shipment, trans-shipment and consolidation of cargo. State whether the parties to the
contract have agreed on part-shipment or trans-shipment. Indicate the port of trans-shipment and the
number, if any, of partial shipments agreed.

10. Packing Standard: Packaging, labelling and marking. Note all packaging, labelling and marking
requirements in the contract.

11. Terms of payment: amount, mode and currency. When quoting different payment terms, the exporter
should specify whether the prices are based on the current rate of exchange of in-country currency, or
on the basis of another currency (such as US dollars).

12. Discounts and commissions: Specify the amount of discount or commission to be paid and by
whom (by the exporter or by the importer). Stipulate the basis of calculation of commission and rate to
be applied. Discount or commission rates may or may not be included in the export price agreed upon
by the exporter and importer.

13. Licenses and permits: State whether the export transaction will require any export or import
licenses, and whose responsibility and expense it will be to obtain them. Import licenses may be
difficult to obtain in the buyer’s country.

14. Insurance: A contract should provide for the insurance of goods against loss, damage, or
destruction during transportation. Specify the type of risk covered and the extent of coverage.

15. Require Documents: Documents needed for international trade transactions fall into four
categories:

– Documents for export and subsequent import of goods.

– Documents for the buyer to take delivery of the goods.
– Documents relating to payment.
– Special documents required by the nature of the goods, and conditions of sale (e.g., certain engineering
goods may involve documents relating to construction, repair and maintenance).
Common export documents include the bill of exchange; commercial invoice and other invoices; bill of
lading or airway bill; insurance policy; and letter of credit.

16. Product guarantee: Fixed up and specify the length of the period of guarantee.

17. Delay in delivery: Define the damages due to the buyer from the seller in the event of late
delivery owing to reasons other than force majeure.

18. Force majeure or excuse for non-performance of contract: Include provisions in the contract
defining the circumstances which would relieve partners of their liability for non-performance of the
contract. Such provisions are called force majeure and are intended to identify the relief which may be
 available to either party to the contract should supervening circumstances occur during the period of
validity of the contract.

19. Counteractive action: As defaults in contractual obligations by any of the parties can occur, it is
always advisable to include in the sale or purchase contract certain specific remedial actions. These
remedial actions should reflect the mandatory provisions of the law applicable to the contract.

20. Applicable law: Specify the law of the country which is to govern the contract.

21 Arbitration: Include an arbitration clause to facilitate amicable and quick settlement of disputes or
differences that may arise between the parties.

22. Signature of the parties: The signing of the contract indicates the agreement of both parties
to the terms and conditions of the contract.

3.3 Methods of payment in international trade The most common

methods of payment in international trade include:
[Link] In Advance

The safest method of payment in international trade is getting cash in advance of shipping the goods
ordered, whether through bank wire transfers, credit card payments or funds held in escrow until a
shipment is received. While cash in advance is the most desired by exporters, especially in situations
where the risks of non-payment are high, it is often much less desired by customers.

Exporters prefer cash in advance before shipping orders because there is no risk of default. They will
also have the cash in hand if there is any problem with the order or the customer is unhappy or a
shipment is damaged. The main drawback of cash in advance is that many customers may not want or
be able to afford to pay in advance.

b. Letters of Credit
A Letter of Credit (L/C) is a formal document issued by a bank that guarantees that the buyer will make
a payment to the seller, provided that the seller meets all the requirements specified in the letter.
The risk diagram below shows payment methods with a two-way risk-trust relationship for buyers and
sellers. While the letter of credit is the most reliable payment method for both the seller and the buyer,
it's not suitable for companies with no credibility or for low-cost trades due to the costs involved.

[Link] against Documents (CAD)

When importing or exporting goods, businesses often use a method of payment called cash against
documents (CAD) under this arrangement, the buyer pays the seller after they have received the
documents that prove ownership of the goods, such as the bill of lading or the bill of exchange.
D. Acceptance Credit

Acceptance credit is when an importer takes out a loan from a bank to pay for the goods they have
purchased. The loan is then repaid by the importer to the bank, with interest, over time.

Acceptance credit is popular because it allows importers to finance their purchases and spread out the
cost of repayment over time. There are three main types of acceptance credit:

 Letter of Credit with Acceptance Credit — a form of payment that allows the shipping
documents to be paid on the policy maturity by releasing the shipping documents, following the
acceptance of the policy presented with these documents by the importer's bank or the
correspondent bank

 Against Documents with Acceptance Credit — in this form of payment, the importer pays the
exporter on the policy maturity, after the subsequent bank delivers the shipping documents and
the attached policy

 Against Goods with Acceptance Credit — after the importer receives the goods and accepts
the policy, they pay the exporter on the policy maturity

E. Consignment

Consignment is a method of payment for goods whereby the seller does not receive payment until after
the buyer resells the goods.

While the exporter (seller) retains ownership of the goods until they are sold, it's important to note that
the buyer has control over the goods during this time. If the buyer does not resell the goods, the
exporter will not be paid.
3.4 FEMA: Provisions of Foreign Exchange Management Act
It is a set of regulations that empowers the Reserve Bank of India to pass regulations and enables the Government
of India to pass rules relating to foreign exchange in tune with the foreign trade policy of [Link] replaced
an act called Foreign Exchange Regulation Act (FERA) as FERA did not comply with the post-liberalization
policies of the Government.

FERA (Foreign Exchange Regulation Act) legislation was passed in 1973. It came into effect on january 1, 1974.
FERA was passed to regulate the financial transactions concerning foreign exchange and securities. FERA was
introduced when the Forex reserves of the country were very low.
What is FEMA?

The Foreign Exchange Management Act, 1999 also known as FEMA is an enactment which deals primarily with
the provisions relating to cross-border trade and payments thereof. It defines the procedures, formalities, dealings
of all foreign exchange transactions in India. FEMA has been introduced as a replacement for earlier Foreign
Exchange Regulation Act (FERA) because it didn’t fit in with post-liberalisation policies. FEMA head office is
known as Enforcement Directorate and is situated in heart of city of Delhi.

OBJECTIVE-The main objective of FEMA

1. To help orderly development and maintenance of foreign exchange market in India.

2. To facilitate transactions involving foreign exchange or foreign security and payments from
outside the country to India only through an authorised person.
3. To encourage dealings in foreign exchange under the current account through an authorised
person and to keep restrictions with the help of Central Government, based on public interest.
4. To authorise Reserve Bank of India to subject the capital account transactions to a number of
restrictions.
5. To carry out transactions in foreign exchange by residents of India, foreign security or to own or
hold immovable property abroad if the currency, security or property was owned or acquired
when resident was living outside India, or when it was inherited by that resident from someone
living outside India.
[Link]: These include the export and import of all types of tangible goods. These are called
‘visible’, as they can be touched, seen, felt, and measured. The movement of visible items is open and
is verifiable through customs officials.
2. Invisible: These include the export and import of services, like software services, insurance,
shipping, banking, etc. These are called ‘invisible’, as they cannot be touched, seen, felt, or
measured.
3. Capital Transfers: These include capital receipts and capital payments. Receipts that increase
financial liabilities or decrease financial assets are known as capital receipts. For example, the sale of
assets or borrowing. In both cases, there is an inflow of cash. Capital Payments comprise an outflow
of cash. For example, the purchase of assets or repayment of the loan.
4. Unilateral Transfers: These are one-sided transactions that include the transfer of goods and
services without any claims for repayment. For example, a child studying abroad sends gifts to her
parents. It also considers grants and donations that one government sends to other foreign
governments.

APPLICABILITY -

FEMA is applicable to all parts of India. It is also equally applicable to the offices and agencies
which are located outside India however is managed or owned by an Indian Citizen.
As per Section 1(2) of FCRA Foreign Contribution (regulation) Act, 2010, Foreign Exchange
Management Act, 1999 is applicable to the following entities and transactions:

1. Any citizen of India, residing in the country or outside (NRI)

2. Any overseas company that is owned 60% or more by an NRI (Non-Resident Indian)
3. Any Associate Branches or subsidiaries, outside India, of companies or bodies corporate,
registered or incorporated in India
4. Exports of any goods and services from India, foreign currency, that is any currency other than
Indian currency, foreign exchange, foreign security,
5. Imports of goods and services from outside India to India,
6. Banking, financial and insurance services provided outside India,
7. Cross-border sale, purchase and exchange of any kind (i.e. Transfer).

IMPORTANT PROVISIONS OF FEMA ACT 1999:

1. FEMA allows free transactions on current account subject to reasonable restrictions that may be imposed.
(Section 5)
2. RBI controls over capital account transactions. (Section 11)
3. It allows Control over realization of export proceeds. (Section 7 and 8)
4. It allows dealing in foreign exchange through authorized persons like authorized dealer or money
changer, AD Category banks etc. (Section 10)
5. It provides appeal provision including Special Director (Appeals) (Section 17)
6. It is governed by Directorate of enforcement. (Section 36)
7. FEMA recognized the possibility of Capital Account convertibility. (Section 6)
8. The violation of FEMA is a civil offence. (Section 13)

3.5 Procedure and documentation for availing export

incentives.
Export incentives are provided to exporters as an acknowledgement for bringing in foreign exchange,
and to compensate for the infrastructural obstacles and costs that they face. India’s Foreign Trade Policy
(FTP) 2015-20 highlights various export incentives made available by the government through
the Directorate General of Foreign Trade (DGFT), as updated and extended till Sept 2021.
TYPES OF INCENTIVES

Exports from India scheme

Merchandise Exports from India Scheme (MEIS) & Service Exports from India
Scheme (SEIS)

 This export incentive scheme can be subdivided into the merchandise and services sector. Under
MEIS, the export of notified goods to notified markets is rewarded on realised FOB value of
exports in free foreign exchange or on FOB value of exports as given in the shipping bills in
freely convertible foreign exchange, whichever is lower.
 MEIS rewards are available on the export of goods through courier or international post on
consignments of FOB value of up to Rs. 5 lakh. Under SEIS, service providers of eligible
services are entitled to duty credit scrips at notified rates on the net foreign exchange earned.
Free foreign exchange remittance received through international credit cards and other
instruments are also taken into account while computing the value of exports.

Here are some incentives commonly available under MEIS and SEIS:
 Under the export incentives, exporters will be able to file their pending claims from FTP 2009-
14 during the FTP 2015-20 regime. This is known in FTP parlance as a ‘transitional
arrangement’.

 Under the CENVAT credit/drawback rules, any additional duty or central excise duty paid in
cash or through duty credit scrips will be adjusted as CENVAT credit or duty drawback. On the
other hand, basic customs duty paid is adjusted as duty drawback.

 Exporters can utilise duty credit scrips on the payment of duty in case of import of capital goods
under lease financing.

 MEIS rewards can be claimed either by the supporting manufacturer, along with a disclaimer by
the entity realising the foreign exchange, or by the entity realising foreign exchange from
overseas itself.

 Duty credit scrips are rewards offered under both MEIS and SEIS. These can be utilised to pay
basic customs duty, additional customs duty, and central excise duties paid on domestic
procurement. It can be utilised for payment of customs duties in case of Export Obligation (EO)
defaults for authorisation, payment of composition fee and application fee under FTP, and for
payment of value shortfall in EO.
 Status holder recognition is conferred on the basis of export performance, with export houses
being rated from one to five stars. Status holders are eligible for various additional privileges.
Double weightage is given to the following IEC holders in export performance calculation for
granting status:

 Micro, Small, and Medium Enterprises (MSMEs)

  Manufacturing units with ISO/BIS certification

 Units located in J&K and the north-eastern states

 Units located in agri export zones

Duty exemption/remission schemes-These allow duty-free import of inputs for

export production, and include the following duty exemption schemes:

Advance Authorisation Scheme

Advance authorisation allows duty-free import of inputs that get physically incorporated into the export
product. This may include oil, fuel, and catalysts. The value addition of the inputs is measured as per
standard input-output norms, based on which the exemption is provided.

Advance License for Annual Requirement

It is issued on the basis of annual requirement of an exporter for physical exports, intermediate supplies
or deemed exports. Advance License for annual requirement is entitled only for One to Five Star Export
Houses.

Duty-free import authorisation

Duty-free import authorisation allows duty-free import of inputs on the basic customs duty portion of
duty. Additional customs/excise duties will be adjusted as CENVAT credit.

Duty drawback scheme

Duty Drawback Scheme aims to provide a refund to exporters on the customs and excise duties paid on
inputs and raw materials or services for use in the production of export products. The re-export of the
imported goods should happen within a stipulated time to be eligible for the drawback. The drawback is
reversed if the sale proceeds are not received within a stipulated time.

RoSCTL

Rebate on state and central taxes and levies (RoSCTL) offers benefits to made-up articles and garment
exporters in the form of duty credit scrips. It was devised in the wake of complaints from the US to the
WTO about India’s export incentive schemes. This scheme will eventually be made available beyond
the textile industry.

Export promotion capital goods scheme

Zero duty EPCG scheme

Export Promotion Capital Goods Scheme (EPCG) facilitates the import of capital goods to India to
improve the country’s production quality and competitiveness. Import of capital goods is allowed at the
pre-production, production, and post-production stages at zero customs duty. These too are exempt from
integrated goods and services tax (IGST) and compensation cess.
EOU/EHTP/STP/BTP Schemes

Additionally, the FTP 2015-20 also extends export benefits to the production of goods and services
made in Export-Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs), and Bio-Technology Parks (BTPs).
Other Export Benefits in India
 Towns of Export Excellence
 Gold Card Scheme
 Export of Goods under Bond
 Market Access Initiative (MAI) Scheme
 Marketing Development Assistance (MDA) Scheme
 Status Holder Scheme

3.6 Ethics in International Business  Code of conduct for MNCs

Business Ethics
Business ethics are the accepted principles of right or wrong governing the conduct of business people
An ethical strategy is a strategy or course of action that does not violate these accepted principles
Many of the ethical issues and dilemmas in international business are rooted in the fact that political
systems, law, economic development, and culture vary significantly from nation to nation
In the international business setting, the most common ethical issues involve
a. Employment practices
b. Human rights
c. Environmental regulations
d. Corruption
e. Moral obligation of multinational corporations.
Employment practices
Ethical issues associated with employment practices abroad [Link] work conditions in a host
nation are clearly inferior to those in a multinational’s home nation, what standards should be applied?
While few would suggest that pay and work conditions should be the same across nations, how much
divergence is acceptable?

Human rights

Questions of human rights can arise in international business because basic human rights still are not
respected in many nations. Rights that we take for granted in developed nations, such as freedom of
association, freedom of speech, freedom of assembly, freedom of movement, and freedom from
political repression are by no means universally accepted
The question that must be asked of firms operating internationally is: ‘What is the responsibility of a
foreign multinational when operating in a country where basic human rights are trampled on?’
[Link]
[Link]

The Universal Declaration of Human Rights

Article 1. All human beings are born free and equal in dignity and rights. They are endowed with
reason and conscience and should act towards one another in a spirit of brotherhood.

Article 2. Everyone is entitled to all the rights and freedoms set forth in this Declaration, without
distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national
or social origin, property, birth or other status.

Article 3. Everyone has the right to life, liberty and security of person.

Article [Link] one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in
all their forms.

Article [Link] one shall be subjected to torture or to cruel, inhuman or degrading treatment or
punishment.

Article 6. Everyone has the right to recognition everywhere as a person before the law.

Article 7. All are equal before the law and are entitled without any discrimination to equal protection
of the law. All are entitled to equal protection against any discrimination in violation of this Declaration
and against any incitement to such discrimination.

Article 8. Everyone has the right to an effective remedy by the competent national tribunals for acts
violating the fundamental rights granted him by the constitution or by law.

Article 9. No one shall be subjected to arbitrary arrest, detention or exile.

Article 10. Everyone is entitled in full equality to a fair and public hearing by an independent and
impartial tribunal, in the determination of his rights and obligations and of any criminal charge against
him.

Article 11. (1) Everyone charged with a penal offence has the right to be presumed innocent until
proved guilty according to law in a public trial at which he has had all the guarantees necessary for his
defence. (2) No one shall be held guilty of any penal offence on account of any act or omission which
did not constitute a penal offence, under national or international law, at the time when it was
committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal
offence was committed.
Article 12. No one shall be subjected to arbitrary interference with his privacy, family, home or
correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the
protection of the law against such interference or attacks.
Article 13-30 also speaks about human rights
Environmental Pollution
Ethical issues arise when environmental regulations in host nations are far inferior to those in the home
nation. Developing nations often lack environmental regulations, and according to critics, the result can
be higher levels of pollution from the operations of multinationals than would be allowed at home
Environmental questions take on added importance because some parts of the environment are a public
good that no one owns, but anyone can despoil. The tragedy of the commons occurs when a resource
held in common by all, but owned by no one, is overused by individuals, resulting in its degradation
Corruption
Corruption has been a problem in almost every society in history, and it continues to be one today.
International businesses can, and have, gained economic advantages by making payments to
government officials. The United States passed the Foreign Corrupt Practices Act to fight corruption
Outlawed the paying of bribes to foreign government officials to gain business. In 1997, the trade and
finance ministers from the member states of the Organization for Economic Cooperation and
Development (OECD) followed the U.S. lead and adopted the Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions
Obliges member states to make the bribery of foreign public officials a criminal offense

Moral obligations
Multinational corporations have power that comes from their control over resources and their ability to
move production from country to country. Moral philosophers argue that with power comes the social
responsibility for corporations to give something back to the societies that enable them to prosper and
grow. Social responsibility refers to the idea that businesspeople should consider the social
consequences of economic actions when making business decisions. Advocates of this approach argue
that businesses need to recognize their noblesse oblige (benevolent behavior that is the responsibility of
successful enterprises)
Ethical dilemmas: Managers must confront very real ethical dilemmas
The ethical obligations of a multinational corporation toward employment conditions, human rights,
corruption, environmental pollution, and the use of power are not always clear cut
Ethical dilemmas are situations in which none of the available alternatives seems ethically acceptable
Moral courage
Moral courage enables managers to walk away from a decision that is profitable, but unethical .Moral
courage gives an employee the strength to say no to a superior who instructs her to pursue actions that
are unethical. Moral courage gives employees the integrity to go public to the media and blow the
whistle on persistent unethical behavior in a company
Moral courage does not come easy and employees have lost their jobs when acting on this courage

Why Ethics is important

(1) Ethics corresponds to basic human needs
(2) Values create credibility with the public
(3) Values gives management credibility with employees
(4) Values help better Decision – making
(5) Ethics & profits
(6) Law can’t protect society, Ethics can contribute for the welfare of the society.

Why do managers behave in an unethical manner?

Determinants of Ethical Behavior

UNREALISTIC PERFORMANCE EXPECTATIONS

Pressure from the parent company to meet unrealistic performance goals that can be attained only by
cutting corners or acting in an unethical manner
This creates a pressure-cooker culture-Example: Lesson from the Enron debacle
Conversely, an organization culture can do just the opposite and reinforce the need for ethical behavior
Example: Hewlett-Packard (The HP way)

ORGANIZATION CULTURE- Business climate sometimes do not encourage people to think through
the ethical consequences of business decisions
All decisions are purely economic in nature (profit maximization)-Example: Case of former Enron CEO
Kenneth Lay
DECISION-MAKING PROCESSES
People simply forget that business decisions may also have an important ethical
dimension. Most often ethical considerations are not incorporated into business decision
making. Example: Pfizer’s Drug Testing Strategy in Nigeria; Nike’s subcontracting
decision
Code of conduct for MNCs
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