Export Trade: Procedure and Documents “Export trade is a vital source to obtain foreign currency.” ARNING Objectives After studying this chapter, you will be acquainted with: ™ Meaning of Export Trade m Procedure of Export Trade Important Documents Used in Export Trade @ Meaning of Export Trade When the trader of one country sells goods to the trader of another country, then this is called export trade. A trader who sells goods is known as the exporter and the trader who purchases goods is known as the importer. Like the import trade, many formalities are fulfilled in the export trade also. There is a fixed procedure to fulfil these formalities which is known as procedure ofthe export trade. During this procedure, various documents are prepared. In this chapter, we will study the procedure of the export trade and various documents used during this procedure. ® Procedure of Export Trade |An Indian exporter has to follow the following procedure at the time of exporting Export Trade? Ie refers tothe selling and shipping of ‘goods or services to another country. the goods: (1) Trade Enquiry: The trader who wants to export has to contact some export commission agent, the export agent or the export broker. With their help, Koean find out the place where his product is in demand. After establishing oe tact with the importer, he explains to him about the specifications of his product and the terms of payment. Many a times, the exporters directly peesive an inquiry from the importers. The things which are inquired aboutby the importer are the price of product, type packing, time taken in deliy, terms of payment etc. These are answered by the exporter / (2) Receipt of Indent: After having done the trade enquiry, the importer sends the indent to the exporter. In the indent, the name of the product, type, Price, quantity, packing method, time of sending goods, insurance instructions, payment method etc., are mentioned. If everything is explained Properly in the indent it is called a Closed Indent. It means that the exporter will have to follow the importer’s guidelines regarding export of goods. If the indent jg incomplete, i.c., things have not been mentioned completely, then it is called an Open Indent., In such a situation, the exporter takes many decisions as per his own discretion. (3) Credit Enquiry: Before proceeding further, the exporter wants to satisfy himself regarding the payment of goods. For this, he demands a Letter of Credit (L/C) from the importer. This L/C is issued by importer’s bank in favour of the exporter. Through the (L/C), the bank gives assurance to the exporter of accepting the bill of exchange ofa certain amount. If required, the exporter can ask for advance payment also from the importer. (4) Obtaining Export Licence: After satisfying himself about the payment , the exporter has to get an export licence. For receiving the export licence, he has to apply to the office of the controller of imports and exports. Along with the application, he has to deposit a certain fee also. The Controller of Imports and Exports checks the application thoroughly and after having satisfied himself, issues an export licence to the exporter. The export licence is usually valid upto three months. (5) Declaration regarding Foreign Exchange: As per the Foreign Exchange Regulation Act, 1947, every exporter has to declare that after receiving the foreign exchange from the importer, he will deposit it in the Reserve Bank of India within a prescribed time limit. But nowadays this provision does not apply. In 1991, when liberalisation policy of the government came into force, a foreign exchange market was established in India. An independent sale and purchase of foreign currency takes place in this market. It means that if an exporter receives foreign currency, either he can sell it in the open market or he can keep it with himself. But he can keep the foreign currency with him upto a certain amount. (6) Fixation of Exchange Rate: Exchange rate is the rate at which the currency of one country is exchanged with the currency of another country. This rate keeps on changing with the change in demand of the currencies in the foreign exchange market. Usually, there is a time gap between the sending of the goods and receiving of the payment of goods. It is possible that the rate of exchange changes within this period of time. With the change in exchange rate, the importer can make profit as well as incur some loss. For instance, 27 exporter exports goods worth $1000. The rate of $ today is €50. If, today the ery,ex) r recei: , 250.000. ree peumane) from the importer in terms of rupees, he will receive postible thar pare sume that the payment is rec cived afier one month. It is deternoner el ag rate either moves to 52 or to 748. If the rate is 752, exchange of § To00 € extra profit because now he can receive 52,000 in will incur a least in place of $50,000. But if the rate is 248, the exporter Itheexporte, because now he will receive €48,000 only instead of 750,000. a ‘Tr wants, he can either bear the risk of fluctuation of the exc hange rate GF am agreement can be signed with the bank also for bearing the risk for Aa aay ank can be paid some commission. This means that whatever the Bee F rate is, the exporter will receive 750,000. The profit or loss arising cee change in the exchange rate will be borne by the bank. (7) Collection of Goods: After receiving the order of goods and finalisation of all other terms and conditions, the exporter collects the goods. If the goods are in his stock, they are assorted and duly packed and if not in stock, then they are purchased from the other suppliers. (8) Packing and Marking of Goods: After collection of goods, the exporter packs and marks the goods as per the instructions of the importer. If no clear instructions have been given by the importer, then practices already prevailing in trade are followed. While packing, it should be done in such a manner that goods reach the destination safely. The main objective of marking the goods is to save inconvenience caused in recognising them. Hence, marking signs should be clear. (9) Appointment of Forwarding Agent: When the goodsare ready for dispatching, then a forwarding agent is appointed. The forwarding agent takes care of the procedure which starts from taking the delivery of goods either from the road transport or the railway transport and loading it on the ship. He charges some commission from the exporter for this work. (10) Forwarding Goods to the Port: After packing the goods and appointing the forwarding agent, the exporter transports the goods to the port. Goods are ureually sent by railways. The exporter sends the Railway Receipt (R/R) to the Forwarding Agent, with which he takes the delivery of the goods. (11) Functions of Forwarding Agent at Port: A forwarding agent has to perform the following functions at the port: (i) Obtaining the Shipping Order: After the arrival of the goods at the port, the Forwarding Agent talks to a shipping company so that the shipping company reserve some safe place for the goods. After this agreement, the shipping company issues the shipping order. In the shipping order, the captain of the ship is instructed to load the goods on the ship mentioned in the shipping order. If the quantity of the exported goods is too large, then a full ship can be taken on freight. This agreement is called Charter Party. Gi) Preparing Shipping Bill: For paying the export duty, the forwarding agent prepares the shipping bill in triplicate. In this shipping bill,quantity of the goods, price of goods, address of the exporter, address of the importer, number of the ship, number of items etc. are mentioned, On the basis of the details furnished in the shipping bill, export duty is determined. After the payment of the export duty the customs official keeps one copy of the shipping bill with himself and hands over the remaining two copies to the forwarding agent. Payment of Dock Dues: Permission of dock authorities is required to carry the goods to the port to load them on the ship. The dock officers give this permission only after the payment of the dock dues. For paying the dock dues, dock challan is prepared in duplicate. After paying the dock dues, one copy is returned to the agent as receipt. Now the port officers arrange for loading the goods on the ship. At this time, a copy each of the shipping order and the shipping bill is handed over to them. This makes it clear about the name of the ship on which the goods are to be loaded and that the export duty has been paid. (iv) Obtaining Mate’s Receipt: When the goods have been loaded on the ship, then, the captain of the ship gives a receipt of receiving goods on the ship which is called Mate’s Receipt. This receipt is of two types: If the goods loaded on the ship were in good condition and packing was good and the captain of the ship is fully satisfied with that, a clean receipt is issued. Contrary to this, if the pack of the goods was unsatisfactory, then a foul receipt is issued. (v) Bill of Lading: The forwarding agent along with the mate’s receipt, goes to the office of the shipping company. There, he fills the form of the bill of lading and deposits it along with the mate’s receipt in the office of the shipping company. The officer in-charge keeps the mate’s receipt with him and returns the bill of lading to the forwarding agent after signing it. Ifthe freight of the ship is to be paid in advance, then the signed bill of lading is received only after payment of the freight. Details of the goods are mentioned in the bill of lading as already mentioned in the mate’s receipt. (vi) Insurance of Goods: The forwarding agent makes inquiries from various insurance companies and after a thorough check, the most suitable company is instructed to issue the marine insurance policy. (vii) Advice to the Exporter: After finishing his work completely, the forwarding agent informs the exporter through an advice letter. Along with the advice letter, all the required documents, details of the expenses and commission are also sent. (12) Preparing Invoice: After receiving information from the forwarding agent about the loading of goods, the exporter prepares the invoice. The invoice is prepared on the basis of the terms and conditions decided upon between the exporter and the importer. For instance, if freight of the ship or insuranceexper ; are to be borne by the exporter, then these will not be added to the invoice. In the invoice, the details like the quantity of the goods, value of goods, type of goods, indent number, name of the ship, packing ete. are given (13) Obtaining Invoice Certified by Consular: Some countries recognise the certified invoice, not the invoice only. Such invoices are issued by the trade consular of the importing country situated in the exporters counthy. If the certified invoice is available, the customs authorities are not required to open the whole cargo to check whether the prices are as per the specifications mentioned in the invoice. In the absence of certified invoice, they can open the whole cargo to check the goods. (14) Certificate of Origin: Many times some countries exempt their importers from import duty, if they import goods produced in some specific country. This exemption is available only if'a certificate of origin of the exporter has been attached along with the invoice. This certificate is issued either by the secretary of chamber of commerce or by any other officer appointed by the government to do so. (15) Preparing Documents relating to Payment: After all this, various documents based on the terms and conditions of payment are prepared. The terms and conditions of payment can be of various types: (i) Document against Payments (D/P): If the payment is to be made in cash, then the exporter writes D/P on the bill. This means that after making payment in the bank, the importer can take the documents related with the goods. Gi) Documents against Acceptance: If the bill of exchange of a further date is to be accepted, then the exporter writes D/A on the bill. This means that the importer can take the documents related to the goods from the bank after accepting the bill of exchange. (ii) Bill on Bank: When the importer has sent the L/C, then the exporter writes a bill of exchange on the bank issuing the L/C. The bank to which documents have been sent releases the documents only after getting acceptance from the importer’s bank. Writing the bill on bank is called documentary credit. Under this method, it is necessary to send the documents related to the goods to the bank. Documents can not be sent directly to the importer. Advice to Importer: After completing all the formalities, the importer is informed about the name of the bank where documents have been sent. It is not necessary that the documents should be sent to the bank only. If there is no problem regarding the payment, then the documents can be sent directly to the importer also. Usually, the exporter deposits the documents in his bank. This bank sends the documents to its foreign branch or its agent bank abroad. After fulfilling the terms of payment, the importer releases the documents.& Important Documents Used in Export Trade Various documents are used in export trade. Some of them are as follows: (1) Indent (2) Letter of Credit (L/C) (3) Export Licence (4) Railway Receipt (R/R) (5) Shipping Order (6) Shipping Bill (7) Dock Challan (8) Mate’s Receipt (9) Bill of Lading (10) Marine Insurance Policy (11) Invoice (12) Invoice Certified by Consular (13) Certificate of Origin (14) Advice to Importer.