Tutorial - 03
01. Recommendation of the Most Suitable INCOTERM for an Importer
Recommended INCOTERM: CIF (Cost, Insurance & Freight)
Justification:
CIF is often preferred by importers who do not want to handle shipping logistics and
insurance themselves. The exporter arranges and pays for transportation to the port of
destination, including insurance.
a. Cost:
Exporter bears: Cost of goods, export clearance, freight, marine insurance.
Importer bears: Unloading costs, import duties/taxes, inland transport to final destination.
Example: A Sri Lankan company importing ceramic tiles from Italy under CIF Colombo. The
Italian exporter arranges insurance and shipping up to Colombo Port.
b. Risk:
Risk transfers from exporter to importer once the goods are loaded onto the vessel at the
origin port.
Insurance is arranged by the exporter but benefits the importer.
c. Obligations:
Exporter: Prepares documents (commercial invoice, bill of lading, insurance policy), arranges
main carriage and insurance.
Importer: Handles unloading, import customs clearance, and inland delivery.
Real Example: A Sri Lankan tea trader importing packaging machines from Germany under CIF
Colombo, allowing the trader to avoid dealing with foreign logistics and insurance.
02. Business Opportunities in the International Market Without Bringing Goods to Local Ports
How to Make Money Without Importing Locally:
This is done via Merchant Trade (also called Third-Party Trading).
Explanation:
ABC Importers can buy goods from one foreign country and sell them to another without the
goods entering Sri Lanka.
Profits come from the price margin between buying and selling.
Example:
ABC buys solar panels from China at $150/panel and sells to Maldives at $180/panel. Goods
are shipped directly from China to Maldives.
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Special Schemes by the Sri Lankan Government:
Merchant Trading Scheme:
o Allowed under Exchange Control Regulations of CBSL.
o Requires proper documentation and inward remittance of profits.
o Goods must not enter Sri Lanka.
BOI incentives for Export-oriented companies:
o If ABC sets up a BOI-registered merchant trade unit, tax concessions and simplified
customs procedures may apply.
Benefit to ABC:
No customs duty, no port handling in Sri Lanka, foreign currency earnings, and global
expansion with minimal cost.
03. Role of Shipping Documents in International Trade
Shipping Documents and Their Roles:
1. Commercial Invoice – Price, quantity, product details; used for customs clearance and
payment verification.
2. Bill of Lading (B/L) –
o As a title of goods (ownership).
o Receipt of goods from shipper.
o Contract of carriage with shipping line.
o Example: Required to release goods at destination or to claim payment via L/C.
3. Packing List – Details of packing for easier cargo handling and customs inspection.
4. Certificate of Origin – Proves where goods originate for FTA tariff benefits.
5. Insurance Certificate – Shows coverage against loss/damage.
6. Letter of Credit (L/C) – Financial document guaranteeing payment from buyer's bank to
seller.
Importance in Stages:
Pre-shipment: L/C issuance, preparation of commercial invoice and packing list.
Shipment: B/L, insurance, certificate of origin prepared.
Post-shipment: Documents submitted for payment, customs clearance.
Example:
A Sri Lankan textile exporter uses a Letter of Credit to ensure payment from a UK buyer. The Bill of
Lading helps the UK importer take ownership of the cargo.
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04. Free Trade Agreements (FTAs) in International Trade
a. Advantages of FTAs:
Reduce/eliminate tariffs → lower costs.
Increase export opportunities.
Boost investment and employment.
Enhance competitiveness and innovation.
Example: Indo-Sri Lanka FTA allows duty-free exports of garments and tea.
b. Types of FTAs (with Examples):
1. Bilateral FTAs – Between two countries.
o E.g., Indo-Sri Lanka Free Trade Agreement (ISFTA).
2. Regional FTAs – Multiple countries in a region.
o E.g., South Asian Free Trade Area (SAFTA) – among SAARC nations.
3. Multilateral FTAs – Larger group under global rules.
o E.g., ASEAN FTA, RCEP.
c. Disadvantages of FTAs:
Loss of revenue from import duties.
Overdependence on foreign goods.
Domestic industries may suffer due to cheaper imports.
Complex rules of origin and compliance.
Example: Local Sri Lankan dairy or cement producers may suffer from cheaper Indian
imports under SAFTA.