Strategy in Export and Import Correspondence

Always use clear, simple and straightforward language when corresponding with a foreign buyer. Avoid poetic and artistic expressions, idioms, colloquialisms, and slang, these will confuse the buyer.

Avoid using too many abbreviations in fax (facsimile), e-mail (electronic mail), telex (teletype exchange) and cablegram for the purpose of saving transmission costs. An abbreviation often is ambiguous and can create misunderstandings.

When to Reply

For the established buyer, reply within 24 hours after the receipt of buyer's fax, letter, e-mail, telex or cablegram. If for some reason a fax, an e-mail or a telex reply will be sent after a few days, let the buyer knows immediately that you will respond within the next few days. However, if the buyer's demands are unreasonable, it is helpful to maintain complete silence for few days. Being silent is an intimidating tactic.

For the prospective buyer, also reply within 24 hours if the communication is initiated by the exporter. Otherwise, please refer to the Uninvited Inquiries in International Trade below.

The exporter must reply within the shortest possible time, but never expect the buyer to do the same.

Means of Reply

Use fax (facsimile) or e-mail (electronic mail) in corresponding where possible. The fax is still widely used in international correspondence.

A letter will take several days to a few weeks to reach the buyer. Sometimes a letter may be lost. A letter, however, is preferred over a fax or an e-mail for the initial contact.

Avoid replying by telephone as there is no reference copy at both sides for future use. Moreover, the calls may often be answered by people unfamiliar with English in a non-English speaking country and the contact person may not be available to take the calls.

Different Date Formats, Decimal Fractions, and Units of Measurement

The date 2/3/04 is February 3, 2004, in some countries and it is March 2, 2004, in others. If the foreign importer needs the shipment on February 3, 2004, and the exporter enters March 2, 2004, in the order, such a misunderstanding can create chaos for importer and exporter. It is better to write the month in word, instead of number, in the international trade.

A comma, not a decimal point, is used to separate a whole number from the decimal place in some countries. For example, 800.05 is written as 800,05 in Germany.

A unit of measurement like the ton may refer to the metric ton (2204.6 lbs. or 1000 kgs.), short ton (2000 lbs. or 907 kgs.), or long ton (2240 lbs. or 1016 kgs.). The exporter must clearly differentiate units of measurement in the correspondence to avoid problems. Please see Conversion Factors - Units of Measurement.

Uninvited Inquiries in International Trade

Few companies venture into international trade totally unfamiliar with the English language. Most export and import businesses have personnel who can write and read English, though some have difficulty with spoken English. It is a lack of fluency in English that has prompted some buyers to write in their own language, not because they do not know English at all. Some buyers use their own language because of national pride.

Sometimes an exporter may receive an inquiry from a prospective foreign buyer in a language other than English. If the inquiry is from an export priority market, it is important to reply in the buyer's language. For other markets, reply in the buyer's language if possible or else use the English language.

Some inquiries are for purpose of product and price information, not for importation. Unless the prospective foreign buyer is known to the exporter, it is not necessary to reply at once. Reply by letter and do not divulge sensitive information like the bottom price.

A buyer rarely places an immediate order in the initial contact. At times the inquiry is from a foreign competitor inquiring on the pretext of buying, or to put it bluntly 'spying' on the exporter.

By: Bhadresh Bhatt

Customs Clearance of imported goods

Customs Authorities and the Clearing agents play the key role in the import of goods. All goods imported into India have to pass through the procedure of Customs clearance as they cross Indian border. The goods are examined, appraised, assessed, evaluated and then allowed to be taken out of charge of the Customs for use by the importer. The entire process of customs clearance is complex and to carry out this procedure smoothly, the help of accredited customs clearing agents has to be taken.

The importers need to present a Bill of Entry on receipt of the advise of the arrival of the vessel. The B/E is noted in Import Department, with corresponding endorsement made against the consignment entry in the IGM along with the date. The B/E will then be presented in the Appraising Department with all the relevant documents like invoice, Bill of Lading, Import license and catalogue literature. The appraising procedure may be of two types.

The First Check Procedure-Applicable only when appraisers/assessing group finds it difficult to complete the assessment on the basis of the documents made available.

The Scrutinizing Appraiser in the group gives the examination order. The goods are then examined in the docks and the B/E returned to the Scrutinizing Appraiser for completion and license debit. In this case the Customs 'out of charge' is given by the Accounts Department soon after the recovery of duty.

The Second Check Procedure-Under this 80 to 90 percent of the consignments are cleared.

If the documents are adequate for determining the classification, value, ITC license, the form is completed by the Appraiser and then countersigned by The Assistant Collector. It is then forwarded to the License Department for licensing debit and audit. Then it is returned to the importers for payment of duty in the Accounts/Cash department. After recovery of duty the original B/E is retained in the Accounts Department and the duplicate and other copies are returned to the importer for getting the goods examined in the docks.

In the docks, the Shed Appraiser/Examiner shall examine the goods and if in order, shall give the out of charge for taking delivery from the custodian of the goods viz. Port Trust, after payment of Port Trust charges.

Irrespective of the procedure, examination of cargo for assessment purpose is chiefly the function of the Appraising Department having special staff of examiners in the docks/Air cargo shed. The records of the examination and weighment should be declared, attested and dated at the time of the examination. If the examination spreads over more than one day, the result on each day's progress should be disclosed.

These apart some of the Customs house in India have introduced the simplified computer procedure for speedy clearance of consignment through B/E.

Custom Authorities :--

The customs administration vests in CBEC for implementing the provisions of the Customs Act.1962. There are two main wings of Customs House. In the 'Appraisement' wing the job of collection of revenue is assigned, while the 'Preventive' one aims at prevention of smuggling.

The Customs authority functions under the Ministry of Finance (MoF) with the Central Board of Excise & Customs at the apex. The board is headed by a Chairman and assisted by Members. The Member (Customs) looks after the following matters:

Customs Law and its interpretation and application, policy and broad procedures(Other than those concerning anti-smuggling)
Enforcement of Import Export prohibitions
Foreign Travel and Cases on imports and exports
Baggage concessions and rules;
Customs Valuations;
Tariff Classification and Tariff advices;Customs procedures, Customs House
Agents Regulations;
Warehousing, inland Bonded Warehouses;
FTZs, EPZs, 100% EOUs etc.
Matters relating to Drawback;
Customs Co-operations Council, GATT and ESCAP and international talks and agreements, organisations concerning customs;
All other works on Customs not specified elsewhere;
Supervision and control over Customs Commissionerate of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi , Visakhapatnam, Goa and Tuticorin and Customs Divisions of other Central Excise Commissioners, Assistant Commissionerates regarding Customs work handled by them.
Chemical laboratories and
Directorate of Drawback

The Ministry of Finance (MoF) issues Customs Notifications to levy duty on the imported goods. The Changes are made each year on the Day of the Fiscal Budget. Customs clearance of the imported goods is done by the customs Authorities functioning under the overall charge of MoF. The hierarchy of the Authorities:

Central Board of Excise & Customs (CBEC) in the MoF Under which operates:Customs Commissionerates of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi, Vizag, Goa and Tuticorin.

Directorate of Drawback
Field Level:Principal Commissioners Customs ,Commissioners,Addl. Commissioners ,Dy. Commissioners, Asst.Commissioners,Port of clearance.

TT Buying and Selling Rate !!!!!!!!!!!

TT Selling Rate: This rate is applied for all clean remittances outside India. For selling foreign currency to its customer by the bank such as for issuance of bank drafts, mail/telegraphic transfer etc.

TT Buying Rate: This rate is applied for purchase of foreign currency by banks when the banks in India have already obtained the cover in India. Thus all foreign inward remittances which are made payable in India are converted by applying this rate. A mail transfer issued by a bank in Dubai for US $ 10,000 drawn on any commercial bank having branch at the overseas destination will be converted into rupees at TT buying rate.

Reading Rates-The rates announced by the banks every day morning are card rates.

Reputed importers can always bargain with the bank for improvement in the card rates for reducing their rupee liability on conversion of foreign currency into Indian rupees. Also a distinction is made between spot rates and forward rates. Spot rates are applicable on the day of transaction, whereas forward rates are fixed in advance for a transaction that will mature at a specified date or during a specified period in future imports.

Mode of Pricing and INCO TERMS

While finalizing the terms of import contract, the Importer, should, inter Alia, be fully conversant with the mode of pricing and the manner of payment for the imports. As regards mode of pricing, the overseas supplier normally quote the terms prevailing in international trade.

The importer for his benefits should know the meaning of the technical terminology. To avoid ambiguity in interpretation of such terms, International Chamber of Commerce, Paris, Has give detailed definition of a few standard terms popularly known as 'INCO TERMS'. These terms have almost universal acceptance and are explained below:

Ex-work

'Ex-work' means that the seller's responsibility is to make the goods available to the buyer at works or factory. The full cost and risk involved in bringing the goods from this place to the desired destination will be borne by the buyer. This terms thus represents the minimum obligation for the seller. It is mostly used for sale of plantation commodities such as tea, coffee and cocoa.

Free on Rail (FOR)/Free on Truck (FOT)

These terms are used when the goods are to be carried by rail, but they are also used for road transport. The seller's obligations are fulfilled when the goods are delivered to the carrier.

Free Alongside Ship (FAS)

Once the goods have been placed alongside the ship, the seller's obligations are fulfilled and the buyer notified. The buyer has to contract with the sea carrier for the carriage of the goods to the destination and pay the freight. The buyer has to bear all costs and risks of loss or damage to the goods hereafter.

Free on Board(FOB)

The sellers's responsibility ends the moment the contracted goods are placed on board the ship, free of cost to the buyer at a port of shipment named in the sales contract. 'On board' means that a Received for Shipment' Bill of Lading is not sufficient. Such B/L if issued must be converted into 'Shipped on Board B/L' by using the stamp 'Shiped on Board' and must bear signature of the carrier or his authorized representative together with date on which the goods were 'boarded'.

Cost and Freight (C & F)

The seller must on his own risk and not as an agent of the buyer, contract for the carriage of the goods to the port of destination named in the sale contract and pay the freight. This being a shipment contract, the point of delivery is fixed to the ship's rail and the risk of loss or of damage to the goods is transferred from the seller to the buyer at that very point. As will be seen though the seller bears the cost of carriage to the named destination, the risk is already transferred to the buyer at the port of shipment itself.

Cost Insurance Freight (CIF)

The term is basically the same as C & F but with the addition that the seller has to obtain insurance at his cost against the risks of loss or damage to the goods during the carriage.

By : Bhadresh Bhatt

Precautions to be taken at the time of establishing Letter of Credit

Letter of credit offers almost complete protection to the seller but the buyer is put to many disadvantages and has to make payments against documents only. Before agreeing to open a letter of credit in favour of the seller, the opener must be satisfied with the creditworthiness and general reputation of the seller. Entire success of an L/C transaction depends on proper conduct of the seller.

Confidential report on the seller must be obtained at the time of first transaction with him.

Letter of credit also does not offer any protection for the quality/quantity of goods supplied under the L/C. It would, therefore be necessary to know the nature of goods and specify submission of quality reports/inspection reports from an independent agency to ensure receipt of goods of proper quality. This is particularly important in case of import of chemicals and such other goods. The opener has to submit an L/C application to the opening bank. The instructions contained in the L/C application is the mandate for the issuing bank and letter of credit will be issued in accordance with this application. It is, therefore, necessary that complete and precise information must be given in the L/C application form specifying therein the description, unit rate and quantity of the goods covered under L/C and details of documents required in absolute clear and unambiguous terms. The reference to underlying sale contract must be avoided as far as possible. The L/C application must nevertheless contain all the required/information based on which L/C could be opened by the bank.

After the L/C has been issued by the bank, a copy thereof must be obtained immediately. The L/C must be scrutinized to ensure that it has been properly issued and is in conformity with L/C application. Discrepancy, if any, must be brought to the notice of opening bank immediately.

Import contact may be concluded either in terms of INR or in foreign currency. Where the contracts are in INR, the related documents are also prepared in INR and no conversion is involved. However, where the bill is drawn in foreign currency, the payment is made in Indian rupees equivalent to the foreign currency. The equivalent rupee value is arrived at by applying suitable exchange rate. These rates are applied by banks to standardise the foreign exchange-rupee conversion process.

When the price of foreign currency is quoted in terms of home or local currency it is called direct quotation basis. This has been in application since 02.08.1993. However, there is a difference between inter-bank exchange rates and merchant rates.

Merchant rates are the exchange rates applied by the bankers for transaction with their customers for various purposes, including imports and exports. These rates are calculated by the banks as per the guidelines issued by the Foreign Exchange Dealers Association of India (FEDAI). Inter-bank rates are the rate for transactions amongst the authorised dealers in foreign exchange and depend on the market conditions.

Since exchange rates are volatile, documents delivered by the bank at the time of a favourable exchange rate will enable the Indian purchaser to pay less of Indian rupees. Forex rates are always quoted as two way price i.e. at a rate at which the bank is willing to sell foreign currency(buying rate) and at a rate at which the bank is willing to buy foreign currency(selling rate). There is always some difference in buying and selling rates. However, the maximum spread available to bank is restricted in terms of celling imposed by RBI. All exchange rates by authorised dealers are quoted in terms of their capacity as buyer or seller.

By : Bhadresh Bhatt

Letter of Credit vs Bank Gaurantee

Letter of Credit vs Bank Gaurantee :

A letter of credit differs from a bank guarantee. An issuing or confirming bank's obligation is independent of, and unqualified by, the contract of sale under the transaction. A commercial credit is neither a performance bond, nor it is a guarantee of the quantity or quality of the goods shipped.

Letters of Credit are Separate Transactions

A contract for sale of goods between the seller and the buyer incorporates mode of settlement. Letters of credit by their nature are separate from the sale contract, and banks are not concerned or bound by such sale contracts even if the credits bear reference to them.

The credits stipulate documents which have to be tendered for payment and it, therefore, follows that in credits parties deal with documents and not with goods, services or performances to which the documents relate.

It is, therefore, in the interest of all the parties concerned that the conditions and terms of credit are complete and precise and banefit of excessive details.

Payment under a letter of credit does not depend on the performance obligation on the part of the exporter except those which the credit imposes. Banks accept documents under letters of credit for what those document purport to be on their face. Contract between the buyer and the seller is obligatory between themselves. The seller(beneficiary) cannot take advantage of any contractual terms in between the buyer and the opening bank and between the opening bank and the advising/confirming bank.

By : Bhadresh Bhatt

Getting and Import Export Code No for Export and Import

Registration with Regional Licencing Authority and obtaining IEC Code

Registration with Regional Licensing Authority:

Registration with Regional Licensing Authority is a pre-requisite for import of goods. The Customs will not allow clearance of goods unless:

The importer has obtained IE Code Number from Regional Licensing Authority. However, no such registration is necessary for persons importing goods from/ to Nepal provided Value of a single Consignment does not exceed Rs. 25000/=

Obtaining IEC Code Number

An application for grant of IEC Code Number should be made in the prescribed proforma given at Appendix 3.I. The application duly signed by the applicant should be supported by the following documents:

Bank Receipt (in duplicate)/demand draft for payment of the fee of Rs.1000/- Certificate from the Banker of the applicant firm as per Annexure1 to the form. Two copies of passport size photographs of the applicant duly attested by the banker of the applicant.

A copy of Permanent Account Number issued by Income Tax Authorities, if PAN has not been allotted, a copy of the letter of legal authority may be furnished. If there is any non-resident interest in the firm and NRI investment is to be made with repatriable benefits, full particulars thereof along with a photocopy of RBI's approval. If there is NRI investment without repatriation benefit, a simple declaration indicating whether it is held with the general/specific permission of the RBI on the letter head of the firm should be furnished. In case of specific approval, a copy may also be furnished.

Declaration by the applicant that the proprietors/partners/directors of the applicant firm/company, as the case may be, are not associated as proprietor/partners/directors with any other firm/company the IEC No. is allotted with a condition that be can export only with the prior approval of the RBI.

By : Bhadresh Bhatt

Pricinpal Law & Import Export Policy

Principal Law :-

Imports in to India are governed by Foreign Trade (Development & Regulation) Act 1992. Under this Act, imports of all goods is Free except for the items regulated by the policy or any other law for the time being in force.In exercise of the powers conferred by the Foreign Trade (Development & Regulation) Act 1992 the Government has issued the following Rules & Order:

Foreign Trade(Regulation)Rules, 1993, which inter alia, provide for grant of special licence, application for grant of licence, fee, conditions for licences, refusal of licence, amendment of licence, suspension of a licence, cancellation of licence, declaration as to the value and quality of imported goods, declaration as to the Importer- Exporter Code number, utilisation of imported goods, provisions regarding making, signing of any declaration/statement or documents, power to enter the premises and inspect, search and seizure of goods, documents, things and conveyance, settlement, confiscation and redemption and confiscation of conveyance.
Foreign Trade (Exemption from Application of Rules in Certain Cases) Order 1993
Notifications under Foreign Trade (Development & Regulation) Act 1992.
 
Import Export Policy :

The present import policy and procedures in respect of various commodities/category of importers, are, inter alia, contained in the following publications issued by the Ministry of Commerce and revised from time to time:
Import - Export Policy, 2009-2014 as modified upto 27.08.2009
Handbook of Import - Export Procedures(Volume 1), 2009-2014 as modified upto 26.08.2009.
Handbook of Import - Export Procedures: (Volume 2) Duty Exemption Scheme:
Input - Output and Value Addition Norms, 2009-2014.
ITC(HS) Classification of Import and Export Items.