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CHAPTER – 17 : FOREIGN TRADE
1. Form and Importance
The term foreign trade’ itself suggests that when people and institutes of one country do trade with the people and institutes of another country, it is foreign trade of the country. Foreign trade takes place with that area in which the political situation, trading customers, currency, economic-policy and legal situation are different. So, the form of foreign trade is multifarious. All the tradable products and services of a country are not fit for foreign trade. Foreign trade can be done only for those products and services which can be transported to other countries.
Importance :
The economies of any country and- world become weak without foreign trade. Ample resources are available in every country due. to many reasons. These resources will be wasted if necessary supplementary products or necessary supplementary services which can only be given by the people of other countries to reduce the ample resources into wealth, are not available due to the absence of foreign trader. In the absence of foreign trade, specialisation, wealth generation and progressive research do not take place.
2. Means of incentives for expert
Import is necessitated for maintaining the supply of necessary and inevitable products for the country, for the defense of country and for the economic development. Payment for the imported products. is to be made in foreign exchange. For getting foreign exchange and for the, stability and security of the economy export becomes necessary. Payment for the exported goods and services is received in foreign exchange. In this situation, every country provides incentives to export. Responsibility of providing incentives is mostly of the government. Any incentive given to exporters for supplying the products of the country to the foreign importers at cheap rate, of high quality and at the time of demand from importers is export incentive. As these incentives are governmental, the means are also governmental.
Through the means of trade practice pacts export-incentive is provided. The diplomats of politically friendly countries are implementing export-incentive plans. Under these pacts, any one or more countries make a contract with another country for importing products or services only of that country or give it priority. It earns other political or economic gains in exchange of this favour.
Export-promotion is given through the means of financial and economic incentives. This means is used extensively and since long time. Many incentives like giving direct concessions at a predetermined rate to exporter, exempting or reducing the excise and sales-tax on exportable products, exempting fully or partially the income-tax on the income of exports, providing inputs like raw materials, electricity and other things at concessional rate and etc. are provided.
Export-incentives are given through the means of co-ordinated and integrated plans. Giving the right to give certain products at concessional rate within the stipulated amount or giving other benefits in exchange of export of certain products or of certain amount, establishing factories of exportable goods on the land given at cheap rate in exchange of the guarantee that the products will be exported. Whole or stipulated quantity of products produced have to be exported in exchange of establishing factories in free trade zones which are completely free from taxes and other regulations.
Export-promotions are given in exchange of financial facilities and services. Export-promotions are given by making arrangement for the payment of export-bill amount on the same day of dispatch of products, insurance protection against exchange-rate fluctuations, arrangement of delivering goods easily to importer or to the country of the importer, providing service as a guarantor of the importer after verifying his financial soundness and by providing other services and financial facilities.
Instead of giving direct economic help to exporters incentives are given through non-economic facilities. Many non-economic incentives are given by giving information pertaining to export, making arrangement for training and education to prepare personnel trained to manufacture exportable products, making arrangement to supply raw materials, electricity, water, etc. on demand and in enough quantity necessary to produce export-goods, felicitating the e. porter who exports the highest by arranging competition amongst the exporters, declaring lock-out and strike in the export-product factories as illegal and many other such non-economic incentives.
3. Export Procedure
(1) Getting. order : Exporter receives order from the importer. Precise details are given in order. The exporter and importer are bound to complete the contract according to these details. Details related to contract like description of goods / services, its quantity, determined price, description of expected packing, description of transport service, date of dispatch, details of insurance, conditions for payment are given. This letter of order is known as Indent also. Mostly, exporter collects information about the economic soundness and goodwill of the importer and the related information of the importing country before getting the order. He will proceed with the export procedure if he concludes that the situation of the importer and, his country is favourable and reliable on the basis of the information received after getting the order.
(2) Getting export license : Many a time some countries introduce license system for the export of certain products. In this situation, license is to be acquired. Products other than these are free of license system, so Open General License (O.G.L.) is acquired for these other products. An application in the prescribed form to the trade department of the government is to be made. Necessary fees is to be paid. Exact identity of exporter, details of export and guarantee of income-tax and other taxes paid regularly have to be given. Certain businessmen export regularly, so the government registers them as export house and makes them free of the botheration of getting export license in the event of each export.
(3) Working for exchange : Many controls over exchange have been diluted in our country. Importer pays the amount of bill in his currency to exporter or in (American) dollar. Mostly, this payment is made in dollar or for the last two years, in Euro. The Exporter is in need of the currency of his country or of the rupee in our country to run his business, The Central Bank and its appointed banks and institutes are regulating the movement of exchange. So, exporter has to inform the RBI in a prescribed form about the compliance of regulations and for his own needs like how much, when, how much and from where he will get the exchange, moreover, he has to provide the same information in the same form to that bank / institute through which he is dealing for export. The amount in rupees is credited in the accounts of the exporters on that day when importer pays for the bill according to the exchange rate prevailing on that day.
(4) Getting Letter of Credit : L/C : The exporter works for the safety of bill amount at this stage after completing the working of export license and exchange. It is important for exporter to know about the economic soundness of the importer at the time of importing. So, exporter requests his bank to obtain for him a certificate from its branch situated in the country of importer stating about the credibility of importer. After getting assured about it bank gives Letter of Credit to the exporter. Certain banks know about the old and high prestige of the importer, so they do not ask the importer to deposit the amount but they merely inform him that exporter has asked for the guarantee of his credibility which it will give. In this case the amount of bill is not deposited. So, bank does not give a letter of credit to the exporter but gives credit reference.
(5) Getting Shipping Order : Many a time it is very important to ship goods on the predetermined date. Importer insists on getting goods on a specific date. So, after getting assurance about the credibility of the importer, exporter has to contact companies which transport the goods by air, sea or land routes. By applying to the company which. is ready to transport the goods on the specific date it is to be informed to carry goods in its vehicle. After getting information about the quantity, weight, volume, price, etc. of the goods company assures that it will carry goods on the specified date. After receiving the amount of freight company issues to the exporter an order letter written to the conveyance controller. Exporter feels free that his goods will be dispatched on the specified date, on receiving this letter known as the shipping order. The shipping order is thus an order issued by the transport company / owner to the conveyance controller to carry goods of prescribed volume, weight, quantity and price to the destined place. If exporter takes the whole conveyance on rent, the contract entered between exporter and company is known as charter party contract. Even after this contract company does give shipping order to exporter.
(6) Packing and Marking : The importance of packing increases when goods manufactured in factory, stored or purchased from the market are to be sent to a foreign country. Transport companies insist on strong, safe packaging having minimum volume. Mostly, the distance covered by the goods in foreign trade is long and the goods have to pass through various kinds of atmosphere. Goods sent through sea are to be protected against continuous salty and humid air, and water coming to it due to waves and rain. So, at this stage, exporter packs the goods to satisfy all the requirements expected of foreign trade.
Details of goods are to be exhibited briefly on the package. It should exhibit the names of the receiver and sender of goods and the place where it is to be reached. All these three matters are to be exhibited in such a way that they can be easily understood. So, most of the exporters prepare the stencils of the writing giving this information and by inking them with non-washable ink on packages, they put clear signs.
(7) Custom procedure : The exporter has to pass through this stage of custom procedure without considering the fact whether custom duty is to be paid or not. If custom duty is not to be paid, the exporter has to notify that in a prescribed form and then to get the duty exemption certificate from the customer officer.
If goods are taxable, exporter has to prepare a shipping bill. Names and addresses of exporter and importer, name of the landing place, important information pertaining to goods, name of the transport company and name of the conveyance are to be stated in the shipping bill. In reality this is an application from the exporter to the custom officer for assessing and collecting the duty. The custom officer verifies the shipping bill and verifies the goods, if required and then decides the duty. Much of the goods for export originate in the country, whereas, sometimes re-export of goods may also take place. After the completion of export duty procedure, custom officer confirms it in writing and endorses the shipping bill. After getting this type of shipping bill, goods become worthy of export.
(8) Getting Insurance : After goods become export-worthy, insurance from insurance company is taken by making an application giving of all the details of goods and by paying the required premium.
(9) Permission from Port-authorities : At the station of land route, at the airport and at the marine port, notification of the completion of required procedure of export in the prescribed form that is in the shipping bill is to be made before the authorities. The fee has to be paid to the port authorities for the services and use of their instruments. At this juncture, if the duty is. not paid, it has to be paid. With the payment of. custom duty custom officer gives export pass. The port authorities will allow goods to enter and provide all the required facilities to bring the goods up to the ship. After verifying all the documents accompanying the shipping bill port authorities will issue permission to ship the goods, that is carting order. The same type of procedure is to be undertaken for the goods sent through air and land transport.
(10) Getting Mate’s Receipt : Goods are to be shipped on the basis of the carding order. The representative of the captain of the ship who is known as the Mate will examine the goods whether they are according to the shipping bill and whether they are transport worthy or not. If mate is satisfied, he will give clean Mate’s Receipt but if he is not satisfied on any count from the packing of the goods to the description of them, he will mention that in his receipt. This receipt is known as Dirty Receipt. The exporter gets proof by getting the mate’s receipt that the goods are in possession of ship’s controller and the goods will be sent to the place of the importer.
(11) Getting Bill of Lading : The transport company collects freight on presenting the mate’s receipt to the transport company, if the mate’s receipt is clean and states that. goods have been received according to the shipping bill and shipping order. If there is any discrepancy between mate’s receipt and shipping bill and order and/or if receipt is dirty, extra freight is collected, if it warrants-so. The note collecting freight is known as Freight note. If the service rendered over and above agreed by the transport company at the time of shipping order extra charge, known as Primage, is collected. With the payment of freight and primage, their receipts are given to the exporter. The exporter can ask transport company for the Bill of lading on receiving these receipts. After verifying all the details transport company gives Bill of Lading to exporter comprising of all these details. Bill of lading is a receipt of the goods given by transport company to the exporter and a document giving assurance of delivering the goods at the place of importer. This document is negotiable. If the importer has to pay the freight, instructions of collecting it from the importer is included in the bill of lading. These tenth eleventh stages together are undertaken for obtaining Truck Receipt for land transport, Railway Receipt for railways and Air Receipt for air transport which is as good as the bill of lading.
(12) Sending documents to the importer : The exporter endorse bill ,of lading in favour of importer. He will prepare the bill and will collect the Consular Invoice and the Certificate of Origin, required. Both these documents are necessary for importer for getting relief in custom duties under certain conditions or getting exemption in certain countries. The bill or invoice prepared by exporter contains all the details of the goods, name of the conveyance, details of package and total amount to be collected from importer. Mostly, the exporter submits these documents to his bank. If instructed by exporter, bank releases those documents against payment to the importer through its branch situated in the area of importer. This method is known as Documents against Payment; D/P If instructed by the exporter, bank releases documents against acceptance of Bill of Exchange prepared by the exporter. This method is known as Documents against Acceptance : D/A. the Bank collects its charges for providing services. Sometimes, exporter sends the documents directly to the importer and collects the amount.
Thus, one side, the export procedure of foreign trade is complete. The import, procedure is as follows :
4. Import Procedure
(1) Getting Import License : The Government notifies many products and services for which import license is not required but the concerned authorities should be informed about it. Import license is required for products and services. other than notified. For this, application is to be made to the trading department of government stating complete details of goods, name-address of importer, details of any import made prior to the time of application, economic conditions and income of importer and other informations. The Competent officer gives license if he is satisfied. Competent officer also examines the position of implementation of quota system and then gives import license, if he is satisfied.
(2) Making arrangement for exchange : Due to the WTO. (World Trade Organisation), the importer can keep exchange in his bank account which is a specified per cent of the exchange which he might have got by exporting other products or services. He can import with the help of this exchange. If this amount is inadequate or if he has no exchange at all he has to apply to the central bank in a prescribed form. He has to get endorsement on this application form from any bank, having license of doing exchange trade; giving assurance that the concerned bank will transact for the exchange if released to the importer. It is to be mentioned in the application form how much currency of which country in American dollars at the current exchange rate is required.
(3) Placing order : The importer places order known as Indent to the exporter after arranging for the import license exchange. Details of names and addresses of importer and exporter, all the details pertaining to the goods, when the goods will be required and others are mentioned in the indent. Indent firms are also working in India
(4) Sending letter of Credit : On receiving the indents exporter asks for the letter of credit reference. Either by depositing the amount which is the total value of the import in the form of exchange released by the central bank or the importer’s own exchange with his account with the exchange trading bank and endorsing bank on application form or even without depositing, the amount, looking to the prestige of importer, he can get credit reference. The importer has to send this letter. of credit to the exporter.
(5) Vetting documents from exporter : Exporter mostly sends the documents under D/A. or D/P method through bank after completing export procedure. Importer will take possession of the documents. Sometimes, exporter sends documents directly to importer.
(6) Getting order of receiving goods : The bill of lading is one of the documents received by the importer on which exporter has made an endorsement indicating the transfer of ownership to the importer. This document is to be-presented to the office of transporting company situated in the area of the importer. The possession of goods is with the transporting company. After paying the freight, (if it is to be paid by the importer) and after satisfying the transport company regarding other matters the importer will get the endorsement of transport company giving order to the controller to release goods to importer. After getting this endorsement the negotiability of bill of lading is enhanced. So, by transferring bill of lading importer can sell incoming goods.
(7) Payment of custom duty : All the details pertaining to goods, names of the exporter and his country, name of conveyance, etc. are to be- filled in the Bill of Entry, if custom duty is to be paid fully or at reduced rate with the help of Consular Invoice and Certificate of origin. Importer has to state that he wants to re-export the imparted goods, if he wants to do that. Custom officer determines the amount of custom duty on the basis of that. Custom officer endorses the Bill of Entry and gives it to importer, if custom duty is paid. This endorsement states that custom duty has been paid.
(8) Paying port expenses : After the arrival of the vehicle and before getting the delivery of goods from the airport, marine port or from the station in rail / road transport, the importer has to pay for the required expenses of. that place., These expenses known as Dock charges are to be paid to get the services and help of the instruments and personnel available at that place. This will help him in unloading the goods and in taking possession of them. The transport company and the port authorities give certain time period to carry away the goods. After the expiry of that time-period charges known as demurrage are levied whenever goods are released.
Thus, import procedure is completed. Of course, goods on which custom duty is not paid can be stored in Bonded godown. Services of forwarding or clearing agents can be taken.
5. Documents
The necessary and important documents in foreign trade are as under
(1) Bill of lading (2) Certificate- of Origin (3) Consular Invoice (4) Mate’s Receipt and (5) Other documents which have been discussed earlier.
(1) Bill of Lading : Bill of Lading, Truck Receipt: T/R, Railway Receipt: R/R and Air Receipt : A/R are the documents serving the same purpose. These documents are indicating that the possession of goods is in the vehicle stated in the receipt and it is in the possession of the transport company. The ownership of this document suggests the ownership of goods. The Transport company gives this document to the exporter. This document is negotiable. Complete details of goods, price, name of vehicle, name of the vehicle controller, details of packing and mark, name of the importer and information of his place, amount of freight, etc. are stated in this document. Exporter transfers the ownership of goods by giving endorsement on this document. Importer also can transfer its ownership to others by endorsing by second endorsement of the document.
(2) Certificate of origin : Certificate mentioning the country in which the goods have been produced is known as Certificate of Origin. When two countries enter into agreement to favour each other in trade, it is necessary to be careful that the goods produced only in these countries are exported and are entitled to relief in custom duty, etc. is given on those goods only. So, the exporter gives the Certificate of Origin on affidavit by mentioning the price and by describing the goods completely. Sometimes the office bearer of the local chamber of commerce confirms its origin by putting hi9 signature.
(3) Consular Invoice : This invoice is also serving in the same manner as the certificate of origin. The trade consular of importer’s country is there in exporter’s country. The Consular examines the details of goods and other matter to see whether they are according to the conditions of agreement which was entered into for mutual favour in the trade between the countries of the importer and exporter. If he is satisfied he will state that goods stated in invoice is worthy for the benefits according to the agreement by putting his signature duly stamped. It becomes Consular Invoice if signed and stamped by the consular.
(4) Mate’s Receipt : This document is intermediary. Especially in marine transport the office of the shipping company is away from the port. So, it is not possible for transport company to give final negotiable receipt immediately on getting goods. The controller of the ship is known as Captain. As captain cannot examine the goods shipped personally, he delegates that work to his representative. This representative is known as a Mate. The Mate compares goods shipped with the shipping order. He examines whether packing of goods is seaworthy. He examines the other related matters also. If he is satisfied he will give a chit or a receipt giving information about the goods ‘shipped and have come into his possession without any remark. This chit is known as clean Mate’s receipt. If reference of defect in goods or in packing is made in it, that receipt is known as Dirty Foul Receipt, which means it is a defective receipt. The shipping company’s office takes away this receipt on being presented and gives Bill of Lading in exchange of it.
5. Form and Importance of Free Trade Zone :
Free trade zones have come into existence as apart of efforts for increasing the exports. These zones have been established by the Central Government of India in different parts of the country. They are known as Export Processing Zones also. Thus, export promotion zones and free trade zones mean the same. Kandla, Santacruz (Mumbai), Falta, Noida, Kochi
The contribution of these areas in increasing the exports is significant. Whatever is the importance of export growth in the economy, the same is the importance of these zones.
These areas provide important service of training schools for making other areas of the country objective oriented. All the activities of the business units established with the sole objective of export become objective oriented. As units in the hinterland of the country have no such objective orientation, they become weak. Free trade zones areas become training schools showing attractive results of objective orientation.
Now, due to inception of quick and cheap media of communication and the innovation of other economical and more fruitful alternatives for export promotion, the importance of these areas has reduced.
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