International Trading
Process,Terms, Documents
&
Letter of Credit
What is foreign/International trade?
International business is a trade
done among different countries or trade across the political borders.
International trade deals with
business transactions that take place between citizens of different nations and
which considerations of commercial diplomacy that spring from such business
transactions.
Type of International Trade
Import Trade: If one country purchases
product/service from another country that’s call Import Trade. There should
at-least two countries involved in Import Trade. The countries, which purchase
the product/service-call Importing Country and the person/company purchasing
the product/service is known as Importer
Export Trade: If one country sells product/service to another
country that’s call Export Trade. Any country selling product/service to
another is known as Exporting country,
the person/company selling the product/service is known as Exporter.
Barter Trade: Any product/service sold or purchase in exchange of
another product/service from one country to another is known as Barter Trade.
Hidden Trade: Smuggling,
Hundi (money laundering) falls under Hidden Trade. Illegal transfer of
product/service between the territories is known as Smuggling and similarly
unauthorized transfer of money between the territories is called Hundi.
Process of
International Trade Transaction:
Classification of
Exporters (Example)
Classification of
Importers (Example):
THE EXPORT &
IMPORT PROCESS:
Leaving The Exporting Country
|
Physical Distribution
|
Entering The Importing Country
|
LICENSES
DOCUMENTATION
|
INTERNATIONAL SHIPPING & LOGISTICS
PACKING
INSURANCE
|
TARIFFS, TAXES
NON-TARIFF
BARRIERS
|
POLITICAL / GOVERNMENT
POLICIES ON EXPORT TRANSACTION:
Restrictive Government Polices
Exchange Controls
Tariff & Quota Restrictions
Expropriation
Export/Import
Licences
Trade
Embargos
Anti-dumping
Legislation
Pre-shipment
Inspection / Price Comparaison
Resale Price Restriction
Health Requirements
Policies on Hazardous Goods
Taxation
Standards
Etc
CURRENCY POLICIES OF
THE IMPORTING & EXPORTING COUNTRIES:
- Foreign exchange policies & procedures
- Licensing
- Fluctuation and Hedging of Foreign Exchange Exposure
- Etc…
BUYER’S MAIN
OBJECTIVES TO A TRANSACTION
Contract fulfillment:
To receive the correct quantity and quality of
the goods purchased or service required.
To receive in timely manner and at the correct
place, the goods purchased or services required
Assurance that he does not have to pay the
seller until he is certain that the seller has fulfilled his obligations
correctly.
Credit:
A managed Cash Flow, with the possibility of obtaining bank
finance
To defer payment as long as possible
Convenience:
The convenience of using an intervening third party in whom
both the buyer and seller have confidence-such as a bank with its Documentary
Credit Expertise-when payment is to be made
.
SELLER’S MAIN
OBJECTIVES TO A TRANSACTION
Contract fulfillment:
Assurance that he will be paid in full within the agreed
time
To deliver contracted goods/services as quickly as possible.
Prompt Payment:
Prompt payment on completion of his contractual obligation,
so as to improve the liquidity of his business.
To receive payment of the correct amount and in the correct
currency
Convenience:
To convenience of receiving payment at his own bank or
through bank in his own country
REQUIREMENTS OF COMMERCIAL AND FINANCIAL
DOCUMENTARY
GOODS EXPORTING
METHODS FROM ONE COUNTRY TO ANOTHER
The exporter mostly requires following documents
Purchase Order – The importer may send purchase order to exporter
after initial confirmation. The detailed terms and conditions are mentioned in
the P/O, which are to be performed by the exporter.
License – Exporter need to get Export License or Export
registration Certificate from the export control authority (in Bangladesh, it
is known as Chief Controller of Imports & Exports, web: www.ccie.gov.bd). Before importing goods it
needed to be ensured whether the exporter the exporter has license or not.
Foreign Exchange Control – Generally all exporters in Bangladesh need
to declare that they will submit all foreign currency to the Bangladesh Bank
(Central Bank) through their own Bank.
Sales Contract – After getting final order, exporters generally
sign Sales Contract with the importers; in which describe all terms and
conditions in details.
Letter of Credit (L/C) – After signing the Sales Contract exporter
requests the importer to open Letter of Credit. Importers then open L/C through
their bank. After receiving the L/C copy exporters then scrutiny the all terms
and condition of the L/C carefully. If there is any discrepancy, incorrect
information or error found then exporter ask the importer to make necessary
amendment(s)/correction(s) in the L/C through their Bank.
Shipping Arrangement – After receiving the L/C the exporter
immediately charter vessel to ship the cargo, if the cargo quantity is
full-ship-load, they sign agreement with the shipping company or through
freight forwarder. If the cargo quantity is less then they book a part space on
the vessel. Usually goods are shipped by containers (20 Ft. / 40 Ft). Exporter
can book full container or part depending upon cargo quantity, weight, size
value etc..
Exchange Rate – The L/C opening bank fix the exchange rate in which
they will pay to exporter according to State Bank regulation.
Procurement of Goods – The exporter procure/produce goods from the
manufacturer/stockiest/wholesaler etc. They might have ready stock too.
Insurance – While supplying goods by vessel/air/rail/road there might
be any accident/pilferage/damage of goods so the exporter do insurance. For
importing goods in Bangladesh ,
usually importers make the insurance; it is also mandatory to have the
insurance.
Inspection - Sometimes importers require to that cargo to be
inspected by a competent authority for price, quantity, quality etc.
Shipment – Goods been carried to the port for loading by the
exporter, after having customs formalities done the vessel authority (usually
Master/Captain) receives the goods.
Mate Receipt – After receiving the goods vessel authority (usually
Master/Captain) issues a receipt acknowledging the cargo, mentioning its
quantity and condition. The importers need to go through these formalities
during shipment of bulk cargo, otherwise the shipping company people do these
formalities.
Bill of Lading – Having the copy of Mate receipt the shipping
company issues Bill of Lading (B/L). If exporter paid the freight then it is
called “Freight Prepaid” B/L and if the importer needs to pay the freight then
it is call “Freight Collect” B/L. Bill of Lading contains cargo
description, quantity, weight, packing; shipping mark and conditions etc, the
shipping company is liable to handover the same cargo as mentioned in the B/L
to the importer.
Export Documents – After loading the cargo on the vessel the
exporter needs to prepare/collect the documents required in the L/C. The major
documents required are:
- Bill of Exchange
- Commercial Invoice
- Bill of Lading
- Certificate of Origin
- CRF/PSI
Exporter needs to submit all
required documents to their bank (L/C receiving Bank) and then the bank send to
the L/C opening bank.
Shipment Advice – The
exporter needs to inform the expected date of cargo arrival, shipping brief and
shipped cargo details to the importer.
Payment – Exporter then pursue
the importer for payment. The L/C opening bank scrutinizes all the documents
very carefully before releasing the payment.
Conclusion of Transaction – The
formal way to conclude the transaction is by sending a report on whole deal.
Exporter also sends a letter of thanks to the importer.
Arbitration – if there is
any dispute, which could not be solved amicably/mutually then the matter
referred to the Arbitrators nominated by each party.
METHODS OF IMPORTING GOODS
FROM ONE COUNTRY TO ANOTHER
Importer usually require
following documents:
License – At first
importer needs to get Import license from the import control authority. In Bangladesh ,
there is no requirement to have import license. However importers need get Import
Registration Certificate (IRC) from the Chief Controller of
Import & Export (CCIE).
Purchase Order – The
importer may send purchase order to the exporter after initial confirmation.
The detailed terms and conditions are mentioned in the P/O, which are to be
performed by the exporter.
Sales/Purchase Contract – Either
the importer or exporter may ask to sign Sales/Purchase Contract, which is similar
to purchase order.
Arrangement of Foreign
Currency – Generally all import items are paid in foreign currency, so that
importer needs to make arrangement of equivalent amount of foreign currency
before any import. Sometimes bank allow importers to open L/C with part payment
(known as L/C Margin) but they (Importers) needs to clear the full payment during
retiring the documents. The percentage of L/C Margin depends on Bank-Client
relationship.
Proforma Invoice (PI)/ Intent –
The exporter or their authorized agent issue Proforma Invoice (PI) mentioning
detailed terms and conditions, in which L/C to be opened. If the exporter has
an Indentor in the host country then the indentor issues an indent to the
importer, which is similar to Proforma Invoice, they amount of commission is
also mentioned in the indent.
Letter of Credit (L/C) – After
accepting all terms and conditions the importer ask their bank to open Letter
of Credit. The L/C opening bank sends the L/C by Telex, Swift Method or by
Courier Service (Mail) depending on the choice of Importer/Exporter. Telex is
used in common practice.
Inform to Exporter – The importer
needs to inform the exporter that they have already opened the L/C so that
exporter can collect the same from their bank or advising bank.
Delivery of Goods – Importers
need to go through some formalities through their Clearing Agent with Customs,
Port Authority; Shipping Agents etc. to get delivery of the goods.
Payment – if the L/C
opening bank found all the documents in order send by the exporter as per L/C requirement
then they (bank) release the payment from the importers account.
Conclusion of Transaction – The
formal way to conclude the transaction is by sending a report on whole deal.
Exporter also sends a letter of thanks to the importer.
Arbitration – if there is
any dispute, which could not be solved amicably/mutually then the matter
referred to the Arbitrators nominated by each party.
MAJOR SHIPPING
DOCUMENTS
Bill of Exchange: A
bill of Exchange is an unconditional order in writing, addressed by exporter to
the importer, signed by the authorized person giving it, requiring the importer
to whom it is addressed to pay on demand or at fixed or determinable future
time a sum certain in money to or to order of a specified person or to bearer.
Commercial Invoice – Every International transaction
requires a commercial invoice, it is a bill or statement of goods sold. It
serves several purposes depending upon the exporting or importing country
commercial practice. Commercial Invoice contains following information:
Date
Name & address of the buyer & seller
Description and quality (package, gross weight,
net weight etc.) of the product
Shipping Marks (if any)
Unit price & total amount of the supplied
goods
Details of shipment
Letter of Credit (L/C) number
Other terms as required in the L/C
Bill Of Lading (B/L) –
The bill of lading is the most important document required for establishing
legal ownership and facilitating financial transactions. It serves the
following purpose.
As a contract for shipment between the carrier
and shipper
As a receipt from the carrier for shipment
As a certificate of ownership or title to the
goods
Bills of Lading (B/L) are issued in the form of
Straight Bills - are negotiable and are delivered directly to the
consignee,
Order Bills - are negotiable instruments.
Bill Of Lading (B/L) - frequently referred to as being
either Clean or Foul.
A Clean B/L means the cargo received by the carrier of shipment was
properly packaged and clear of apparent damage.
A Foul B/L means the cargo received by the carrier of shipment in
damaged condition and the damage is noted on the B/L
To be continued.....Please keep in touch