International Trading

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 General Validation DOCUMENTATION Export Declaration Commercial Invoice Bill of Lading Certificate of Origin Special Certificate Other Documents	INTERNATIONAL SHIPPING & LOGISTICS PACKING INSURANCE	TARIFFS, TAXES NON-TARIFF BARRIERS Standards Inspection Documentation Quotas Fees Licences Special Certificate Exchange Permits Other 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