GROUP ASSIGNMENT

GROUP’S MEMBER:

Nguyen Thi Thuy Trang - HS 173032

Nguyen Hien Trang - HS170447

Quach Dinh Nam - HS 170815

Nguyen Tan Dung - HS170189

Do Hoa Vinh - HS171264

Le Viet Hung - HS176116

CLASS: IB1709

INSTRUCTOR: Cung Thi Anh Ngoc

COURSE: IIP301_International Payment

Topic: Commercial Invoice - Consular invoice - Certificate of origin

 TABLE OF CONTENTS

I. Commercial Invoice............................................................................................................ 2
1. Definition........................................................................................................................ 2
2. Functions........................................................................................................................5
3. Cautions & Notes........................................................................................................... 5
4. UCP 600 Regulations for Commercial Invoices............................................................. 6
II. Consular Invoice................................................................................................................ 9
1. Definition........................................................................................................................ 9
2. Advantages and disadvantages when a country requires a consular invoice when
importing.............................................................................................................................9
III. Certificate of Origin......................................................................................................... 11
1. Definition.......................................................................................................................11
2. Types of Certificates of Origin:..................................................................................... 12
3. Function........................................................................................................................13
4. Issuance....................................................................................................................... 14
5. Content of a certificate of origin:...................................................................................14
6. Cautions ad notes........................................................................................................ 17
IV. Reference.........................................................................................................................17

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I. Commercial Invoice

1. Definition

The commercial invoice is the key accounting document describing the commercial
transaction between the buyer and the seller. It's a document that is issued by the person or
company who is selling. This way, the border authorities know exactly what's crossing in or
out of their country.

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Types of Commercial Invoice:

● Pro forma invoice: Used to provide buyers with an estimate of the cost of goods
before the final sale is made.

● Standard invoices: Used to request payment for goods or services already delivered.

● Consular invoices: Required by some countries to verify the authenticity of the

invoice and ensure that customs duties and taxes are correctly assessed.

Key Elements: The commercial invoice includes the following elements:

● Name and address of seller

● Name and address of buyer

● Date of issuance

● Invoice number

● Order or contract number

● Quantity and description of the goods

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● Unit price, total price, other agreed upon charges, and total invoice amount stated in
the currency of the documentary credit (e.g., US$, DM, ¥, etc.)

● Shipping details including: weight of the goods, number of packages, and shipping
marks and numbers

● Terms of delivery and payment

● Any other information as required in the documentary credit (e.g., country of origin)

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2. Functions

- Payment function: This is a legal document for the seller to claim money from the
buyer. The commercial invoice will detail the contents related to money such as the
total price in numbers and words, the price of each item, unit, currency ... and have
full seals and signatures to ensure payment obligations.

- Customs declaration function: The commercial invoice is an important procedure for

customs clearance of goods. It also shows the price as the basis for calculating import
and export tax (other additional costs can be declared). Some other information such
as invoice number, invoice issuance date is used to declare the electronic declaration.

- Basis for comparison: Used to compare information with other types of documents
during the process of the parties implementing the contract as well as carrying out
related import and export procedures.

- Insurance amount calculation function: The price on the commercial invoice is used
as the basis for calculating the insurance amount.

3. Cautions & Notes

● The description of the goods in the commercial invoice correspond precisely with the
description of goods in the documentary credit.

For example:

Commercial invoice Letter of credit

● The invoice amount should match exactly (or at least should not exceed) the amount
specified in the credit. Banks have the right to refuse invoices issued for amounts in
excess of the amount stated in the credit. Unless when a documentary credit specifies

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 "about" in relation to the currency amount and quantity of merchandise, in which case
the invoice may specify an amount equal to plus or minus 10 percent of the stipulated
amount of the credit.

For example:

Letter of credit Commercial invoice

● The invoice should be made out in the same currency as the credit amount.

● The commercial invoice must be made out in the name of the applicant (buyer). The
exception: In a transferable documentary credit the invoice may be made out to a third
party.

● The buyer, seller, and bank(s) should all carefully check for discrepancies in the
invoice. The details specified therein should not be inconsistent with those of any
other documents, and should exactly conform to the specifications of the credit.

4. UCP 600 Regulations for Commercial Invoices

a. A commercial invoice:

i. must appear to have been issued by the beneficiary (except as provided in article 38);

The commercial invoice issued by the Beneficiary of the L/C/ Seller. For example, this is a
commercial invoice between the seller FuJi Trading Co. Limited and the applicant Phuc Vien
Xuan Company Limited. According to the spirit of the above clause, this invoice must be
issued by Fuji.

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However, in the case of a transferable credit, the first beneficiary (beneficiary of L/C) will not
be the party issuing the invoice. They typically act as a middleman. The second beneficiary
will issue invoices for transactions related to the goods or services. Since the secondary
beneficiary is the direct supplier of the goods, they will issue a commercial invoice to record
the sale to the first beneficiary. This means that the invoice can be issued by the second
beneficiary without needing to be issued by the first beneficiary.

ii. must be made out in the name of the applicant (except as provided in sub-article 38
(g));

In the commercial invoice, the name of the applicant/ importer must appear on the invoice.
For example: Phuc Vien Xuan Company Limited requests Fuji Trading Company to supply
steel coils products. When Fuji Trading Company issues the invoice for this transaction, the
invoice will be made in the name of Phuc Vien Xuan Company Limited. If the invoice does
not bear the name of Phuc Vien Xuan Company Limited, the bank may refuse payment for
not complying with the requirements of the Letter of Credit (L/C).

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On the other hand, according to article 38g:

"The name of the first beneficiary may be substituted for that of the applicant in the credit.’’

That means if required by the original L/C or nominated by the transfer, the name of the first
beneficiary may replace the name of the principal on certain documents from the best of
definition.

Besides, article 38g also states:

“If the name of the applicant is specifically required by the credit to appear in any document
other than the invoice, such requirement must be reflected in the transferred credit."

This means that if the Letter of Credit does not explicitly require the replacement of the first
beneficiary's name with that of the applicant on the invoice, this is not mandatory.

In a transferable L/C, the first beneficiary is not the direct supplier of the goods; instead, they
purchase goods from another supplier (the secondary beneficiary). When the first beneficiary
receives the L/C from the buyer, they transfer the L/C to the secondary beneficiary for that
supplier to deliver the goods directly. After the secondary beneficiary delivers the goods, they
will issue a commercial invoice with the first beneficiary’s name as the buyer. According to
the records of the secondary beneficiary, the first beneficiary is the party purchasing from
them. This invoice specifies the value of the shipment, details of the goods, and the
information of the first beneficiary as the buyer. This is the invoice that the first beneficiary
will use to fulfill payment requirements from the bank.

iii. must be made out in the same currency as the credit;

The invoice must be issued in the same currency as the amount stated in the credit. For
example, if the Letter of Credit is in USD, the Commercial Invoice must also be in USD.

iv. need not be signed.

According to UCP 600, there is no requirement for the issuer to sign the commercial invoice.
However, in practice, the seller who issues the invoice will still sign and stamp it so that the
buyer can use it for purposes other than payment, such as presenting it to customs authorities
or for the accounting department’s record-keeping.

b. A nominated bank acting on its nomination, a confirming bank, if any, or the issuing
bank may accept a commercial invoice issued for an amount in excess of the amount
permitted by the credit, and its decision will be binding upon all parties, provided the Bank
in question has not honored or negotiated for an amount in excess of that permitted by the
credit.

It can be understood that with the term “MAY,” the bank may not be obligated to accept an
invoice that exceeds the value of the L/C. However, if the nominated bank chooses to accept
it, this choice will be binding on the parties, as long as the payment amount to the beneficiary

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does not exceed the value of the L/C. Such a provision allows the designated bank to accept
the invoice if it wishes.

Example:

● L/C amount: USD 150,000.00

● Invoice amount: USD 160,000.00 (exceeding the allowed L/C amount by USD
10,000.00)

In accordance with the above provision, the nominated bank, confirming bank, or issuing
bank may accept this invoice but would only pay the amount of USD 150,000.00. The
difference of USD 10,000.00 can be settled by the customer outside of the L/C according to
the sales/service contract.

c. The description of the goods, services or performance in a commercial invoice must

correspond with that appearing in the credit.

The description of the goods in the commercial invoice must match exactly with the
description of the goods in the documentary credit.

II. Consular Invoice

1. Definition

Consular Invoice: An invoice issued by the consulate in the country where the buyer lives
and works in the seller's country. This invoice will be stamped, authorized by the consulate
and has the same value as a certificate of origin. The purpose of the consular invoice is to
help the government of the importing country verify detailed information about the goods and
prevent commercial fraud, misrepresentation of the value of goods, and smuggling activities.

Example:

Suppose a Vietnamese company imports industrial machinery from Japan. To satisfy the
requirements of Vietnamese customs authorities, the Japanese exporter must provide a
consular invoice for the shipment. This invoice is certified by the Vietnamese consulate in
Japan, clearly stating the details of value, quantity, origin, and type of machinery.

2. Advantages and disadvantages when a country requires a consular invoice

when importing

- Advantages (function):

Controlling the quality and value of goods: Helps customs verify the value, quantity, origin
and nature of goods, preventing false declaration of value to avoid taxes.

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Preventing trade fraud: Ensuring transparency in transactions, preventing smuggling and
trade fraud.

Protecting domestic production: Helps protect domestic industries from unfair competition
from imported goods.

Enhancing national security: Ensuring imported goods do not harm public health and
national security.

- Disadvantages:

Increasing administrative procedures: Exporting enterprises must complete additional

documents, request confirmation from the consulate, causing time and effort loss.

Increasing transaction costs: Fees for applying for, confirming consular invoices and
storage costs if the procedure is prolonged increase the total transaction costs.

Supply chain delays: The process of preparing and validating consular invoices is lengthy,
leading to delays in shipping and delivery.

Difficulties for SMEs: Businesses with limited resources may have difficulty complying
with this requirement, reducing their ability to access international markets.

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III. Certificate of Origin

1. Definition

Certificate of Origin (C/O) is a document issued by a competent authority of the exporting

country, certifying that the exported goods were produced in that country. The C/O must
comply with the regulations of both the exporting and importing countries in accordance with
the rules of origin.

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The primary purpose of a C/O is to verify that the goods have a clear and legitimate origin,
ensuring compliance with tax regulations and other legal requirements related to import and
export between the two countries. It serves to confirm that the goods are not contraband or
untraceable, thereby verifying their lawful production and source.

2. Types of Certificates of Origin:

● Non-preferential certificate of origin:

A Non-preferential Certificate of Origin, also known as an Ordinary Certificate of Origin,

certifies the country of origin of a product without granting eligibility for preferential tariffs
under preferential trade agreements. This type of certificate simply affirms the product's
origin without conferring any special tariff incentive.

● Preferential certificate of origin:

Preferential C/O is a type of certificate of origin that helps a country's exported goods enjoy
tariff preferences when imported into partner countries under specific bilateral or multilateral
free trade agreements. This type of C/O proves that the goods meet specific origin criteria,
qualifying for lower tariffs or tax exemptions under international commitments between
countries.

Unlike non-preferential certificates of origin, which usually only state the country of origin in
the title, preferential certificates will state at the beginning of the document which trade
agreement the certificate is issued under.

● Forms of certificate of origin

With the increase of trade agreements, many different forms of certificates of origin have
been used in international trade. There are many types of C/O, depending on each specific
shipment (what type of goods, which country it goes to/from...) there will be a separate CO
form.

Example some common C/O forms in Vietnam are:

- C/O Form E. Goods exported to China and ASEAN countries are eligible for tariff
preferences under the ASEAN-China agreement
- C/O Form AK (ASEAN-Korea). Goods exported to Korea and ASEAN countries are
eligible for tariff preferences under the ASEAN-Korea agreement.

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 - C/O Form VJ (Vietnam-Japan). Goods exported to Japan are eligible for tariff
preferences under the Vietnam-Japan agreement.

● Electronic Certificate of Origin (eCO):

Electronic CO is a form of issuing a certificate of origin of goods in electronic form, instead

of the traditional paper form. Electronic CO has the same legal effect as traditional paper CO.

The application of electronic CO helps reduce time and costs in the CO issuance process,
while increasing transparency and information security in international trade. Electronic CO
is often issued through the information portals of state agencies or authorized organizations.

3. Function

The Certificate of Origin (CO) serves several important functions in international trade:

● Proof of Origin

The primary function of the CO is to certify the country where the goods were produced,
manufactured, or processed. It ensures that goods are identified as originating from a
particular country, which is critical for customs clearance.

● Determination of Tariffs and Duties

Customs authorities use the CO to determine the applicable tariffs, duties, and taxes. Goods
originating from countries with favorable trade agreements may qualify for reduced or zero
tariffs, while those from restricted countries may face higher duties.

● Trade statistics and maintenance of quota systems:

Determining the origin of goods will make it easier to compile trade statistics for a country or
region.

● Promote trade

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CO makes the origin of goods transparent and creates trust between partners, thereby
promoting international trade more easily and effectively.

In summary, the Certificate of Origin is crucial for determining the origin of goods, ensuring
compliance with trade agreements, and facilitating the smooth movement of goods across
borders.

4. Issuance

According to clause L3 mentioned in ISBP745, the party issuing C/O is divided into 4 cases:

● Specified in the Credit:

When a letter of credit (L/C) explicitly names the entity responsible for issuing a certificate
of origin, the certificate must be issued by that specified entity. The named issuer could be a
Chamber of Commerce, a specific industry association, or any other authority as stated in the
credit.

● Not Specified in the Credit:

If the letter of credit does not indicate a particular issuer for the certificate of origin, the
flexibility of issuance increases. In such cases, any entity may issue the certificate of origin,
allowing exporters or beneficiaries to obtain the document from a variety of sources,
provided the certificate meets the general requirements for authenticity.

● Certificates Issued by the Beneficiary, Exporter, or Manufacturer:

When the letter of credit requires the certificate of origin to be issued by the beneficiary,
exporter, or manufacturer, this condition can be met through various entities. Specifically, the
credit requirement is considered satisfied if the certificate is issued by Chamber of
Commerce, Chamber of Industry, Association of Industry, Economic Chamber, Customs
Authorities, Department of Trade or similar organizations. It is essential that the certificate
indicates the name of the beneficiary, exporter, or manufacturer as required by the credit.

● Certificates Issued by a Chamber of Commerce:

If the credit stipulates that the certificate of origin must be issued by a Chamber of
Commerce, this requirement can also be fulfilled by certificates issued by similar entities,
including: Chamber of Industry, Association of Industry, Economic Chamber, Customs
Authorities, Department of Trade or other equivalent bodies. The above entities are
considered acceptable as long as they can issue a certificate of origin that meets the credit's
conditions.

5. Content of a certificate of origin:

A Certificate of Origin (C/O) must clearly relate to the invoiced goods by including a
description that matches or aligns with the description specified in the credit (L4, ISBP745).
For example, providing a goods description that either matches the credit or uses general

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terms that do not conflict with the description in the credit. For more instance, Referring to
the description found in another required document or a document that is attached to the C/O
(such as the invoice or a packing list) and forms an integral part of it.

5.1 Key details (typically consignor, consignee, and description of goods) regarding the
shipment.

● Consignor: State the specific information of the consignor (name, address,...).

According to article L6 in ISBP745, a certificate of origin may indicate as the
consignor or exporter an entity other than the beneficiary of the credit or the shipper
as shown on any other stipulated document

● Consignee: State the specific information of the consignee (name, address,...).

According to L5, ISBP745, here some points need to be considered. First of all, it
need to ensure that consignee information not to conflict with the consignee
information in the transport document

Secondly, when a letter of credit (L/C) requires the transport document to be issued
“to order” or “to the order of” a specific entity, the certificate of origin may show the
consignee as any party named in the LC, except for the beneficiary. This means the
consignee can be the buyer, the issuing bank, or other entities named in the credit, but
not the seller/exporter (beneficiary). Finally, if the LC has been transferred to another
party (e.g., from one beneficiary to another), the first beneficiary (the original party
that received the L/C) can be shown as the consignee on the certificate of origin. This
is typically seen in cases where the first beneficiary is acting as an intermediary or
middleman in the transaction.

● Description of goods: A detailed description of the goods being shipped, which

usually includes: Weight or volume of goods, The product classification or
Harmonized System (HS) code, and the specific details of the product, including
make, model, or any other distinguishing characteristics.

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These details ensure transparency and accuracy, helping customs officials verify the nature
and scope of the goods involved.

5.2 A statement of origin of the goods

One of the most crucial parts of the Certificate of Origin is the statement declaring the origin
of the goods. This statement verifies the country or region where the goods were produced or
substantially transformed. The purpose of this section is to certify that the goods comply with
the origin criteria under international trade agreements, such as free trade agreements (FTAs).
This information is necessary for customs authorities to assess whether the goods are subject
to tariffs, duties, or specific trade benefits based on trade treaties between the exporting and
importing countries.

5.3 The name, signature and/or stamp or seal of the certifying authority

To authenticate the Certificate of Origin, the document must be signed and stamped by a
recognized certifying authority, which may include chambers of commerce or other
authorized entities. In this section, a C/O should include name of certifying authority,
signature of authorized person and stamp or steal. Firstly, the name should be name of the
certifying authority responsible for verifying and endorsing the C/O. Secondly, signature
should be from authorized person from the certifying authority. This signature confirms that
the authority has reviewed and validated the document. Finally, Stamp or Seal, can be
physical or digital, typically applied by the certifying body to ensure the document’s
authenticity.

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These elements serve as official proof that the Certificate of Origin is legitimate and has been
properly verified.

6. Cautions ad notes

- According to ISBP 745, article L7, when L/C indicates the origin of the goods without
stipulating a requirement for the presentation of a C/O, any reference to the origin on
a stipulated document is not to conflict with the stated origin. For example, when a
credit indicates “origin of the goods: Germany” without requiring the presentation of
a certificate of origin, a statement on any stipulated document indicating a different
origin of the goods is to be considered a conflict of data.

- According to ISBP 745, article L8, a certificate of origin may indicate a different
invoice number, invoice date and shipment routing to that indicated on one or more
other stipulated documents, provided the exporter or consignor shown on the
certificate of origin is not the beneficiary.

IV. Reference

UCP600

ISBP 745_Certificate of origin

Document:

1. Certificate of origin: CO origin.pdf

2. Invoice: Invoice.pdf

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