Exporting and Importing

Exporting refers to sending of goods and services from the

home country to a foreign country. In a similar vein, importing
is purchase of foreign products and bringing them into one’s
home country. There are two important ways in which a firm
can export or import products: direct and indirect
exporting/importing. In the case of direct
exporting/importing, a firm itself approaches the overseas
buyers/suppliers and looks after all the formalities related to
exporting/importing activities including those related to
shipment and financing of goods and services. Indirect
exporting/importing, on the other hand, is one where the
firm’s participation inthe export/import operations is
minimum, and most of the tasks relating to export/import of
the goods are carried out by some middle men such as export
houses or buying offices of overseas customers located in the
home country or wholesale importers in the case of import
operations. Such firms do not directly deal with overseas
customers in the case of exports and suppliers in the case of
imports.
Advantages
Major advantages of exporting include:
• As compared to other modes of entry,
exporting/importing is the easiest way of gaining entry into
international markets. It is less complex an activity than
setting up and managing joint-ventures or wholly owned
subsidiaries abroad.
 • Exporting/ importing is less involving in the sense
that business firms are not required to invest that much time
and money as is needed when they desire to enter into joint
ventures or set up manufacturing plants and facilities in host
countries.
• Since exporting/importing does not require much of
investment in foreign countries, exposure to foreign
investment risks is nil or much lower than that is present when
firms opt for other modes of entry into international business.
Limitations
Major limitations of exporting/importing as an entry mode of
international business are as follows:
• Since the goods physically move from one country
to another, exporting/importing involves additional
packaging, transportation and insurance costs. Especially in
the case of heavy items, transportation costs alone become an
inhibiting factor to their exports and imports. On reaching the
shores of foreign countries, such products are subject to
custom duty and a variety of other levies and charges. Taken
together, all these expenses and payments substantially
increase product costs and make them less competitive.
• Exporting is not a feasible option when import
restrictions exist in a foreign country. In such a situation, firms
have no alternative but to opt for other entry modes such as
licensing/franchising or joint venture which makes it feasible
to make the product available by way of producing and
marketing it locally in foreign countries.
 • Export firms basically operate from their home
country. They produce in the home country and then ship the
goods to foreign countries. Except a few visits made by the
executives of export firms to foreign countries to promote
their products, the export firms in general do not have much
contact with the foreign markets. This puts the export firms in
a disadvantageous position vis-à-vis the local firms which are
very near the customers and are able to better understand
and serve them.
Despite the above mentioned limitations, exporting/importing
is the most preferred way for business firms when they are
getting initially involved with international business.
As usually is the case, firms start their overseas operations
with exports and imports, and later having gained familiarity
with the foreign market operations switch over to other forms
of international business operations.
Export-Import Procedures and Documentation
A major distinction between domestic and international
operations is the complexity of the latter. Export and import
of goods is not that straight forward as buying and selling in
the domestic market. Since foreign trade transactions involves
movement of goods across frontiers and use of foreign
exchange, a number of formalities are needed to be
performed before the goods leave the boundaries of a country
and enter into that of another. Following sections are devoted
to a discussion of major steps that need to be undertaken for
completing export and import transactions.
Export Procedure
The number of steps and the sequence in which these are
taken vary from one export transaction to another. Steps
involved in a typical export transaction are as follows.
(i) Receipt of enquiry and sending quotations: The prospective
buyer of a product sends an enquiry to different exporters
requesting them to send information regarding price, quality
and terms and conditions for export of goods. Exporters can
be informed of such an enquiry even by way of advertisement
in the press put in by the importer. The exporter sends a reply
to the enquiry in the form of a quotation—referred to as
Performa invoice. The Performa invoice contains information
about the price at which the exporter is ready to sell the goods
and also provides information about the quality, grade, size,
weight, mode of delivery, type of packing and payment terms.
(ii) Receipt of order or indent: In case the prospective buyer
(i.e., importing firm) finds the export price and other terms
and conditions acceptable, it places an order for the goods to
be despatched. This order, also known as indent, contains a
description of the goods ordered, prices to be paid, delivery
terms, packing and marking details and delivery instructions.
(iii) Assessing the importer’s creditworthiness and securing a
guarantee for payments: After receipt of the indent, the
exporter makes necessary enquiry about the creditworthiness
of the importer. The purpose underlying the enquiry is to
assess the risks of non payment by the importer once the
goods reach the import destination. To minimise such risks,
most exporters demand a letter of credit from the importer. A
letter of credit is a guarantee issued by the importer’s bank
that it will honour payment up to a certain amount of export
bills to the bank of the exporter. Letter of credit is the most
appropriate and secure method of payment adopted to settle
international transactions.
(iv) Obtaining export licence: Having become assured about
payments, the exporting firm initiates the steps relating to
compliance of export regulations. Export of goods in India is
subject to custom laws which demand that the export firm
must have an export licence before it proceeds with exports.
Important pre-requisites for getting an export licence are as
follows:
• Opening a bank account in any bank authorised by
the Reserve Bank of India (RBI) and getting an account
number.
• Obtaining Import Export Code (IEC) number from
the Directorate General Foreign Trade (DGFT) or Regional
Import Export Licensing Authority.
• Registering with appropriate export promotion
council.
• Registering with Export Credit and Guarantee
Corporation (ECGC) in order to safeguard against risks of non
payments. An export firm needs to have the Import Export
Code (IEC) number as it needs to be filled in various
export/import documents. For obtaining the IEC number, a
firm has to apply to the Director General for Foreign Trade
(DGFT) with documents such as exporter/importer profile,
bank receipt for requisite fee, certificate from the banker on
the prescribed form, two copies of photographs attested by
the banker, details of the non-resident interest and
declaration about the applicant’s non association with caution
listed firms. It is obligatory for every exporter to get registered
with the appropriate export promotion council. Various export
promotion councils such as Engineering Export Promotion
Council (EEPC) and Apparel Export Promotion Council (AEPC)
have been set up by the Government of India to promote and
develop exports of different categories of products. We shall
discuss about export promotion councils in a later section. But
it may be mentioned here that it is necessary for the exporter
to become a member of the appropriate export promotion
council and obtain a Registration cum Membership Certificate
(RCMC) for availing benefits available to export firms from the
Government. Registration with the ECGC is necessary in order
to protect overseas payments from political and commercial
risks. Such a registration also helps the export firm in getting
financial assistance from commercial banks and other financial
institutions.
(v) Obtaining pre-shipment finance: Once a confirmed order
and also a letter of credit have been received, the exporter
approaches his banker for obtaining pre-shipment finance to
undertake export production. Pre-shipment finance is the
finance that the exporter needs for procuring raw materials
and other components, processing and packing of goods and
transportation of goods to the port of shipment.
(vi) Production or procurement of goods: Having obtained the
pre-shipment finance from the bank, the exporter proceeds to
get the goods ready as per the specifications of the importer.
Either the firm itself goes inform producing the goods or else
it buys from the market.
(vii) Pre-shipment inspection: The Government of India has
initiated many steps to ensure that only good quality products
are exported from the country. One such step is compulsory
inspection of certain products by a competent agency as
designated by the government. The government has passed
Export Quality Control and Inspection Act, 1963 for this
purpose. and has authorised some agencies to act as
inspection agencies. If the product to be exported comes
under such a category, the exporter needs to contact the
Export Inspection Agency (EIA) or the other designated agency
for obtaining inspection certificate. The pre-shipment
inspection report is required to be submitted along with other
export documents at the time of exports. Such an inspection
is not compulsory in case the goods are being exported by star
trading houses, trading houses, export houses, industrial units
setup in export processing zones/special economic zones
(EPZs/SEZs) and 100 per cent export oriented units (EOUs). We
shall discuss about these special types of export firms in a later
section.
(viii) Excise clearance: As per the Central Excise Tariff Act,
excise duty is payable on the materials used in manufacturing
goods. The exporter, therefore, has to apply to the concerned
Excise Commissioner in the region with an invoice. If the Excise
Commissioner is satisfied, he may issue the excise clearance.
But in many cases the government exempts payment of excise
duty or later on refunds it if the goods so manufactured are
meant for exports. The idea underlying such exemption or
refund is to provide an incentive to the exporters to export
more and also to make the export products more competitive
in the world markets. The refund of excise duty is known as
duty drawback. This scheme of duty drawback is presently
administered by the Directorate of Drawback under the
Ministry of Finance which is responsible for fixing the rates of
drawback for different products. The work relating to sanction
and payment of drawback is, however, looked after by the
Commissioner of Customs or Central Excise Incharge of the
concerned port/airport/land custom station from where the
export of goods is considered to have taken place.
(ix) Obtaining certificate of origin: Some importing countries
provide tariff concessions or other exemptions to the goods
coming from a particular country. For availing such benefits,
the importer may ask the exporter to send a certificate of
origin. The certificate of origin acts as a proof that the goods
have actually been manufactured in the country from where
the export is taking place. This certificate can be obtained from
the trade consulate located in the exporter’s country.
(x) Reservation of shipping space: The exporting firm applies
to the shipping company for provision of shipping space. It has
to specify the types of goods to be exported, probable date of
shipment and the port of destination. On acceptance of
application for shipping, the shipping company issues a
shipping order. A shipping order is an instruction to the
captain of the ship that the specified goods after their customs
clearance at a designated port be received on board.
(xi) Packing and forwarding: The goods are then properly
packed and marked with necessary details such as name and
address of the importer, gross and net weight, port of
shipment and destination, country of origin, etc. The exporter
then makes necessary arrangement for transportation of
goods to the port. On loading goods into the railway wagon,
the railway authorities issue a ‘railway receipt’ which serves as
a title to the goods. The exporter endorses the railway receipt
in favour of his agent to enable him to take delivery of goods
at the port of shipment.
(xii) Insurance of goods: The exporter then gets the goods
insured with an insurance company to protect against the risks
of loss or damage of the goods due to the perils of the sea
during the transit.
(xiii) Customs clearance: The goods must be cleared from the
customs before these can be loaded on the ship. For obtaining
customs clearance, the exporter prepares the shipping bill.
Shipping bill is the main document on the basis of which the
customs office gives the permission for export. Shipping bill
contains particulars of the goods being exported, the name of
the vessel, the port at which goods are to be discharged,
country of final destination, exporter’s name and address, etc.
Five copies of the shipping bill along with the following
documents are then submitted to the Customs Appraiser at
the Customs House:
 • Export Contract or Export Order
• Letter of Credit
• Commercial Invoice
• Certificate of Origin
• Certificate of Inspection, where necessary
• Marine Insurance Policy
After submission of these documents, the Superintendent of
the concerned port trust is approached for obtaining the
carting order. Carting order is the instruction to the staff at the
gate of the port to permit the entry of the cargo inside the
dock.
After obtaining the carting order, the cargo is physically moved
into the port area and stored in the appropriate shed. Since
the exporter cannot make himself or herself available all the
time for performing all these formalities, these tasks are
entrusted to an agent —referred to as Clearing and
Forwarding (C&F) agent.
(xiv) Obtaining mates receipt: The goods are then loaded on
board the ship for which the mate or the captain of the ship
issues mate’s receipt to the port superintendent. A mate
receipt is a receipt issued by the commanding officer of the
ship when the cargo is loaded on board, and contains the
information about the name of the vessel, berth, date of
shipment, description of packages, marks and numbers,
condition of the cargo at the time of receipt on board the ship,
etc. The port superintendent, on receipt of port dues, hands
over the mate’s receipt to the C&F agent.
(xv) Payment of freight and issuance of bill of lading: The C&F
agent surrenders the mates receipt to the shipping company
for computation of freight. After receipt of the freight, the
shipping company issues a bill of lading which serves as an
evidence that the shipping company has accepted the goods
for carrying to the designated destination. In the case the
goods are being sent by air, this document is referred to as
airway bill.
(xvi) Preparation of invoice: After sending the goods, an
invoice of the despatched goods is prepared. The invoice
states the quantity of goods sent and the amount to be paid
by the importer. The C&F agent gets it duly attested by the
customs.
(xvii) Securing payment: After the shipment of goods, the
exporter informs the importer about the shipment of goods.
The importer needs various documents to claim the title of
goods on their arrival at his/her country and getting them
customs cleared. The documents that are needed in this
connection include certified copy of invoice, bill of lading,
packing list, insurance policy, certificate of origin and letter of
credit. The exporter sends these documents through his/her
banker with the instruction that these may be delivered to the
importer after acceptance of the bill of exchange—a
document which is sent along with the above mentioned
documents. Submission of the relevant documents to the bank
for the purpose of getting the payment from the bank is called
‘negotiation of the documents’. Bill of exchange is an order to
the importer to pay a certain amount of money to, or to the
order of, a certain person or to the bearer of the instrument.
It can be of two types: document against sight or document
against acceptance . In case of sight draft, the documents are
handed over to the importer only against payment. The
moment the importer agrees to sign the sight draft, the
relevant documents are delivered. In the case of draft, on the
other hand, the documents are delivered to the importer
against his or her acceptance of the bill of exchange for making
payment at the end of a specified period, say three months.
On receiving the bill of exchange, the importer releases the
payment in case of sight draft or accepts the draft for making
payment on maturity of the bill of exchange. The exporter’s
bank receives the payment through the importer’s bank and is
credited to the exporter’s account. The exporter, however,
need not wait for the payment till the release of money by the
importer. The exporter can get immediate payment from
his/her bank on the submission of documents by signing a
letter of indemnity. By signing the letter, the exporter
undertakes to indemnify the bank in the event of non-receipt
of payment from the importer along with accrued interest.
Having received the payment for exports, the exporter needs
to get a bank certificate of payment. Bank certificate of
payment is a certificate which says that the necessary
documents (including bill of exchange) relating to the
particular export consignment has been negotiated (i.e.,
presented to the importer for payment) and the payment has
been received in accordance with the exchange control
regulations.
Import Procedure
Import trade refers to purchase of goods from a foreign
country. Import procedure differs from country to country
depending upon the country’s import and custom policies and
other statutory requirements. The following paragraphs
discuss various steps involved in a typical import transaction
for bringing goods into Indian territory.
(i) Trade enquiry: The first thing that the importing firm has to
do is to gather information about the countries and firms
which export the given product. The importer can gather such
information from the trade directories and/or trade
associations and organisations. Having identified the countries
and firms that export the product, the importing firm
approaches the export firms with the help of a trade enquiry
for collecting information about their export prices and terms
of exports. A trade enquiry is a written request by an importing
firm to the exporter for supply of information regarding the
price and various terms and conditions on which the latter is
ready to exports goods. After receiving a trade enquiry, the
exporter prepares a quotation and sends it to the importer.
The quotation is known as Performa invoice. A Performa
invoice is a document that contains details as to the quality,
grade, design, size, weight and price of the export product,
and the terms and conditions on which their export will take
place.
(ii) Procurement of import licence: There are certain goods
that can be imported freely, while others need licensing. The
importer needs to consult the Export Import (EXIM) policy in
force to know whether the goods that he or she wants to
import are subject to import licensing. In case goods can be
imported only against the licence, the importer needs to
procure an import licence. In India, it is obligatory for every
importer (and also for exporter) to get registered with the
Directorate General Foreign Trade (DGFT) or Regional Import
Export Licensing Authority, and obtain an Import Export Code
(IEC) number. This number is required to be mentioned on
most of the import documents.
(iii) Obtaining foreign exchange: Since the supplier in the
context of an import transaction resides in a foreign country,
he/she demands payment in a foreign currency. Payment in
foreign currency involves exchange of Indian currency into
foreign currency. In India, all foreign exchange transactions
are regulated by the Exchange Control Department of the
Reserve Bank of India (RBI). As per the rules in force, every
importer is required to secure the sanction of foreign
exchange. For obtaining such a sanction, the importer has to
make an application to a bank authorised by RBI to issue
foreign exchange. The application is made in a prescribed form
along with the import licence as per the provisions of
Exchange Control Act. After proper scrutiny of the application,
the bank sanctions the necessary foreign exchange for the
import transaction.
(iv) Placing order or indent: After obtaining the import licence,
the importer places an import order or indent with the
exporter for supply of the specified products. The import order
contains information about the price, quantity size, grade and
quality of goods ordered and the instructions relating to
packing, shipping, ports of shipment and destination, delivery
schedule, insurance and mode of payment. The import order
should be carefully drafted so as to avoid any ambiguity and
consequent conflict between the importer and exporter.
(v) Obtaining letter of credit: If the payment terms agreed
between the importer and the overseas supplier is a letter of
credit, then the importer should obtain the letter of credit
from its bank and forward it to the overseas supplier. As stated
previously, a letter of credit is a guarantee issued by the
importer’s bank that it will honour payment up to a certain
amount of export bills to the bank of the exporter. Letter of
credit is the most appropriate and secured method of
payment adopted to settle international transactions. The
exporter wants this document to be sure that there is no risk
of non-payment.
(vi) Arranging for finance: The importer should make
arrangements in advance to pay to the exporter on arrival of
goods at the port. Advanced planning for financing imports is
necessary so as to avoid huge demurrages (i.e., penalties) on
the imported goods lying un cleared at the port for want of
payments.
(vii) Receipt of shipment advice: After loading the goods on the
vessel, the overseas supplier dispatches the shipment advice
to the importer. A shipment advice contains information
about the shipment of goods. The information provided in the
shipment advice includes details such as invoice number, bill
of lading/airways bill number and date, name of the vessel
with date, the port of export, description of goods and
quantity, and the date of sailing of vessel.
(viii) Retirement of import documents: Having shipped the
goods, the overseas supplier prepares a set of necessary
documents as per the terms of contract and letter of credit
and hands it over to his or her banker for their onward
transmission and negotiation to the importer in the manner as
specified in the letter of credit. The set of documents normally
contains bill of exchange, commercial invoice, bill of
lading/airway bill, packing list, certificate of origin, marine
insurance policy, etc.
The bill of exchange accompanying the above documents is
known as the documentary bill of exchange. As mentioned
earlier in connection with the export procedure, documentary
bill of exchange can be of two types: documents against
payment (sight draft) and documents against acceptance
(usance draft). In the case of sight draft, the drawer instructs
the bank to hand over the relevant documents to the importer
only against payment. But in the case of usance draft, the
drawer instructs the bank to hand over the relevant
documents to the importer against acceptance of the bill of
exchange. The acceptance of bill of exchange for the purpose
of getting delivery of the documents is known as retirement of
import documents. Once the retirement is over, the bank
hands over the import documents to the importer.
(ix) Arrival of goods: Goods are shipped by the overseas
supplier as per the contract. The person in charge of the
carrier (ship or airway) informs the officer in charge at the
dock or the airport about the arrival of goods in the importing
country. He provides the document called import general
manifest. Import general manifest is a document that contains
the details of the imported goods. It is a document on the basis
of which unloading of cargo takes place.
(x) Customs clearance and release of goods: All the goods
imported into India have to pass through customs clearance
after they cross the Indian borders. Customs clearance is a
somewhat tedious process and calls for completing a number
of formalities. It is, therefore, advised that importers appoint
C&F agents who are well- versed with such formalities and
play an important role in getting the goods customs cleared.
Firstly, the importer has to obtain a delivery order which is
otherwise known as endorsement for delivery. Generally
when the ship arrives at the port, the importer obtains the
endorsement on the back of the bill of lading. This
endorsement is done by the concerned shipping company. In
some cases instead of endorsing the bill, the shipping
company issues a delivery order. This order entitles the
importer to take the delivery of goods. Of course, the importer
has to first pay the freight charges (if these have not been paid
by the exporter) before he or she can take possession of the
goods. The importer has to also pay dock dues and obtain port
trust dues receipt. For this, the importer has to submit to the
‘Landing and Shipping Dues Office’ two copies of a duly filled
in form — known as ‘application to import’. The ‘Landing and
Shipping Dues Office’ levies a charge for services of dock
authorities which has to be borne by the importer. After
payment of dock charges, the importer is given back one copy
of the application as a receipt. This receipt is known as ‘port
trust dues receipt’. The importer then fills in a form ‘bill of
entry’ for assessment of customs import duty. One appraiser
examines the document carefully and gives the examination
order. The importer procures the said document prepared by
the appraiser and pays the duty, if any. After payment of the
import duty, the bill of entry has to be presented to the dock
superintendent. The same has to be marked by the
superintendent and an examiner will be asked to physically
examine the goods imported. The examiner gives his report on
the bill of entry. The importer or his agent presents the bill of
entry to the port authority. After receiving necessary charges,
the port authority issues the release order.