CHAPTER - 12
INTERNATIONAL
BUSINESS
Export /import
trade has to comply with several formalities. In order to boost international
business, the government provides various incentives and concession. It has
also set up various organizations to educate those engaged in foreign trade.
International agencies like World Bank, IMF, WTO, etc.., accelerate the pace of
development and trade amongst different nations.
Types of
foreign trade
Import: purchase of
goods from foreign country for domestic use.
Export: sales of domestic
goods to a foreign country
Entrepot: goods
imported from a foreign country for re- export to another country
Export procedure:
Obtain importers exports code (IEC)
number
Importers exporters’ code number
should be obtained first. This number should be shown in all export- import
documents. Regional import export licensing authority issues this number when
applied for in the prescribed form.
Obtaining regulations –cum- membership
certificate (RCMC)
This certificates is issued
by export promotion council/ commodity board / federation of Indian export
organization / marine products export development agency, etc. this is needed
to obtain facilities , benefits or concessions offered the export- import
policy (EXIM) policy.
Market research
The exporter tries to explore foreign
markets by conducting surveys and market research to procure export order.
Receiving and confirming the export
order
After receiving the export order
the exporter gives the conformation to the importer after careful scrutiny.
Manufacturing goods
The exporter then manufactures or
procures the goods required by the importer. He should adhere to the specification
given by the importer of goods.
Excise clearance
The goods manufactured are
subject to excise duty. But export gods are either exempted or if paid, it s
later refunded to the exporter. So, the exporter has to apply to the excise commissioner
along with the documents like invoice and AR4/AR5 forms.
Pre- shipment inspection and quality
control
In foreign
trade, quality of goods must conform to international standards. In India
quality control and inspection act insists on compulsory quality control and
pre-shipment inspection
Customs clearance
No country will allow goods to cross its border without the permission
of the custom authority. This is to ensure that
Ø
The export and import are lawful
Ø
The value of export and import is
authenticated
Ø
Duty is properly assessed
Ø
The regulatory provision are complied
with
Ø
The data of export and import are
available for compilation
Custom authority grants permission through a document called ‘shipping
bill’. This is prepared by the exporter or his agent. This is submitted to the
customs office along with other documents like invoice, license, inspection
certificate, etc. these documents are checked by the customs officials. The
goods may be physically verified by them at the dock. When the port formalities
are over, permission is granted for shipment of goods. The exporter puts ‘let
ship order’ on the shipping bill. The permission is shown to the master of the
ship who allows the goods to be loaded on the ship. When the goods are loaded,
the captain of the ship misuses a receipts known as ‘mate receipt ‘. This
document is proof of shipment of goods.
Port procedures
The exporter
has to hire a space in the ship well in advance. The agent of the exporter
brings the goods near the port. After paying the port charge and fulfilment the
formalities, permission is granted to bring the goods to the port. The shipping
bill is presented and the goods examined. if everything is in order, the
officer puts “let export order’ on the shipping bill. Then the goods are loaded
under the supervision of a customs preventive officer.
Obtain bill of lading
The agent of
the exporter hands over the mate’s receipt to the shipping company official who
in turn issues a bill of lading.
Submission of document to bank
After
shipment of goods, the relevant documents like bill of lading, bill of
exchange, letter of credit, invoice, etc, are submitted to the bank by the
exporter. The bank then takes steps for completing the formalities for payment.
Import procedure
Obtaining IEC number and RCMC number
The importer has to obtain IEC number and
RCMC
Market research
Importer undertakes market research
and makes enquiries for the required items for import. He then identifies the
products to be imported. After that the enters into the import contract.
Opening a letter of credit
Letter of credit is an
arrangement for payment to the exporter through importers bank. When a letter
of credit is opened, the bank undertakes to make payment to or to the order of
the exporter against stipulated documents and terms and conditions. The
importer approaches his bank to open a letter of credit in favour of the
exporter. The bank will issue a letter of credit taking into account the credit
worthiness of the importer.
Arrival of goods
When the goods reach the importer country, the
person in charge of the carrier informed the officer at dock. He asks him to
unload the cargo on a document called ‘import general manifest’. The details of
goods imported are given in this document.
Informing the importer
The
customer authority informs the importer about the arrival of goods. The
importer of his prepares called ‘bill of entry’ and submits it to customs
authority along with other documents. Bill of entry is a document which customs
officer permits the clearance of the imported goods.
Customs clearance
The bill of entry is marked by the customs officers for assessment of
import duty and appraisement by the appraiser. The appraiser then examines the
documents and issues the examination order. This is then procured by the importer
/ agent of importer and the import duty is remitted.
The bill of entry is handed over to an
official called ‘dock superintendent. He marks the document to the physical
examiner who examines physically the goods. The examiner gives his report on
the bill of entry. The agent of the importer presents the bill of entry to the
port manager who ensures payment of charges.
Export/ import documents
In
foreign trade buyers and sellers are separated by long distances. The business
activities are carried out with the help of documents. Documents protect the
interest of both the buyers and sellers. Documents in the export business may
be divided into two, viz.
1. Principal
export document
2.
Auxiliary export document
1) Principal export documents
Commercial invoice:
it contains a detailed description of the goods supplied by the exporter. The
name of buyer and seller, name of the ship , date of sailing, quality and
price, marks and numbers of packages. Etc., Packing list:
it indicates the nature and number of goods put in each packets/ container with
distinctive numbers and marks. This is to identify the goods contained in each
packages, by the importer. Bill of lading;
it is an important document issued by the shipping company or its agent. Thus a
bill of lading is,
·
An official receipt issued by the
shipping company from goods on board.
·
An evidence of contract to carry goods
·
A document of title to goods
It is also a quasi- negotiable instrument
transferable by endorsement and delivery.
Airway bill:
this is issued by an airline company in case of air carriage. Airway bill is
not a document of title : it can be prepared in such a way that it can made a
transferable document Certificate of inspection:
the certificate of inspection issued byt eh export inspection agency ensure
that the consignment is inspected as per quality control and inspection act. Insurance policy:
exported goods are exposed to perils of sea. So they are invariably insured by
the exporter. He obtains a marine insurance policy from an underwriters or
insurance company. Certificate of origin:
it indicates the country where the goods have been originally produced. It is
generally issued by chamber of commerce, export promotion council, trade associations
etc. Bill of Exchange;
this is document related to the payment for the goods exported. As bill of
exchange is also called ‘draft’ or ‘hundi’. It has three parties, viz., the
drawer, the drawee and the payee.
A
bill of exchange may be:
·
Sight bill: payable at sight or on
presentation
·
Usance bill; payable after a stated
number of days
2) Auxiliary export documents
These documents are
needed in the presentation of the principal export documents
Performa invoice:
it is a quotation sent by the seller to a potential foreign buyer. It gives
description of goods, m price and other terms and conditions. Intimation for inspection;
this document is given by the export inspection agency. The exporter informs
the agency on this document for the inspection of the export goods. Shipping instructions;
it is on this document that the exporter provides various instructions,
connected with the export of goods, 6o the shipping agent. Insurance declaration;
it is on this document that the exporter, who requires insurance , makes a
declaration related to the insurance policy Shipping order;
it is through this document that the shipping company intimates the exporter
about the reservation of space on board the ship. Mate’s receipt;
it is issued by the chief officer of the ship and is an acknowledgement of the
goods on ship. Application for certificate of origin:
this application is submitted to the chamber of commerce/ export promotion
council. It shown the origin of goods. Letter to the bank for collection /
negotiation of documents: this contains details about shipping
documents of the negotiation/ collection.
3) Import documents
The principal
import document is bill of entry. The goods imported are cleared on the
strength of this document.
Bill of entry for home consumption:
when the importer wants to clear the goods in one lot on payment of full
customs duty, this document, which is white in color, is used. Bill of entry for warehousing;
when the importer does not want to pay the duty on imported goods and want the
goods to be transferred to customs recognized bonded warehouses, this document
is used. Ex-bond bill of entry;
this document is used when the importer clears the goods from a bonded
warehouse on payment of duty. Its color is green.
Important terms:
1. Free on board (FOB)
: in FOB contracts , the responsibility of exporter ends with the delivery of
goods on the ships rail at the named port of shipment .
2. Cost and freight (CFR): In
these types of contract, exporter has to bear all the costs and freight to bring
the goods to the named port of destination.
3. Cost, insurance and freight(CIF)
in this type of counteract, the exporter bear all costs and freight for brining
the goods to the named port of destination together with the cost of insurance
against the risk of loss or damage to the goods during the carriage.
Foreign trade promotion: incentives and
organizational support
Export
promotion / incentives
Government has
taken various measures to improve the export position. for this purpose it
announces EXIM policy from time to time. Important such measures adopted are as
follows:
1. Export processing zones (EPZs)
EPZs have been set up to provide internationally competitive duty free
environment for exports. Govt. has taken initiative to provide infrastructural
facilities in these zones to produce goods at lower cost. Custom=ms clearances
and other formalities simplified. No import license is needed to import capital
goods , raw – materials etc., the units in these zones are given exemption for
payment of excise duty from these zones are given exemption for payment of
excise duty for these items bought from domestic market.
2. Cent per cent export oriented units:
these units are set up for the export of the entire products; they can be set
up anywhere in India. They get all the benefits provided to units in the EPZ.
3. Special economi
3. c
zones (SEZ): it has been created to encourage fr5ee trade. It is treated
as a deemed foreign territory for duty purposes. Goods going into the SEZ area
from the domestic tariff area (DTA) is treated as deemed exports. Goods coming
from the SEZ area to the DTA are considered as imported goods.
4. Export houses trading houses, star
trading houses and super star trading houses: these export houses, in different names, are
given national recognition so that they can take all out efforts to promote
exports. The recognition is granted based on their export performance.
5. Export of services: to promote the export of services, various
categories of service houses have been given recognition. Here also recognition
is granted based on their export performance.
6. Export promotion capital goods (EPCG)
scheme: the idea behind this is to encourage import of capital
goods for export production.
7. Deemed exports:
deemed exports refer to those transactions in which goods supplied are not
supposed to leave the country. If goods are supplied to specific categories of
organizations like EPZ, EOV projects funded by United Nations agencies, etc.
they are treated as deemed exports.
8. Duty exemption/ remission schemes:
these schemes are aimed at facilitating import for the purpose of export
production. The duty exemption enables import of inputs for export production.
9. Duty drawback:
under this scheme of duty drawback customs and excise duties on raw materials
and components used in export products are refunded to the exporters.
10. Export finance:
export finance is provided to the exporters at concessional rate. There are two
types of finance requirements, viz.,
·
Pre-shipment finance/ packing credit
·
Post –shipment credit
11. Market
development assistance: under this
scheme assistance is given for marketing Indian products in the international
markets.
12. Tax relief:
tax exemption is allowed to boost exports. Under this scheme, export profits
and foreign exchange earnings from other specified sources are exempted from
income tax.
Brand
promotion and quality awareness; quality is the most important element of export
marketing. In order to promote Indian brands in the overseas market, India
brand equality fund (IBEF) trust has been established in 1996.
Export
Processing Zones
These are set up increases production for export. These are industrial
estates which from enclaves within the national customs territory. They are
usually located near the international air port or sea port. There are seven
export processing zones in India.
1. Kandla
export processing zone, kandla,Gujarat.
2. Santa
Cruz electronic export processing zone (SEEPZ), Santa Cruz, Bombay.
3. Noida
export processing zone (NEPZ) noida , UP
4. Madras
export processing zone (MEPZ), Chennai, Tamil nadu.
5. Cochin
export processing zone (FEPZ) falta, cochin , Kerala
6. Falta
export processing zone (FEPZ) , west Bengal.
7. Visakhapatnam
export processing zone (VEPZ), Visakhapatnam.
The major objectives of these zones
are:
1. To earn foreign exchange
2. To
provide employment
3. To
acquire and update labour and management skills.
4. To
create links between EPZ industries and the domestic economy.
Special
Economic Zones
These are
set up in different parts of the country to provide an internationally
competitive free environment for export production. They may be set up in the
public, private, joint sector or by the state government. The activities in
these zones may be trading, manufacturing or service. They enjoy exemption from
industrial licensing for manufacture of items reserved for SSIs. They are also
exempt form sectarian ceilings on FDI. It is a deemed foreign territory for
purpose of trade operations and duties and tariffs. Goods going into SEZ from
DTA are treated as deemed exports.SEZ are exempted from duty on import of raw
materials and capital goods. If these are procured from DTA, excise duty is
also not payable.
Features
1. A
duty free enclave has been created which is treated as foreign territory for
trade operations.
2. Units
can be set up for manufacturing, trading and service activities.
3. Units
are exempted from routine examination of import and export of cargo by customs
4. Units
should be a positive foreign exchange earner in three years
5. Sale
in domestic market is permitted on payment of duty
6. Duty
free goods are allowed to be utilized within the approval period of 5 years
7. Subcontracting
of production is allowed
8. 100%foreign
direct investment is permitted through automatic route in the manufacturing
sector.
Organizational support
The government of India has taken
initiative in setting up various institutions to promote and facilitate foreign
trade in our country.
Department of commerce
Department of commerce, coming under the
ministry of commerce, is the apex body in this direction. Department of
commerce helps to better commercial relation with other countries and enhance
export promotional measures and regulations of certain export – oriented
industries and products. it formulates policies on foreign trade –import and
exports –of our country.
Export Promotion Councils (EPCS)
These are registered either as
joint stock companies under the companies act or the societies registration
Act. These are non-profit organizations. The basic objective of these councils
is to promote and develop exports of particular products under their
jurisdiction. There are 21 EPCs at present, dealing with different products.
Commodity boards
These boards are supplementary to
EPCs. These are specially established by the government of India for the
development of production of certain traditional commodities.
Export inspection council (EIC)
It was set up by the central government as
per section 3 of the export quality control and inspection act, 1963. It aim at
development of export trade adhering to strict quality slandered and
pre-shipment inspection. All the commodities meant for export must have the
quality specification prescribed by the EIC, excepting certain items.
Indian Trade Promotion Organization (ITPO)
ITPO was formed by merging two
erstwhile entities, viz., trade development authority and trade fair authority
of India. IT WAS SET UP IN 1992 BY REGISERING AS PER COMPANIES Act, under the
ministry of commerce. Its headquarters is at New Delhi. Being a service
organization it always keeps in touch with trade, industry and the government.
It organizes trade fairs and exhibitions in India and outside. It assists
export firms to participate in international trade fairs and exhibitions.
Indian Institute of Foreign Trade (IIFT)
It was set up in 1963 by the government
of India and is registered under the societies registration Act. It is an
autonomous body. IIFT was formed with the prime objective of introducing
professionalism in the country’s foreign trade management.
Indian Institute of Packaging (IIP)
It was set up in 1966 as a national
institute jointly by the ministry of commerce and the Indian packaging
industry. It acts as the training –cum-research centre for packaging and
testing. It caters to the needs of both domestic and foreign markets.
State Trading Corporation
Domestic firms find it difficult
to complete in the international market. Existing trade channels are either
unsuitable for promotion of exports or are failing in bringing about
diversification of trade with countries other than European countries. Forming
of state trading corporation (STC) in 1956 was to set these shortcomings. The
main objective of STC is to stimulate export trade among different trading
partners across the globe.
World Bank / International Bank for
Reconstruction and Development (IBRD)
The World Bank was reacted at the 1944
Bretton woods conference. Although many countries were represented at that
conference, the US and UK dominated the negotiations. It is based in Washington
D.C. the IBRD is commonly known as World Bank. The IBRD was established with
the original mission of financing the reconstruction of European nations
following world war2. After the reconstruction of Europe it turned its
attention towards eradicating poverty around the world. In 1960, the
international development association (IDA) was set up to serve as the banks
concessional lending arm and provide low and no-cost finance and grants to the
poorest nations whose per capita incomes were below a critical level. The IBRD
began investing in development projects and in social sector of underdeveloped
nations like health and education.
World Bank is a group of five international
organizations
·
International bank for reconstruction
and development(IBRD) 1944
·
International Finance
Corporation(IFC)1956
·
International Development Association
(IDA)1960
·
Multinational Investment Guarantee
Agency(MIGA)1988
·
International Centered For Settlement
Of Investment Disputes (ICSID)1966
Functions
of World Bank
Ø
Granting reconstruction loans to
war-torn nations
Ø
Granting development loans to
underdeveloped nations
Ø
Providing loans to government for
agriculture , irrigation, power , transport, water supply, education , health,
etc.,
Ø
Providing loans to concerns for
specified projects
Ø
Promoting foreign investment by
guaranteeing loans provided by other organizations.
Ø
Providing technical, economic and
monitory advice to member countries for specific projects
Ø
Encouraging industrial development of
underdeveloped countries by promoting economic reforms.
International development association
(IDA)
The
IDA, set up in 1960, is the part of the World Bank that helps the world’s
poorest countries. it helps these countries to reduce poverty by providing
no-interest loans and improving living conditions.
Objectives
ü
To provide development finance to the
less developed countries on easy and flexible terms
ü
To promote economic development ,
increase productivity , raise the standard of living in the less developed
countries
ü
To supplement the objectives and
activities of the world bank
ü
To extend macroeconomic management
services in areas
International Finance Corporation (IFC)
IFC is an affiliated institution of the
World Bank established on July 20, 1956. It assists private enterprises in
developing countries by providing them with risk capital .all the members of
the world bank are eligible to become members in IFC.
Objectives
·
Accelerate the pace of economic
development of the member countries in underdeveloped areas
·
Invest in private productive
enterprises in association with private investors.
·
Bring together investment opportunities
, privae capital, both foreign and domestic and experienced management
·
Stimulate productive investment of
private capital in the developing countries.
Multinational investment guarantee
agency (MIGA)
MIGA is a member of the world
bank group . it was established in 1988 as an investment insurance facility to
encourage confident investment in developing countries.
Objectives
·
To promote foreign direct investment
(FDI) into developing countries
·
To provide insurance facility to
investors against political risks
·
To provide guarantee against
non-commercial risks
·
To target projects that Endeavour to
create new jobs, develop infrastructure and generate new tax revenues.
International Monetary Fund (IMF)
It is the second international
organization next to the World Bank. It was initiated in 1944 at the Britton
woods conference and formally created in 1945 with 29 member countries. Its
headquarters is at Washington D.C .the IMF,s goal was to assist in the reconstruction
of the world’s international payment system post world war 2. The IMF is an
organization of 188 countries working to foster global monitory cooperation ,
secure financial stability , facilitate international trade, promote high
employment and sustainable economic forth and reduce poverty all over the
world.
Objectives
v
To promote exchange rate stability
among the different countries
v
To make an arrangement of goods
exchange between the countries
v
To promote short term credit facilities
to the member countries
v
To assist in the establishment of
international payment system
v
To make the member countries balance of
payment favourable
v
To facilities the foreign trade
v
To promote the international monetary
corporation
World Trade Organization (WTO)
The
WTO, the principal international institution for the management of
international trade, was created at the Uruguay round of trade talks in 1994.
It was to transform the general agreement on tariffs and trade (GATT) into a
permanent institution. GATT negotiations started in Uruguay in 1986 meant for
promotion of free trade. It was the origin of the WTO and a range of
multilateral agreement. It currently has 160 member states. The WTO is
responsible for providing a forum for trade negotiations, handing trade disputes
and monitoring national trade policies.
Functions of WTO
It was only a legal arrangement. The WTO is a
new international organization set up as a permanent body. It is designed to
play the role of a watchdog in the spheres of trade in goods, trade in
services, foreign investment, intellectual property rights, etc.,
§
The WTO shall facilitate the
implementation , administration and operation and further the objectives of
this agreement and of the multilateral trade agreements
§
The WTO shall providing the forum for
negotiations among its members concerning their multilateral trade relations
§
The WTO shall administer the
understanding on rules and procedures governing the settlement of disputes
§
The WTO shall administer trade policy
review mechanism
Objectives
of WTO
a) To
implement the world trade system as visualized in the agreement
b) To
promote world trade in a manner that benefits every country
c) To
ensure that developing countries secure a better balance in the sharing of the
advantages resulting from the expansion of international trade corresponding to
their developmental needs
d) To
demolish all hurdles to an open world trading system and usher in international
economic renaissance
e) To
enhance competitiveness among all trading partners so as to benefits consumers
and help in global integration
f) To
increase the level of production and productivity with a view to ensuring level
of employment in the world
g)
To expand and utilize world resources
to the best
Benefits of
WTO
Ø
Lower prices for consumers. removing
tariffs enables to buy cheaper imports
Ø
Free trade encourages greater
competitiveness.
Ø
Law of comparative advantage
Ø
Economies of scale
Ø
Free trade can help increase global
economic growth.
AGREEMENTS
The General Agreement on Tariffs and
Trade (GATT)
It was a multilateral agreement regulating
international trade. Employment and was the outcome of the failure of
negotiating government to create the international trade organization (ITO).
GATT was signed in 1947, took effect in 1948, and lasted until 1994; it was
replaced by the world trade organization in 1995.
The Agreement on Agriculture (AOA)
It is an international treaty of the world
trade organization. It was negotiated during the Uruguay round of the general
agreement on tariffs and trade, and came into force with the establishment of
the WTO on January 1, 1995.
The agreement on trade – related
aspects of intellectual property rights (TRIPS)
It is an international
agreement administered by the world trade organization (WTO) that sets down
minimum standards for many forms of intellectual property (IP) regulation as
applied to nationals of other WTO members. Intellectual property refers to
information with commercial values like ideas, inventories, creative expression
and others.
The general agreement on trade in
services (GATS)
It is a treaty of the world
trade organization (WTO) that entered into force in January 1995 as a result of
the Uruguay round negotiations. The treaty was created to extend the
multinational trading system to service sector, in the same way the general
agreement on tariffs and trade (GATT) provides such a system for merchandise
trade.
No comments:
Post a Comment