International Trade & Forx Asssignmnt
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Transcript of International Trade & Forx Asssignmnt
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PROF: DR. KHAIR-UZ-ZAMAN
Department of Business Administration Gomal University Page | 2 Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
IN THE NAME OF
ALLAH
THE MOST GRACIOUS & BENIFICIAL &THE MOST MERCIFUL
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ImportsThe term "import" is derived from the conceptual meaning as to bring in the goods and services
into the port of a country. The buyer of such goods and services is referred to an "importer" who
is based in the country of import whereas the overseas based seller is referred to as an
"exporter". Thus an import is any good (e.g. a commodity) orservice brought in from one countryto another country in a legitimate fashion, typically for use in trade. It is a good that is brought in
from another country for sale.[2] Import goods or services are provided to domestic consumers by
foreignproducers. An import in the receiving country is an export to the sending country.
Imports, along with exports, form the basis ofinternational trade. Import of goods normally
requires involvement of the customs authorities in both the country of import and the country
ofexport and are often subject to import quotas, tariffs and trade agreements. When the "imports"
are the set of goods and services imported, "Imports" also means the economic value of all goods
and services that are imported. The macroeconomic variable I usually stands for the value of
these imports over a given period of time, usually one year.
Types of importThere are two basic types of import:
1. Industrial and consumer goods
2. Intermediate goods and services
Companies import goods and services to supply to the domestic market at a cheaper price and
better quality than competing goods manufactured in the domestic market. Companies import
products that are not available in the local market.
There are three broad types of importers:
1. Looking for any product around the world to import and sell.
2. Looking for foreign sourcing to get their products at the cheapest price.
3.
Using foreign sourcing as part of their global supply chain.Direct-import refers to a type of business importation involving a major retailer (e.g.Wal-Mart)
and an overseas manufacturer. A retailer typically purchases products designed by local
companies that can be manufactured overseas. In a direct-import program, the retailer bypasses
the local supplier (colloquial middle-man) and buys the final product directly from the
manufacturer, possibly saving in added costs. This type of business is fairly recent and follows
the trends of the global economy.
Role of the InternetMany online auction websites are now providing wholesalers through a wholesale list, generally,
the lists that require a fee to view, may not be updated frequently, the data may be old, and the
companies listed may no longer be in business.Another form of online middlemen are B2B trade companies. These cater mainly to big
businesses who are importing large quantities of goods from foreign countries. They also have
sister sites that serve smaller orders for small businesses. In addressing the concerns of listed
companies' legitimacy and dependability, such B2B portals may inspect suppliers at their actual
premises before they list suppliers. Alternatively, these companies may also branch out of
cyberspace and organize their own sourcing fairs, where thousands of buyers and suppliers can
meet face-to-face.
Letter of creditA standard, commercial letter of credit ("LC") is a document issued mostly by a financial
institution, used primarily in trade finance, which usually provides an irrevocable payment
undertaking.
Department of Business Administration Gomal University | 3Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
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The LC can also be source of payment for a transaction, meaning that redeeming the letter of
credit will pay an exporter. Letters of credit are used primarily in international trade transactions
of significant value, for deals between a supplier in one country and a customer in another. They
are also used in the land development process to ensure that approved public facilities (streets,
sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit are usually a
beneficiary who is to receive the money, the issuing bankof whom the applicant is a client, and
the advising bankof whom the beneficiary is a client. Almost all letters of credit are irrevocable,
i.e., cannot be amended or cancelled without prior agreement of the beneficiary, the issuing bank
and the confirming bank, if any. In executing a transaction, letters of credit incorporate functions
common to giros and Traveler's cheques. Typically, the documents a beneficiary has to present in
order to receive payment include a commercial invoice,bill of lading, and documents proving the
shipment was insured against loss or damage in transit. However, the list and form of documents
is open to imagination and negotiation and might contain requirements to present documents
issued by a neutral third party evidencing the quality of the goods shipped, or their place of
origin.
Terminology
The English name letter of credit derives from the French word accreditation, a powerto do something, which in turn is derivative of the Latin word accreditivus, meaning trust. The
Application any defense relating to the underlying contract of sale. This is as long as the seller
performs their duties to an extent that meets the requirements contained in the LC.
International Trade Payment methods Advance payment (most secure for seller)
Where the buyer parts with money first and waits for the seller to forward the goods
Documentary Credit (more secure for seller as well as buyer)
Subject to ICC's UCP 600, where the bank gives an undertaking (on behalf of buyer and at
the request of applicant ) to pay the shipper ( beneficiary ) the value of the goods shippedif certain documents are submitted and if the stipulated terms and conditions are strictly
complied.
Here the buyer can be confident that the goods he is expecting only will be received since
it will be evidenced in the form of certain documents called for meeting the specified
terms and conditions while the supplier can be confident that if he meets the stipulations
his payment for the shipment is guaranteed by bank, who is independent of the parties to
the contract.
Documentary collection (more secure for buyer and to a certain extent to seller)
Also called "Cash Against Documents". Subject to ICC's URC 525, sight and usance, for
delivery of shipping documents against payment or acceptances of draft, where shipment
happens first, then the title documents are sent to the [collecting bank] buyer's bank byseller's bank [remitting bank], for delivering documents against collection of
payment/acceptance
Direct payment (most secure for buyer)
Where the supplier ships the goods and waits for the buyer to remit the bill proceeds, on
open account terms.
Department of Business Administration Gomal University Page | 4 Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
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Documents & Procedure Requiredfor Import of a Commodity
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Pro forma Invoice
A pro forma Invoice is much the same as a commercial invoice which, when used in international
trade, represents the details of an international sale to the Customs authorities. A pro forma
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invoice is presented in the place of a commercial invoice when there is no sale between the
sender and the importer, or if the terms of the sale between the seller and the buyer are such that a
commercial invoice is not yet available at the time of the international shipment. A pro forma
invoice is required to state the same facts that the commercial invoice would and the content is
prescribed by the governments who are a party to the transaction.
INCO TermsIncoterms rules are standard trade definitions most commonly used in international salescontracts. Devised and published by the International Chamber of Commerce, they are at the
heart of world trade.
Among the best known Incoterms rules are, FOB (Free on Board), CIF (Cost, Insurance and
Freight), and CPT (Carriage Paid To).
ICC is currently revising Incoterms 2000. The new edition, Incoterms 2010, is expected to enter
into force on 1 January 2011.
H.S. CodeThe Harmonized Commodity Description and Coding System (HS) of tariff nomenclature is an
internationally standardized system of names and numbers for classifying traded products
developed and maintained by the World Customs Organization (WCO) (formerly the Customs
Co-operation Council), an independent intergovernmental organization with over 170 member
countries based in Brussels, Belgium.
Pro forma invoice includes:
Name of Importer
Name of Exporter
Description of goods
There Tarrif number (HS code)
Quantity
Price in currency agreed and Packing INCO Terms
Origin of Merchandise
Payment condition i.e Irrevocable LC at sight
Last date of Shipment
Country of origin
Final Destination
Advising bank details
Signature of Exporter
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Application Form
This is the form given by the Advising bank and is filled by the importer. A special adhesive
stamp of 100PKR is pasted.
LC at sight
LC becomes payable once it is presented along with the necessary documents, e.g. goods orders,shipping documents.
TranshipmentTransshipment or Transhipment is the shipment of goods or container to an intermediate
destination, and then from there to yet another destination.
Partial shipmentDelivery of an order in two or more consignments, if allowed by the customeror under
theterms of a letter of credit.
Following information is filled:
Applicats name and full address
Benificiarys name and full address
Type of LC i.e. LC at sight
Total amount including C&F
Shipment destination from origin to final
Date of expiry
All other charges amount and due written
In case of india shipment and transshipment cant be on Israeli/Indian vessels/Airlines is
Prohibited
Department of Business Administration Gomal University Page | 10 Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
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I-Form
This is a form for imports and is basically used of taxation purpose. It is the application for
permission under the foreign exchange regulation act 1947 to purchase foreign exchange for the
payment of imports.
Beneficary
Person or other legal entity for whose present or future interest (benefit) an annuity,assignment
(such as a letter of credit), contract,insurance policy,judgment, promise,trust, will, etc., is made.
IndentorThe purchaser of the commodity the buyer of the goods. The following information is posted in
this document:
Authorized dealer name
Beneficiarys name and address
Indentors name and registration number
Description of goods
ITC No. (HS code)
Quantity
Port of Shipment
Date of shipment
Invoice value in Foreign currency
Other terms and conditions
Stamp and signature of the importer
Department of Business Administration Gomal University | 13Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
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Insurance Cover Note
Document evidencing issuance of an insurance policy and gives a summary of
the informationgiven in a certificate of insurance.
Insurance cover note is issued on pro forma invoice, its is required for the bank to issue the LC.
First the schedule is made then the Final receipt is issued to importer.
War and SRCC
War, Strikes, Riots, and Civil Commotions Risks
C & F(Cost and Freight.) Seller owns goods until they are loaded on vessel; selling price includes all
costs so far plus cost of ocean freight.
The conditions required for Cover note
Name of the bank
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Name of participant
Detail of goods covered with their HS code
The period insuraed
Mode of convance
Sum covered
Contribution calculation
Exchange rate Declaration
Other conditions and warrities like Computer millium charges, radio active exclusion
clause, war, strike clause etc.
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LC Document
What DoesIrrevocable Letter Of Credit - ILOCMean
A letter of credit that can't be canceled. This guarantees that a buyer's payment to a seller will be
received on time and for the correct amount.
This is the document called the LC it shows did different conditions and terms on which boththe parties are agreed upon.
UCP RulesThe Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the
issuance and use ofletters of credit. The UCP is utilised bybankers and commercial parties in
more than 175 countries in trade finance. Some 11-15% ofinternational trade utilises letters of
credit, totalling over a trillion dollars (US) each year.
Reimbursement bankA bank providing cover for a payment order.
Explaination
First of all the SWIFT code is displayed
Form of LC i.e Irrevocalbe LC
Date of Issue; it is read in opposte direction i.e. 080328 this means 28 th of 3rd month march
of year 2008
Rules that are applicable are mentioned that are UCP Latest version i.e. UCP 600
Applicatns name
Beneficary name
Currency code and amount
Partial shipments allowed or not
Port of loading
Last date of shipment
Descriptions of goods
Charges outside Pakistan are on beneficys account
Period of presentation
Reimbursement bank name
Department of Business Administration Gomal University | 17Khyber.Pakhton.Khwa (Dera Ismail Khan) Pakistan
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SWIFT Code (Society for Worldwide Interbank Financial Telecommunication)The SWIFT Bank Identification Code is an internationally-recognized system of codes for
identifying banks (see ISO 9362). These codes are commonly used to identify the banks involved
in an international wire transfer.
It is not the only coding system for banks - individual countries also have their own sets of codes
which are used to identify banks in national interbank business. For example, ABA numbers (or
routing codes) identify banks in the US and Canada, Sort Codes identify banks in the UK.
SWIFT is the Society for Worldwide Interbank Financial Telecommunication, a member-owned
cooperative through which the financial world conducts its business operations with speed,certainty and confidence. More than 9,000 banking organisations, securities institutions and
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Railway Receipt: When the goods are dispatched by railway track, railway receipt is issued.
Ports: Their there two kinds of ports.
Dry Port: In Pakistan there are many dry port like At present, there are six dry ports running
under the management of Railways: Lahores Established in 1973, Karachi Dry Port Established
in 1974, Quetta Dry Port Established in 1984, Peshawar Dry Port Established in 1986, Multan
Dry Port Established in 1988, Rawalpindi Dry Port Established in 1990
Sea Port: There are three sea ports in Pakistan that are Port Qasim and Port Gwadar, port keti
Bander, port karachi. Port Qasim maximum sea weight capacity is 25,000 MT.
The mentioned terms required.
Consignee name
Notify address
Currency agreed upon
Goods details and HS Code number
Packing list
Detailed packing list
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http://en.wikipedia.org/wiki/Dry_porthttp://en.wikipedia.org/w/index.php?title=Karachi_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Quetta_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Peshawar_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Peshawar_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Multan_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Multan_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Rawalpindi_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/wiki/Dry_porthttp://en.wikipedia.org/w/index.php?title=Karachi_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Quetta_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Peshawar_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Multan_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Multan_Dry_Port&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Rawalpindi_Dry_Port&action=edit&redlink=1 -
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Commercial Invoice
A commercial invoice is a document used in foreign trade. It is used as a customs declaration
provided by the person or corporation that is exporting an item across international
borders. Although there is no standard format, the document must include a few specific pieces
of information such as the parties involved in the shipping transaction, the goods being
transported, the country of manufacture, and the Harmonized codes for those goods. A commercial
invoice must also include a statement certifying that the invoice is true, and a signature.
The invoice is the receipt for the goods shipped. The mentioned things on Commercial invoice
Exporter name
Importer name
Pro forma Number
Vessel number
Port of loading
Final destination
Terms and delivery of payment
Marks and number of container
Description of goods
Quantity
Tariff and HS code
Rate per KG and amount in currency decided
Stamped by exporter bank
Invoice contains amount due to the importer Whereas the packing list includes only the
information about packing, no amount is shown in this list.
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Packing List
A shipping list, packing list, packing slip (also known as a bill of parcel, unpacking
note, packaging slip, (delivery) docket, delivery list, or customer receipt), is
a shippingdocument that accompanies delivery packages, usually inside an attached shipping
pouch or inside the package itself. It commonly includes an itemized detail of the package
contents and does not include customer pricing. It serves to inform all parties, including transport
agencies, government authorities, and customers, about the contents of the package. It helps themdeal with the package accordingly.
The mentioned things on Commercial invoice
Exporter name
Importer name
Pro forma Number
Vessel number
Port of loading
Final destination
Terms and delivery of payment
Marks and number of container Description of goods
Quantity
Packing further details
Tariff and HS code
Stamped by exporter bank
Packing list includes only the information about packing, no amount is shown in this
list.Whereas the Invoice contains amount due to the importer
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Bill of Entry
Declaration (on a prescribed form) by an importerorexporterof the exact nature, precise
quantity and value ofgoods that have landed (entered inwards) or are being shipped out (entered
outwards). Prepared by a qualified customs clerk orbroker, it is examined by customs
authorities for its accuracy and conformity with the tariffand regulations. See also customs entry.
When all the duties and charges are paid the Custom Duty officer (CDO) issues a bill of entry.
And now the importer is allowed to ship the commodity to the desired place.
Declared Value:It is a value that is declared by the importerAssessed Value: It is the value that is calculated by the CDO and duties are charged on Assessed
rate.The bill of entry contains following information
Exporter/ Consignors name
Importer/Consignees names
NTN number
HS Code
Currency name and code
Description of goods
Number of cartons
Declared value, rate
Assessed rate and value
Port of shipment
Delivery terms
Marks and Container numbers
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Indemnity Bond
It's a bond to repay a lender in the event of a shortfall in a loan repayment. Coverage for loss of
an oblige in the event that the principal fails to perform according to standards agreed upon
between the oblige and the principal.
The indemnity Bond is issued for the collector of customs in the custom house
Warehouse name and license number
Date of deed of indemnity
Importers name
Total sum amount
2 witnesses are also required
The bond must be on a stamp paper of above 50PKR or so
A post dated cherub must be attached with this bond
Certificate of Origin
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A Certificate of Origin (often abbreviated to CO or COO) is a document used in international
trade. It traditionally states from what country the shipped goods originate, but "originate" in a
CO does not mean the country the goods are shipped from, but the country where their goods are
actually made. This raises a definition problem in cases where less than 100% of the raw
materials and processes and value are not all from one country. An often used practice is that if
more than 50% of the sales price of the goods originates from one country, that country is
acceptable as the country of origin (then the "national content" is more than 50%). In variousinternational agreements, other percentages of national content are acceptable.
Certificate of origin is a proof that the goods made are purely manufactured into final good where
they are claimed
This document shows the following details
Consignor Name
Consignee
Consigned through
Packages detail is given with their HS Code
Description of goods is given
Detailed packing list is given i.e. Bags numbers and kinds of packing
Gross weight in KGs
Number of pieces
Value in Rupees and in dollars
Stamped by the origin country
Detailed Procedure
Eligibility
The least criteria for importing a commodity are that:
Account Number; LC can also be issued on cash basis Member of ICC; Company must have Membership in international Chamber of
Commerce
Companys STN and NTN
SECP Registered Company
Dealing
First of all the both parties who want to purchase and sell the Commodity deal with each other
and bargain on different points. They settle the product price INCO Terms, its quantity, Weight,
Shipment date, payment methods, type of LC, Exchange rate, Freight charges and other
information.
Issuance of Performa Invoice
When the dealing is finalized all the agreed conditions settled are then written in printed form
called the preformed invoice.
Insuring the Commodity
To issues a LC against a commodity mostly large in quantity, insurance of the commodity must
be taken, a copy of preformed invoice is given to the insurance company for the issuance of
insurance cover note. Insurance is issued on some reserve or goodwill of the importer.
Documents required are
Performa invoice
Certificate of Origin
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Certificate of origin is the document assuring the concerned that the goods/commodity shipped
are fully made by the claiming countrys company
Application for issuance of LC
Once the preformed invoice and cover note is issued, an application is written to a bank for the
issuance of letter of credit against it. The documents that are required are as below
Performa Invoice
Insurance Cover Note Application Form
I- Form
Here the I-Form is used for the eligibility of importing a commodity and for deduction of tax,
nowadays only STN and NTN is used, the use of I-Form is very rare.
LC Draft
After this procedure an LC Draft is issued based on all the information given to bank, it is a
almost a letter of credit but not yet approved, this is presented to importer to make some
corrections and changes, once approved by importer and stamped the final LC document is sent to
beneficiary bank/exporter for his confirmation through SWIFT code.
SWIFT/ TELEX
The advising bank then sends this Letter of credit advice to the Beneficiary bank in SWIFT
Coding, the bank communicate with each other in this coding. Other formalities and payments are
also made in this code.
Exporter will take notice
When the exporter receive the letter of credit advice, if he agrees on it the LC is approved if not
then further amendments will be done up till finalization of terms and conditions. The exporter
always gives 7 days free time to pay all the duties and expenses to clearing agent. This time
period can be expanded on request up to 14 and then 21 days in this period no dammar age is
charged.
Shipment Documents sent
When the dealing gets final, the exporter sends original shipping documents to importers bank
and copies to importer. And set of original documents placed in the container of commodities it.
The shipping documents contain:
Bill of lading/ Airway Bill/ Railway Receipt
Commercial Invoice
Packing List
Detailed packing list
Payment to the Advising Bank and retirement:When payment is made to the advising bank, the bank then releases the original shipping
documents. Then bank then issues a retirement note and after that the LC is closed on payment.
Further Procedure after retirement of LC
Clearing of Shipment:
Once the payment is made the original documents received are given to clearing agent.
Assessments of Value of Commodity:
Now as the documents are handed over, the duties are calculated on assessed rate on the exchangerate decided. Duties charged are
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Custom duty(CD) i.e. according to the H.S. Code (mentioned in FBR)
Sales tax (ST) i.e. 16% of the total value. Its fixed
Income tax(IT) i.e. 4% (for commercial), 3% (for manufactures) of the total value, its
also fixed
Federal excise duty(FED) i.e. 1%
Additional sales tax i.e. 2%
There are also other charges like Dammar age charged on not clearing the shipment on due date
Issuance of bill of Entry:
When all the duties and charges are paid the Custom Duty officer (CDO) issues a bill of entry.
And now the importer is allowed to ship the commodity to the desired place.
Bonded Warehouse:
Bonded warehouse is used when the importer is not willing or doesnt want to pay the due
amount in full. The importer stores the commodity in the bonded warehouse where he can pay for
commodity and ship the goods in installment. It requires following documents:
Indemnity bond Post dated cherub
Indemnity bond is the guarantee by the importer that he will pay the full amount as scheduled
otherwise the commodities can be confiscated.
Payment Flow Chart based on original Documents
Beneficiary/Exporter:
Payment is made to importer when the original shipping documents are handed over to its bank.
Beneficiary Bank:
The beneficiary bank sends these documents to the advising bank and receives the payment form
it.
Guarantee of State Bank
The state bank gives the guarantee to the beneficiary bank on the behalf of Government of
Pakistan.
Advising bank:
The advising bank charges the importer and receives the money and distributes the documents
Importer:
When the importer pays its due amount the bank hands over the original shipping documents to it.
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