Export and Import Procedures — Exercise Solutions
I. Choose the Correct Answer (Text Book Back)
Q1. EPC stands for
(a) Export Product Council (b) Export Promotion Council ✓ (c) Export Provisional Council (d) Export Purchase Council
EPC stands for Export Promotion Council. These councils are set up by the Government of India to promote exports of specific product categories and provide assistance to exporters.
Q2. STC is expansion for
(a) State Trading Centre (b) Standard Trading Corporation (c) State Transport Corporation (d) State Trading Corporation ✓
STC stands for State Trading Corporation. It is a Government of India undertaking that handles export and import of various commodities as per government policy.
Q3. An …… is a document prepared by importer and sent to the exporter to buy the goods
(a) Invoice (b) Indent ✓ (c) Bill of Entry (d) Bill of Lading
An Indent is a document prepared by the importer and sent to the exporter, containing the details of the goods to be purchased, including quantity, quality, price, and delivery terms.
Q4. The …… receipt is an acknowledgement of receipt of goods on the ship issued by the Captain
(a) Mate's receipt (b) Bill of Lading ✓ (c) Dock receipt (d) Port receipt
The Bill of Lading is the document signed by the shipowner or their agent confirming that specified goods have been received and will be delivered at the destination port. It serves as a receipt for goods, a contract of carriage, and a document of title.
Q5. The Exporters appoint the …… agent to fulfil the customs formalities
(a) Clearing (b) Forwarding Agent ✓ (c) Commission (d) Indent
A Forwarding Agent is appointed by the exporter to fulfil customs and shipping-related formalities. The agent handles documentation, customs clearance, booking of shipping space, and other logistic functions on behalf of the exporter.
Additional MCQs
Q1. The EXIM Bank was set up in the year
(a) 1980 (b) 1982 ✓ (c) 1985 (d) 1990
The EXIM Bank (Export and Import Bank of India) was established on 1st January 1982 under the Export and Import Bank of India Act, 1981. It is wholly owned by the Government of India.
Q2. The Indent which gives complete freedom to the exporter is known as
(a) Open Indent ✓ (b) Closed Indent (c) Confirmatory Indent (d) Special Indent
An Open Indent gives complete freedom to the exporter regarding the specifications of the goods, such as quality, brand, and packaging. The importer does not impose strict conditions.
Q3. Expand RCMC
(a) Registration and Customs Membership Certificate (b) Registration Certificate for Member Countries (c) Registration cum Membership Certificate ✓ (d) Regional Commerce and Membership Certificate
RCMC stands for Registration cum Membership Certificate. It is issued by the Export Promotion Council and is required by exporters to avail benefits under the Foreign Trade Policy.
Q4. The hiring of the entire ship for a specific time period is called
(a) Voyage Charter (b) Bareboat Charter (c) Demise Charter (d) Time Charter ✓
Time Charter refers to the hiring of an entire ship for a specific time period. The charterer pays for the hire of the ship and takes over its commercial operations for the agreed duration.
Q5. Dock Receipt is also called as
(a) Port Trust Receipt ✓ (b) Shipping Receipt (c) Customs Receipt (d) Warehouse Receipt
A Dock Receipt (also called Port Trust Receipt) is issued by the port trust authorities acknowledging the receipt of goods at the dock. It is required for loading goods onto the ship.
II. Very Short Answer Questions
Q1. What is meant by Indent?
An indent refers to an order received from abroad for the export of goods (sale of goods). It contains the relevant details about the order such as the quantity, quality, price, delivery terms, and mode of payment. There are three types of indents: Open Indent (gives freedom to the exporter), Closed Indent (strict specifications by the importer), and Confirmatory Indent (confirmed by a third party, usually the importer's bank).
Q2. Write any two export promotion institutions.
1. Export Promotion Council (EPC): Set up by the Government of India to promote and develop exports of specific product categories. 2. Export and Credit Guarantee Corporation (ECGC): Provides credit insurance to exporters against the risk of non-payment by foreign buyers.
Other important institutions include the State Trading Corporation (STC), Trade Development Authority, and EXIM Bank.
Q3. What is meant by Charter Party?
A Charter Party is an agreement (contract) between the shipowner and the exporter to hire a whole ship or a major part of it for the transportation of goods. It is used when the goods exported are heavy and voluminous, requiring the entire ship or a substantial portion. Types include Voyage Charter (for a single voyage), Time Charter (for a specific time period), and Bareboat Charter (ship without crew).
Q4. Write a short note on Mate's receipt.
A Mate's receipt is a receipt given by the mate (chief officer) of the ship acknowledging that the goods have been received on board the ship. It contains details such as the name of the ship, port of loading, description of goods, quantity, and condition of the goods at the time of receipt. It is a temporary document that is later exchanged for the Bill of Lading.
Q5. What is Bill of Lading?
A Bill of Lading is a document signed by the shipowner or their agent confirming that specified goods have been received on board the ship and will be delivered to the importer or their agent at the destination port in good condition. It serves three important purposes: (1) as a receipt for goods, (2) as a contract of carriage, and (3) as a document of title to the goods.
Q6. What do you mean by EXIM Bank?
The EXIM Bank (Export and Import Bank of India) is a specialized financial institution wholly owned by the Government of India. It was established on 1st January 1982 under the Export and Import Bank of India Act, 1981. Its primary purpose is to finance, facilitate, and promote India's foreign trade. It provides financial assistance to exporters and importers, coordinates the working of institutions engaged in financing export and import trade, and acts as the principal financial institution for coordinating the activities of institutions engaged in financing export and import of goods and services.
Q7. What is the main objective of EXIM Bank?
The main objective of the EXIM Bank is to coordinate the various activities of institutions and banks engaged in financing foreign trade. It also aims to provide financial assistance to exporters and importers, facilitate and promote India's foreign trade, and act as the principal financial institution for coordinating the work of institutions engaged in financing international trade.
Q8. Who is a forwarding agent?
A forwarding agent is a person or firm appointed by the exporter to fulfil customs and shipping-related formalities and certain logistic functions. The agent handles documentation, arranges for customs clearance, books shipping space, obtains insurance, and manages the movement of goods from the exporter's warehouse to the port of shipment. They charge a commission for their services and play a crucial role in ensuring smooth export operations.
III. Short Answer Questions
Q1. Write a short note on Consular Invoice.
A Consular Invoice is a document certifying a shipment of goods, showing information such as the consignor, consignee, and value of the shipment. It can be obtained through a consular representative (embassy or consulate) of the country where the goods are being shipped. This document is required by some importing countries to verify the value and origin of goods for customs purposes and to prevent under-invoicing or over-invoicing. It helps the importing country assess correct customs duties.
Q2. Who is a Commission Agent?
A Commission Agent is an international agent who is paid a percentage of commission for orders booked abroad. They offer products to potential customers in their allotted territory and act as intermediaries between the exporter and foreign buyers. There is no employment relationship between the agent and the principal; the relationship is purely temporary and based on the commission earned. Commission agents do not take ownership of goods but facilitate the transaction between buyer and seller.
Q3. What is the purpose of the establishment of the export trading house?
The purpose of the establishment of export trading houses is:
- To increase exports from the country
- To strengthen the capacity to operate in global markets
- To obtain necessary facilities for boosting the export performance of the country
- To provide a range of services to exporters including marketing, finance, and logistics
- To help small and medium exporters reach international markets
Q4. Who are all the parties involved in Export Trading House?
The parties involved in an Export Trading House include:
1. Merchants — who buy and sell goods in international markets 2. Exporters — who directly export goods to foreign countries 3. Trading companies — specialized firms engaged in international trade 4. Export-oriented units — manufacturing units that produce exclusively for export 5. Units located in export processing zones — firms operating in designated export zones 6. Electronic hardware technology parks — specialized zones for technology exports
Q5. What are all the documents used in import trade?
The documents used in import trade are:
1. Import License — permission from the government to import goods 2. Indent — order placed by the importer with the exporter 3. Letter of Credit — guarantee of payment issued by the importer's bank 4. Bill of Entry — declaration made by the importer to customs authorities 5. Bill of Sight — provisional entry when full details are not available 6. Port Trust Dues Receipt — receipt for port charges paid 7. Bill of Lading — document of title and contract of carriage 8. Bill of Exchange — instrument of payment 9. Advice Note — intimation sent by the exporter about the dispatch of goods
IV. Long Answer Questions
Q1. What are the procedures relating to Export trade?
The procedures relating to export trade are as follows:
1. Receiving Trade Enquiry
The exporter receives a trade enquiry from the prospective foreign buyer, requesting information about the goods to be exported, their price, delivery schedule, and other terms.
2. Receiving Indent
After the trade enquiry is satisfactorily answered, the foreign buyer places an order called an indent. It contains details such as quantity, quality, price, mode of shipment, port of destination, and terms of payment.
3. Arranging Letter of Credit
The exporter requests the importer to arrange for a Letter of Credit (LC) from their bank. The LC guarantees payment to the exporter upon presentation of specified documents, reducing the risk of non-payment.
4. Obtaining IEC and RBI Code
The exporter must obtain an Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) and an RBI code number from the Reserve Bank of India to carry out export transactions.
5. Obtaining RCMC
The exporter must obtain a Registration cum Membership Certificate (RCMC) from the relevant Export Promotion Council to avail benefits under the Foreign Trade Policy.
6. Manufacturing/Procuring Goods
The exporter either manufactures the goods as per the indent specifications or procures them from the domestic market. The goods must conform to the quality and quantity requirements specified in the indent.
7. Export Inspection Certificate
Certain goods require an Export Inspection Certificate from the Export Inspection Agency to ensure they meet the quality standards prescribed by the importing country. This certificate is obtained before shipment.
8. Insurance of Goods
The exporter insures the goods against marine risks (perils of the sea) by obtaining a Marine Insurance Policy. This protects the exporter from financial loss due to damage or loss of goods during transit.
9. Certificate of Origin
A Certificate of Origin is obtained from the Chamber of Commerce or Trade Association, certifying that the goods exported were manufactured in the exporting country. Some importing countries offer preferential tariff rates based on the country of origin.
10. Consular Invoice
A Consular Invoice is obtained from the consulate of the importing country, certifying the shipment details. It helps the importing country assess correct customs duties.
Q2. Distinguish between Bill of Lading and Charter Party.
| Basis | Bill of Lading | Charter Party |
|---|---|---|
| 1. Meaning | A document signed by the shipowner acknowledging receipt of goods and agreeing to deliver them at the destination | An agreement between the shipowner and charterer to hire the whole or part of a ship |
| 2. Nature | It is a document of receipt, contract of carriage, and document of title | It is a contract of hire for the ship or a major part of it |
| 3. Applicability | Used for all types of cargo shipments | Used mainly for bulk or heavy cargo requiring entire ship |
| 4. Parties involved | Shipowner and the shipper (exporter/importer) | Shipowner and the charterer (exporter) |
| 5. Purpose | Serves as proof of receipt, contract of carriage, and title to goods | Serves as a hiring agreement for the ship for a voyage or time period |
Q3. What are the documents used in Export Trade?
The documents used in export trade can be classified into three categories:
A. Documents Related to Goods
1. Indent: The order received from the foreign buyer, containing details of goods, price, quantity, and delivery terms. 2. Certificate of Origin: A certificate issued by the Chamber of Commerce certifying that the goods were manufactured in the exporting country. 3. Certificate of Inspection: A certificate from the Export Inspection Agency certifying that the goods meet the prescribed quality standards.
B. Documents Related to Shipment
1. Mate's Receipt: A receipt given by the mate (chief officer) of the ship acknowledging receipt of goods on board. 2. Shipping Bill: A document submitted to customs authorities giving details of the goods being exported. 3. Shipping Order: An order issued by the shipping company directing the acceptance of cargo for shipment. 4. Bill of Lading: A document signed by the shipowner acknowledging receipt of goods and agreeing to deliver them at the destination. 5. Marine Insurance Policy: An insurance policy covering the goods against marine risks during transit. 6. Consular Invoice: An invoice certified by the consulate of the importing country. 7. Railway Receipt/Lorry Receipt: Receipt issued by the railway or lorry transport acknowledging receipt of goods for transport to the port.
C. Documents Related to Payment
1. Letter of Credit: A guarantee issued by the importer's bank ensuring payment to the exporter upon presentation of specified documents. 2. Commercial Invoice: An invoice issued by the exporter giving details of the goods sold, their price, and terms of sale. 3. Bills of Exchange: A written instrument directing the importer to pay a specified amount to the exporter on demand or at a fixed date. 4. Bank Certificate of Payment: A certificate from the bank confirming that payment has been received from the importer.
Q4. Explain the various functions of Export Trading Houses.
The various functions of Export Trading Houses are:
1. Marketing and Distribution: They undertake marketing and distribution of goods in foreign markets, helping exporters reach buyers they could not access on their own.
2. Export Facilitation: They provide a range of services to facilitate exports, including documentation, customs clearance, shipping, and insurance arrangements.
3. Financial Assistance: They arrange for pre-shipment and post-shipment finance for exporters, helping them manage cash flow and working capital requirements.
4. Quality Control and Inspection: They ensure that goods meet international quality standards by arranging inspection and obtaining necessary certificates.
5. Market Intelligence: They gather and disseminate information about foreign markets, including demand trends, competitor activities, and regulatory requirements.
6. Consolidation of Shipments: They consolidate small shipments from multiple exporters into larger consignments, reducing per-unit shipping costs.
7. Risk Management: They help exporters manage risks associated with international trade, including currency fluctuations, non-payment, and political risks.
8. Technology Upgradation: They assist exporters in accessing modern technology and improving production processes to meet international standards.
Q5. What are all the main functions of EXIM Bank?
The main functions of EXIM Bank are:
1. Financing Export and Import: The EXIM Bank provides financial assistance to exporters and importers for carrying out foreign trade transactions, including pre-shipment and post-shipment credit.
2. Coordinating Financial Institutions: It coordinates the working of various institutions and banks engaged in financing export and import trade, ensuring a unified approach to trade financing.
3. Providing Overseas Investment Finance: The bank finances Indian companies setting up joint ventures and wholly-owned subsidiaries abroad, supporting outward investment.
4. Lines of Credit: It extends lines of credit to overseas financial institutions and governments to enable them to import goods and services from India.
5. Export Credit Guarantee: The bank offers export credit guarantee facilities to protect exporters against the risk of non-payment by foreign buyers.
6. Advisory Services: It provides advisory and technical assistance to exporters on matters related to international trade, including market development, product development, and trade procedures.
Q6. Briefly explain the financial assistance provided by commercial banks.
Commercial banks provide two types of financial assistance to exporters:
1. Pre-Shipment Financial Assistance
Pre-shipment finance (also called packing credit) is provided to exporters before the shipment of goods. It is granted against a confirmed export order or letter of credit. This finance helps the exporter purchase raw materials, process goods, pack them, and arrange for shipment. The bank provides this as a short-term loan at concessional interest rates, and the exporter repays it after receiving the export proceeds.
2. Post-Shipment Financial Assistance
Post-shipment finance is provided after the goods have been shipped. It is granted against export documents such as the bill of lading, commercial invoice, and letter of credit. The bank purchases or discounts the export bills, providing immediate funds to the exporter. This helps the exporter maintain cash flow while waiting for payment from the foreign buyer. The bank collects the payment from the importer's bank and adjusts the advance.
Q7. Briefly explain the objectives of Export Trade (Any five).
The objectives of Export Trade are:
1. Earning Foreign Exchange: Export trade helps a country earn foreign exchange, which is essential for importing goods, services, and technology that are not available domestically.
2. Increasing National Income: Exports contribute to the national income by generating revenue from foreign markets and creating employment opportunities in export-oriented industries.
3. Utilising Surplus Production: Export trade enables a country to sell its surplus production in foreign markets, ensuring that domestic resources are fully utilised and not wasted.
4. Achieving Economies of Scale: Access to global markets allows firms to produce on a larger scale, reducing per-unit costs through economies of scale and making products more competitive.
5. Promoting Economic Development: Export trade promotes industrialisation, technology transfer, and skill development, contributing to the overall economic development of the country.
Q8. Briefly explain the objectives of Import Trade.
The objectives of Import Trade are:
1. Meeting Domestic Demand: Imports help meet the demand for goods that are not produced domestically or are produced in insufficient quantities, such as crude oil, machinery, and electronics.
2. Acquiring Technology and Capital Goods: Importing advanced technology, machinery, and capital goods helps in the industrialisation and economic development of the country.
3. Improving Standard of Living: Imports provide consumers with a wider variety of goods at competitive prices, raising the standard of living.
4. Ensuring Supply of Essential Goods: Import trade ensures the supply of essential goods like food grains, medicines, and fuel during times of domestic shortage.
5. Promoting Competition: Imports introduce competition in the domestic market, encouraging domestic producers to improve quality and reduce prices.
Q9. Explain the intermediaries in Import Trade.
The intermediaries in import trade are:
1. Indent Houses / Import Agent
Indent houses (also called import agents) are firms that specialise in placing orders with foreign suppliers on behalf of domestic importers. They act as intermediaries between the foreign exporter and the domestic importer. Their functions include:
- Sourcing goods from reliable foreign suppliers
- Negotiating prices and terms on behalf of the importer
- Arranging for shipment and insurance of goods
- Handling documentation and customs clearance
- Ensuring quality and timely delivery
2. Clearing Agent
A clearing agent (also called a customs broker) is appointed by the importer to handle customs formalities and ensure smooth clearance of goods at the port. Their functions include:
- Filing the Bill of Entry with customs authorities
- Arranging for customs examination of goods
- Paying import duties and taxes on behalf of the importer
- Obtaining customs clearance and releasing goods from the port
- Coordinating with port authorities and shipping lines
Common Mistakes
1. Confusing Indent types: Students often mix up Open Indent, Closed Indent, and Confirmatory Indent. Open Indent gives freedom to the exporter; Closed Indent has strict specifications from the importer; Confirmatory Indent is confirmed by a third party (usually a bank).
2. Mixing up Mate's Receipt and Bill of Lading: A Mate's Receipt is a temporary acknowledgement by the ship's mate, while the Bill of Lading is the final document issued by the shipowner. The Mate's Receipt is exchanged for the Bill of Lading.
3. Confusing Forwarding Agent with Clearing Agent: A Forwarding Agent is appointed by the exporter and handles export formalities. A Clearing Agent is appointed by the importer and handles import customs formalities. They operate on opposite sides of the trade.
4. Omitting document categories in export trade: When listing export documents, students often forget to categorise them properly. Documents are divided into three categories: Related to Goods, Related to Shipment, and Related to Payment.
5. Confusing Pre-shipment and Post-shipment finance: Pre-shipment finance (packing credit) is given before the goods are shipped to purchase raw materials and process goods. Post-shipment finance is given after shipment against export documents.
6. Confusing Charter Party types: Voyage Charter is for a single voyage, Time Charter is for a specific time period, and Bareboat Charter is hiring a ship without crew. Each serves different purposes based on the exporter's needs.
Exam Checklist
- [ ] Can define indent and explain its three types (Open, Closed, Confirmatory)
- [ ] Can distinguish between Bill of Lading and Charter Party with at least 5 differences
- [ ] Can list and explain the 10 steps in the export trade procedure
- [ ] Can classify export documents into three categories and list key documents in each
- [ ] Can explain the functions of Export Trading Houses and EXIM Bank
- [ ] Can distinguish between Forwarding Agent and Clearing Agent
- [ ] Can explain pre-shipment and post-shipment financial assistance by commercial banks
- [ ] Can list the documents used in import trade (Import License, Indent, Letter of Credit, Bill of Entry, etc.)