Chapter 10 International Business, Form XI, Business Studies, Mrs.

Hetal Parekh
Meaning
Manufacturing and trade beyond the boundaries of one’s own country is known as international business. It
involves notonly the international movements ofgoods and services, but also of capital,personnel, technology and
intellectualproperty like patents, trademarks,know-how and copyrights. International business is a much
broader term and is comprised of boththe trade and production of goods andservices across frontiers.
Internationaltrade comprises exports and importsof goods.

Obectives of export trade

Objectives of import trade
(i) To sell surplus goods (i) To speed up industrialisation
(ii) To make better utilization of resources (ii) To meet consumer demand
(iii) To earn forex (iii) To improve standard of living
(iv) To increase national income (iv) To ensure national defence
(v) To generate employment
(vi) To increase government revenue
(vii) To create international cooperation.

Export Procedure
(i) Receipt of enquiry and sending quotations: The prospective buyer of a product sends an enquiry todifferent
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 proforma
invoice. The proforma invoice contains information about the price atwhich the exporter is ready to sell
thegoods and also provides informationabout the quality, grade, size, weight,mode of delivery, type of
packing andpayment terms.

(ii) Receipt of order or indent: In casethe prospective buyer (i.e., importingfirm) finds the export price and
otherterms and conditions acceptable, itplaces an order for the goods to bedespatched. This order, also known
as indent, contains a description ofthe goods ordered, prices to be paid,delivery terms, packing and marking
details and delivery instructions.

(iii) Assessing the importer’screditworthiness and securinga guarantee for payments: Afterreceipt of the indent,
the exportermakes necessary enquiry about thecreditworthiness of the importer. Thepurpose underlying the
enquiry is toassess the risks of non payment bythe importer once the goods reach theimport destination. To
minimise suchrisks, most exporters demand a letterof credit from the importer. A letterof credit is a guarantee
issued by theimporter’s bank that it will honourpayment up to a certain amount ofexport bills to the bank of the
exporter.Letter of credit is the most appropriateand secure method of payment adopted
to settle international transactions.

(iv) Obtaining export licence: Havingbecome assured about payments,the exporting firm initiates the steps
relating to compliance of exportregulations. Export of goods in India issubject to custom laws which demand
that the export firm must have anexport licence before it proceeds withexports. Important pre-requisites for
getting an export licence are as follows:
• Opening a bank account in anybank authorised by the ReserveBank of India (RBI) and getting
an account number.
• Obtaining Import Export Code(IEC) number from the DirectorateGeneral Foreign Trade (DGFT)
orRegional Import Export LicensingAuthority.
• Registering with appropriateexport promotion council.
 • Registering with Export Credit andGuarantee Corporation (ECGC) inorder to safeguard against
risks ofnon payments.
It is obligatory for every exporterto get registered with the appropriateexport promotion council and obtaina
Registration cum MembershipCertificate (RCMC) for availing benefitsavailable to export firms from
theGovernment. Variousexport promotion councils such asEngineering Export Promotion Council(EEPC) and
Apparel Export PromotionCouncil (AEPC) have been set up by theGovernment of India to promote anddevelop
exports of different categoriesof products.

(v) Obtaining pre-shipment finance:Once a confirmed order and also aletter of credit have been received,the
exporter approaches his bankerfor obtaining pre-shipment financeto undertake export production. Preshipment
finance is the finance thatthe exporter needs for procuring rawmaterials and other components,
processing and packing of goods andtransportation of goods to the port ofshipment.

(vi) Production or procurementof goods: Having obtained the preshipment finance from the bank, theexporter
proceeds to get the goodsready as per the specifications of theimporter. Either the firm itself goes infor
producing the goods or else it buysfrom the market.

(vii) Pre-shipment inspection: TheGovernment of India has initiatedmany steps to ensure that only goodquality
products are exported from thecountry. One such step is compulsoryinspection of certain products by acompetent
agency as designated bythe government. The government haspassed Export Quality Control and
Inspection Act, 1963 for this purpose.and has authorised some agenciesto act as inspection agencies. If the
product to be exported comes undersuch a category, the exporter needs tocontact the Export Inspection
Agency(EIA) or the other designated agencyfor obtaining inspection certificate.The pre-shipment inspection
reportis required to be submitted alongwith other export documents at thetime of exports. Such an inspection
is not compulsory in case the goodsare being exported by star tradinghouses, trading houses, export houses,
industrial units setup in exportprocessing zones/special economiczones (EPZs/SEZs) and 100 per centexport
oriented units (EOUs).

(viii) Excise clearance: As per theCentral Excise Tariff Act, exciseduty is payable on the materialsused in
manufacturing goods. Theexporter, therefore, has to apply tothe concerned Excise Commissionerin the region
with an invoice. If theExcise Commissioner is satisfied,he may issue the excise clearance.Goods for export are
exempted.The idea underlying such exemptionor refund is to provide an incentive tothe exporters to export more
and alsoto make the export products morecompetitive in the world markets.

(ix) Obtaining certificate of origin:Some importing countries providetariff concessions or other exemptions
to the goods coming from a particularcountry. For availing such benefits, theimporter may ask the exporter to
senda certificate of origin. The certificate oforigin acts as a proof that the goodshave actually been manufactured
inthe country from where the exportis taking place. This certificate canbe obtained from the trade
consulatelocated in the exporter’s country.

(x) Reservation of shipping space:The exporting firm applies to theshipping company for provision ofshipping
space. It has to specifythe types of goods to be exported,probable date of shipment and theport of destination. On
acceptance ofapplication for shipping, the shippingcompany issues a shipping order. Ashipping order is an
instruction to thecaptain of the ship that the specifiedgoods after their customs clearance ata designated port be
received on board.

(xi) Packing and forwarding: Thegoods are then properly packed andmarked with necessary details such
as name and address of the importer,gross and net weight, port of shipmentand destination, country of origin,
etc.The exporter then makes necessaryarrangement for transportation ofgoods to the port. On loading goods
into the railway wagon, the railwayauthorities issue a ‘railway receipt’which serves as a title to the goods.
Theexporter endorses the railway receiptin favour of his agent to enable himto take delivery of goods at the port
ofshipment.
(xii) Insurance of goods: The exporterthen gets the goods insured with aninsurance company to protect
againstthe risks of loss or damage of the goodsdue to the perils of the sea during thetransit.

(xiii) Customs clearance: The goodsmust be cleared from the customsbefore these can be loaded on the ship.
For obtaining customs clearance, theexporter prepares the shipping bill.Shipping bill is the main document
on the basis of which the customsoffice gives the permission for export.Shipping bill contains particulars of
the goods being exported, the nameof the vessel, the port at which goodsare to be discharged, country of final
destination, exporter’s name andaddress, etc.Five copies of the shipping billalong with the following
documentsare then submitted to the CustomsAppraiser at the Customs House:
• Export Contract or Export Order
• Letter of Credit
• Commercial Invoice
• Certificate of Origin
• Certificate of Inspection, wherenecessary
• Marine Insurance Policy
After submission of thesedocuments, the Superintendent of theconcerned port trust is approached forobtaining
the carting order. Cartingorder is the instruction to the staffat the gate of the port to permit theentry of the cargo
inside the dock.After obtaining the carting order, thecargo is physically moved into the portarea and stored in the
appropriateshed. Since the exporter cannot makehimself or herself available all the time
for performing all these formalities,these tasks are entrusted to anagent —referred to as Clearing andForwarding
(C&F) agent.

(xiv) Obtaining mates receipt: Thegoods are then loaded on board theship for which the mate or the captain
of the ship issues mate’s receipt to theport superintendent. A mate receipt isa receipt issued by the
commandingofficer of the ship when the cargois loaded on board, and containsthe information about the name
ofthe vessel, berth, date of shipment,description of packages, marks andnumbers, condition of the cargo at
thetime of receipt on board the ship, etc.The port superintendent, on receiptof port dues, hands over the
mate’sreceipt to the C&F agent.

(xv) Payment of freight and issuance of bill of lading: The C&F agentsurrenders the mates receipt to theshipping
company for computation offreight. After receipt of the freight, theshipping company issues a bill of
ladingwhich serves as an evidence that theshipping company has accepted thegoods for carrying to the
designateddestination. In the case the goods arebeing sent by air, this document isreferred to as airway bill.

(xvi) Preparation of invoice: Aftersending the goods, an invoice of thedespatched goods is prepared. Theinvoice
states the quantity of goodssent and the amount to be paid by theimporter. The C&F agent gets it duly
attested by the customs.

(xvii) Securing payment: Afterthe shipment of goods, the exporterinforms the importer about theshipment of
goods. The importerneeds various documents to claimthe title of goods on their arrival athis/her country and
getting themcustoms cleared. The documentsthat are needed in this connectioninclude certified copy of invoice,
bill oflading, packing list, insurance policy,certificate of origin and letter of credit.The exporter sends these
documentsthrough his/her banker with theinstruction that these may be deliveredto the importer after acceptance
of thebill of exchange—a document which issent along with the above mentioneddocuments.
Bill of exchange is an order tothe importer to pay a certain amountof money to, or to the order of, acertain person
or to the bearer of theinstrument. It can be of two types:document against sight (sight draft)or document against
acceptance(usance draft).
In case of sight draft,the documents are handed over to theimporter only against payment. Themoment the
importer agrees to sign thesight draft, the relevant documents aredelivered.
In the case of usance draft,on the other hand, the documents aredelivered to the importer against his orher
acceptance of the bill of exchangefor making payment at the end of aspecified period, say three months. Having
received the payment forexports, the exporter needs to get a bankcertificate of payment. Bank certificateof
payment is a certificate whichsays that the necessary documents(including bill of exchange) relating tothe
particular export consignment hasbeen negotiated (i.e., presented to theimporter for payment) and the
paymenthas been received in accordance withthe exchange control regulations.

Import Procedure
(i) Trade enquiry: The first thingthat the importing firm has to dois to gather information about thecountries and
firms which exportthe given product. The importer cangather such information from the tradedirectories and/or
trade associationsand organisations. A trade enquiryis a written request by an importingfirm to the exporter for
supply ofinformation regarding the price andvarious terms and conditions on whichthe latter is ready to exports
goods.After receiving a trade enquiry,the exporter prepares a quotation andsends it to the importer. The
quotation is known as proforma invoice.

(ii) Procurement of import licence:There are certain goods that can beimported freely, while others
needlicensing. The importer needs toconsult the Export Import (EXIM)policy in force to know whether thegoods
that he or she wants to importare subject to import licensing. In casegoods can be imported only againstthe
licence, the importer needs toprocure an import licence. In India, itis obligatory for every importer (andalso for
exporter) to get registered withthe Directorate General Foreign Trade(DGFT) or Regional Import Export
Licensing Authority, and obtain anImport Export Code (IEC) number. Thisnumber is required to be mentioned
onmost of the import documents.

(iii) Obtaining foreign exchange:Since the supplier in the context ofan import transaction resides in aforeign
country, he/she demandspayment in a foreign currency.Payment in foreign currency involvesexchange of Indian
currency intoforeign currency. In India, all foreignexchange transactions are regulatedby the Exchange Control
Departmentof the Reserve Bank of India (RBI). Asper the rules in force, every importeris required to secure the
sanction offoreign exchange. For obtaining sucha sanction, the importer has to makean application to a bank
authorized by RBI to issue foreign exchange. Theapplication is made in a prescribedform along with the import
licenceas per the provisions of ExchangeControl Act. After proper scrutiny of
the application, the bank sanctionsthe necessary foreign exchange for theimport transaction.

(iv) Placing order or indent: Afterobtaining the import licence, theimporter places an import order orindent with
the exporter for supplyof the specified products. The importorder contains information about theprice, quantity
size, grade and qualityof goods ordered and the instructionsrelating to packing, shipping, portsof shipment and
destination, deliveryschedule, insurance and mode ofpayment. The import order should becarefully drafted so as
to avoid anyambiguity and consequent conflictbetween the importer and exporter.

(v) Obtaining letter of credit: If thepayment terms agreed between theimporter and the overseas supplieris a letter
of credit, then the importershould obtain the letter of credit fromits bank and forward it to the overseassupplier.
As stated previously, a letterof credit is a guarantee issued by theimporter’s bank that it will honourpayment up
to a certain amountof export bills to the bank of theexporter. Letter of credit is the mostappropriate and secured
method ofpayment adopted to settle internationaltransactions. The exporter wants this
document to be sure that there is norisk of non-payment.

(vi) Arranging for finance: Theimporter should make arrangementsin advance to pay to the exporter onarrival of
goods at the port. Advancedplanning for financing importsis necessary so as to avoid hugedemurrages (i.e.,
penalties) on theimported goods lying uncleared at theport 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. Ashipment advice contains informationabout the shipment of goods. The
information provided in the shipmentadvice includes details such as invoicenumber, bill of lading/airways bill
number and date, name of the vesselwith date, the port of export, descriptionof goods and quantity, and the date
ofsailing of vessel.
(viii) Retirement of importdocuments: Having shipped thegoods, the overseas supplier preparesa set of necessary
documents as perthe terms of contract and letter ofcredit and hands it over to his or herbanker for their onward
transmissionand negotiation to the importer in themanner as specified in the letter ofcredit. The set of documents
normallycontains bill of exchange, commercialinvoice, bill of lading/airway bill,packing list, certificate of
origin,marine insurance policy, etc.The bill of exchange accompanyingthe above documents is known asthe
documentary bill of exchange. Asmentioned earlier in connection withthe export procedure, documentarybill of
exchange can be of two types:documents against payment (sightdraft) and documents againstacceptance (usance
draft). Once the retirementis over, the bank hands over the importdocuments to the importer.

(ix) Arrival of goods: Goods areshipped by the overseas supplier asper the contract. The person in chargeof the
carrier (ship or airway) informsthe officer in charge at the dock orthe airport about the arrival of goodsin the
importing country. He providesthe document called import generalmanifest. Import general manifest is a
document that contains the details ofthe imported goods. It is a documenton the basis of which unloading of
cargo takes place.

(x) Customs clearance and releaseof goods: All the goods importedinto India have to pass throughcustoms
clearance after they cross theIndian borders. It is advised thatimporters appoint C&F agents who arewell- versed
with such formalities andplay an important role in getting thegoods customs cleared.
Firstly, the importer has to obtaina delivery order which is otherwiseknown as endorsement for
delivery.Generally when the ship arrives atthe port, the importer obtains theendorsement on the back of the bill
oflading. This endorsement is done bythe concerned shipping company. Insome cases instead of endorsing
thebill, the shipping company issues adelivery order. This order entitles theimporter to take the delivery of
goods.Of course, the importer has to first paythe freight charges (if these have notbeen paid by the exporter)
before he orshe can take possession of the goods.The importer has to also paydock dues and obtain port trust
duesreceipt. For this, the importer has tosubmit to the ‘Landing and ShippingDues Office’ two copies of a duly
filledin form — known as ‘application toimport’. The ‘Landing and ShippingDues Office’ levies a charge for
servicesof dock authorities which has to beborne by the importer. After paymentof dock charges, the importer is
givenback one copy of the application as areceipt. This receipt is known as ‘porttrust dues receipt’.
The importer then fills in a form‘bill of entry’ for assessment of customsimport duty. One appraiser examinesthe
document carefully and givesthe examination order. The importerprocures the said document preparedby the
appraiser and pays the duty,if any.After payment of the import duty,the bill of entry has to be presented tothe
dock superintendent. The same hasto be marked by the superintendentand an examiner will be asked tophysically
examine the goods imported.The examiner gives his report on thebill of entry. The importer or his agentpresents
the bill of entry to the portauthority. After receiving necessarycharges, the port authority issues therelease order.
Major Documents needed in Connection with Export Transaction

A. Documents related to goods

Export invoice: Export invoice is a sellers’ bill for merchandise and contains information about goods such
as quantity, total value, number of packages, marks on packing, port of destination, name of ship, bill of
lading number, terms of delivery and payments, etc.

Packing list: A packing list is a statement of the number of cases or packs and the details of the goods
contained in these packs. It gives details of the nature of goods which are being exported and the form in
which these are being sent.
 Certificate of origin: This is a certificate which specifies the country in which the goods are being produced.
This certificate entitles the importer to claim tariff concessions or other exemptions such as non-applicability
of quota restrictions on goods originating from certain pre-specified countries. This certificate is also
required when there is a ban on imports of certain goods from select countries. The goods are allowed to be
brought into the importing country if these are not originating from the banned countries.

Certificate of inspection: For ensuring quality, the government has made it compulsory for certain products
that these be inspected by some authorised agency. Export Inspection Council of India (EICI) is one such
agency which carries out such inspections and issues the certificate that the consignment has been inspected
as required under the Export (Quality Control and Inspection) Act, 1963, and satisfies the conditions relating
to quality control and inspection as applicable to it, and is export worthy. Some countries have made this
certificate mandatory for the goods being imported to their countries.

B. Documents related to shipment

Mate’s receipt: This receipt is given by the commanding officer of the ship to the exporter after the cargo is
loaded on the ship. The mate’s receipt indicates 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
shipping company does not issue the bill of lading unless it receives the mate’s receipt.
Shipping Bill: The shipping bill is the main document on the basis of which customs office grants permission
for the export. The 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.

Bill of lading: Bill of lading is a document wherein a shipping company gives its official receipt of the goods
put on board its vessel and at the same time gives an undertaking to carry them to the port of destination. It is
also a document of title to the goods and as such is freely transferable by the endorsement and delivery.

Airway Bill: Like a bill of lading, an airway bill is a document wherein an airline company gives its official
receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the port
of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement
and delivery.

Marine insurance policy: It is a certificate of insurance contract whereby the insurance company agrees in
consideration of a payment called premium to indemnify the insured against loss incurred by the latter in
respect of goods exposed to perils of the sea.

Cart ticket: A cart ticket is also known as a cart chit, vehicle or gate pass. It is prepared by the exporter and
includes details of the export cargo in terms of the shipper’s name, number of packages, shipping bill
number, port of destination and the number of the vehicle carrying the cargo.

C. Documents related to payment

Letter of credit: A letter of credit is a guarantee issued by the importer’s bank that it will honour up to a certain
amount the payment 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
Bill of exchange: It is a written instrument whereby the person issuing the instrument directs the other party to
pay a specified amount to a certain person or the bearer of the instrument. In the context of an export-import
transaction, bill of exchange is drawn by exporter on the importer asking the latter to pay a certain amount to a
certain person or the bearer of the bill of exchange. The documents giving title to the export consignment are
passed on to the importer only when the importer accepts the order contained in the bill of exchange.

Bank certificate of payment: Bank certificate of payment is a certificate 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

Major Documents used in an Import Transaction

Trade enquiry: 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 exports goods.
Proforma invoice: A proforma 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.

Import order or indent: It is a document in which the buyer (importer) orders for supply of requisite goods to the
supplier (exporter). The order or indent contains the information such as quantity and quality of goods to be
imported, price to be charged, method of forwarding the goods, nature of packing, mode of payment, etc.

Letter of credit: It is document that contains a guarantee from the importer bank to the exporter’s bank that it is
undertaking to honour the payment up to a certain amount of the bills issued by the exporter for exports of the
goods to the importer.

Shipment advice: The shipment advice is a document that the exporter sends to the importer informing him that
the shipment of goods has been made. Shipment of advice contains 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 the vessel.

Bill of lading: It is a document prepared and signed by the master of the ship acknowledging the receipt of goods
on board. It contains terms and conditions on which the goods are to be taken to the port of destination.

Airway Bill: Like a bill of lading, an airway bill is a document wherein an airline/ shipping company gives its
official receipt of the goods on board its aircraft and at the same time gives an undertaking to carry them to the
port of destination. It is also a document of title to the goods and as such is freely transferable by the
endorsement and delivery.

Bill of entry: Bill of entry is a form supplied by the customs office to the importer. It is to be filled in by the
importer at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customs office.
The bill of entry contains information such as name and address of the importer, name of the ship, number of
packages, marks on the package, description of goods, quantity and value of goods, name and address of the
exporter, port of destination, and customs duty payable.

Bill of exchange: It is a written instrument whereby the person issuing the instrument directs the other party to
pay a specified amount to a certain person or the bearer of the instrument. In the context of an export-import
transaction, bill of exchange is drawn by the exporter on the importer asking the latter to pay a certain amount to
a certain person or the bearer of the bill of exchange. The documents giving title to the export consignment are
passed on to the importer only when the importer accepts the order contained in the bill of exchange.

Sight draft: It is a type of bill of exchange wherein the drawer of the bill of exchange instructs the bank to hand
over the relevant documents to the importer only against payment.

Usance draft: It is a type of bill of exchange wherein the drawer of the bill of exchange instructs the bank to hand
over the relevant documents to the importer only against acceptance of the bill of exchange.
Import general manifest: Import general manifest is a document that contains the details of the imported good. It
is the document on the basis of which unloading of cargo takes place.

Dock challan: Dock charges are to be paid when all the formalities of the customs are completed. While paying
the dock dues, the importer or his clearing agent specifies the amount of dock dues in a challan or form which is
known as dock challan.

World Trade Organization (WTO)

It Came into existence on 1st January 1995. The headquarters of WTO is situated at Geneva, Switzerland. It is a
permanent organization created by an international treaty rectified by the Governments and legislatures of
member states. It is concerned with solving trade problems between countries and providing a forum for
multilateral trade negotiations.
Objectives of WTO
1. To reduce the trade tariffs and barriers imported by different countries in the smooth flow of international
trade.
2. To improve the standard of living, create employment, increase income and effective demand and facilitate
higher production and trade.
3. To maintain sustainable development by optionally using world’s resources.
4. To promote an integrated, more viable and durable trading system among nations.
Role/Functions of WTO
 Promoting an environment thatis encouraging to its membercountries to come forward to WTOin
mitigating their grievances;
 L a y i n g down a commonly accepted code of conduct with aview to reducing trade barriers, including
tariffs and eliminating discriminations in international trade relations;
 Acting as a dispute settlementbody;
 Ensuring that all rules regulationsprescribed in the Act are duly followed by the member countriesfor the
settlement of their disputes;
 Holding consultations with the IMF and the IBRD and its affiliated agencies so as to bring
betterunderstanding and cooperationin global economic policy making;and
 Supervising on a regular basisthe operations of the revised Agreements and Ministerial declarations
relating to goods, services and Trade RelatedIntellectual Property Rights(TRIPS).