Export Procedure

The number of steps and their sequence can vary from one deal to another, but a typical export transaction involves the following steps.

1. Receipt of enquiry and sending quotations — The prospective buyer sends an enquiry asking for information on price, quality and terms (an enquiry may even be prompted by the importer's press advertisement). The exporter replies with a quotation called a proforma invoice, stating the price and giving details of quality, grade, size, weight, mode of delivery, type of packing and payment terms.

2. Receipt of order or indent — If the buyer finds the price and terms acceptable, it places an order — also called an indent — describing the goods, prices, delivery terms, packing and marking details, and delivery instructions.

3. Assessing the importer's creditworthiness and securing a guarantee for payment — The exporter enquires into the importer's creditworthiness to judge the risk of non-payment. To minimise this risk, most exporters ask for a letter of credit — a guarantee from the importer's bank that it will honour payment up to a stated amount of export bills. It is the most secure method of settling international payments.

4. Obtaining an export licence — Exports in India are subject to customs laws that require an export licence. The main pre-requisites are:

   • Opening a bank account with a bank authorised by the Reserve Bank of India (RBI) and getting an account number.
   • Obtaining an Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) or the Regional Import Export Licensing Authority. To get the IEC, the firm applies to the DGFT with documents such as its exporter/importer profile, a bank receipt for the fee, a banker's certificate, attested photographs, details of non-resident interest, and a declaration of non-association with caution-listed firms.
   • Registering with the appropriate export promotion council (such as the Engineering Export Promotion Council or the Apparel Export Promotion Council) and obtaining a Registration-cum-Membership Certificate (RCMC) to avail government benefits.
   • Registering with the Export Credit and Guarantee Corporation (ECGC) to safeguard against non-payment and to help obtain finance from banks.

5. Obtaining pre-shipment finance — With the order and letter of credit in hand, the exporter approaches its banker for pre-shipment finance — money needed to procure raw materials, process and pack the goods, and transport them to the port.

6. Production or procurement of goods — Using the finance, the exporter gets the goods ready to the importer's specifications, either by producing them or by buying them from the market.

7. Pre-shipment inspection — To ensure quality, the government requires compulsory inspection of certain products by a designated agency under the Export (Quality Control and Inspection) Act, 1963. If applicable, the exporter obtains an inspection certificate from the Export Inspection Agency (EIA) or another designated agency, to be submitted with the export documents. Inspection is not compulsory for star trading houses, trading houses, export houses, units in export processing zones/special economic zones (EPZs/SEZs) and 100 per cent export-oriented units (EOUs).

8. Excise clearance — Under the Central Excise Tariff Act, excise duty is payable on materials used in manufacturing. The exporter applies to the Excise Commissioner with an invoice; if satisfied, the Commissioner grants excise clearance. Often the government exempts or later refunds the duty on export goods as an incentive. This refund is called duty drawback, administered by the Directorate of Drawback under the Ministry of Finance.

9. Obtaining a certificate of origin — Some importing countries give tariff concessions to goods from particular countries. To claim these, the importer may ask for a certificate of origin, which proves where the goods were manufactured. It is obtained from the trade consulate located in the exporter's country.

10. Reservation of shipping space — The exporter applies to the shipping company for space, specifying the goods, the probable date of shipment and the port of destination. On acceptance, the company issues a shipping order — an instruction to the ship's captain to receive the specified goods on board after customs clearance.

11. Packing and forwarding — The goods are properly packed and marked with details such as the importer's name and address, gross and net weight, port of shipment and destination, and country of origin. The exporter arranges transport to the port; on loading goods into a railway wagon, the railways issue a railway receipt (a title to the goods), which the exporter endorses in favour of its agent to take delivery at the port.

12. Insurance of goods — The exporter gets the goods insured against the risk of loss or damage from the perils of the sea during transit.

13. Customs clearance — Goods must clear customs before loading. The exporter prepares a shipping bill — the main document on which customs grants export permission — containing particulars of the goods, name of the vessel, port of discharge, country of destination, and the exporter's details. Five copies of the shipping bill are submitted to the Customs Appraiser along with the:

• Export contract or export order
• Letter of credit
• Commercial invoice
• Certificate of origin
• Certificate of inspection (where necessary)
• Marine insurance policy

The Superintendent of the port trust is then approached for a carting order — an instruction to the gate staff to allow the cargo into the dock. As the exporter cannot be present throughout, these tasks are entrusted to a Clearing and Forwarding (C&F) agent.

14. Obtaining the mate's receipt — Once the cargo is loaded, the mate (or captain) of the ship issues a mate's receipt to the port superintendent, giving the name of the vessel, berth, date of shipment, description and marks of packages, and the condition of the cargo. On receiving port dues, the superintendent hands the mate's receipt to the C&F agent.

15. Payment of freight and issuance of bill of lading — The C&F agent surrenders the mate's receipt to the shipping company to compute freight. On payment, the company issues a bill of lading, evidence that it has accepted the goods for carriage to the destination. When goods go by air, the equivalent document is the airway bill.

16. Preparation of invoice — After dispatch, the exporter prepares an invoice stating the quantity sent and the amount payable by the importer; the C&F agent gets it attested by customs.

17. Securing payment — The exporter informs the importer of the shipment and sends the documents needed to claim the goods — certified invoice, bill of lading, packing list, insurance policy, certificate of origin and letter of credit — through its banker, to be released to the importer only after acceptance of the bill of exchange. Submitting these documents to the bank for payment is called negotiation of the documents.

• A bill of exchange is an order asking the importer to pay a certain amount to a person or the bearer. It is of two types: a sight draft (document against payment), where documents are handed over only against payment, and a usance draft (document against acceptance), where documents are handed over against the importer's acceptance of the bill for payment at the end of a specified period (say, three months).
• The exporter need not wait for the importer's money; by signing a letter of indemnity, it can get immediate payment from its own bank, undertaking to indemnify the bank if the importer fails to pay.
• Finally, the exporter obtains a bank certificate of payment, certifying that the necessary documents (including the bill of exchange) have been negotiated and payment received as per exchange-control regulations.

Major documents used in an export transaction

• A. Documents related to goods
  • Export invoice — the seller's bill for the merchandise, giving quantity, total value, number of packages, marks, port of destination, ship's name, bill of lading number, and terms of delivery and payment.
  • Packing list — a statement of the number of cases/packs and the details of goods in each.
  • Certificate of origin — specifies the country where the goods were produced; lets the importer claim tariff concessions and is also needed where imports from certain countries are banned. …