Basics of International

Trade &
Documentation

Discussion Contents
Basics of International Trade
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Sales Contract
The Exchange of Goods
Transfer of Funds

Trade Documentation
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Common Documents
BL, CO & GSP
Discrepancies

Understanding International Trade

Import and Export
Globalization
Documentation
Customs Import, Export procedure
Incoterms
International Transport and Logistics
International contracts
Methods of Payments
Finance of International Trade

Basics of International Trade

International Trade is the movement of goods

and services that develop from a business
transaction between a buyer in one country
and a seller in another country

If you walk into a supermarket and are able to

buy South American bananas, Brazilian coffee
and a bottle of South African wine, you are
experiencing the effects of international trade.

Some important benefits of

International Trade

Enhances the domestic competitiveness

Takes advantage of international trade technology
Increase sales and profits
Extend sales potential of the existing products
Maintain cost competitiveness in your domestic
market
Enhance potential for expansion of your business
Gains a global market share
Reduce dependence on existing markets
Stabilize seasonal market fluctuations

 Export Regulations

Export Documents- Consignor-Land/Sea/Air

Export of goods from Bangladesh (excepting export from Type A industrial

units located in the EPZs) to foreign countries by land route or by sea/air, the
Railway Receipts, Bills of Lading/AWB and any other documents of title to
cargo should be drawn only to the order of a bank designated for this
purpose by the respective exporters.

However, in case of export of goods, full payment for which value has been
received by the exporter in advance through the bank, the Bill of Lading and
other documents may be endorsed by the bank in favor of foreign importers
and the same may be sent directly to the importers abroad by the bank.

Negotiation of Export Bills

Negotiation of Export Bills generally take place against:

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Bill of Lading
Airway Bills

Negotiation can also take place against Forwarders

Cargo Receipts (FCR) and House Airway Bills (HAWB)
provided:
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The export L/C and the export sales contract specifically provide
for negotiation of export bill against FCR/HAWB issued by a
freight forwarder
The freight forwarder is operating in Bangladesh with necessary
approvals to act as agent of non-resident principal along with
authorization of Bangladesh Bank

Endorsement of Shipping Documents by Banks

The banks to whose order the relative Railway Receipts, Bills of Lading
etc. are drawn shall endorse the same to the order of their foreign
correspondents but in no case they shall make any blank endorsement or
endorse it to the order of the consignee unless they have obtained specific
or general approval of the Bangladesh Bank therefore.

However, in the cases of export from Type A industrial units located in

EPZ, Bill of Lading/Airway Bill /other documents of title to cargo drawn to
the order of the bank may be blank endorsed or endorsed in favor of the
consignees as per terms of the export LC /export contract.

Deduction of Commission, Brokerage and Other

Trade Charges

Commission, brokerage or other trade charges due to be paid to foreign importers or

agents by exporters in Bangladesh relating to the particular shipment may be
deducted from the relative bill amount or the amount of the sale proceeds or remitted
from Bangladesh after the full proceeds have been realized only upto a maximum of
5% of the value of the goods.

In

exceptional cases or where it is customary in any particular trade to pay

commission in excess of 5% by deduction from the invoice value of exports, the

Bangladesh Bank may consider applications by exporters through their bankers and
may grant a standing authority to permit payment of commission in excess of 5% of
the invoice value. Production of documentary evidence indicating the arrangement
necessitating the payment of commission in this manner will be necessary.

Export Without L/C

y

Exports without L/C can be done through:

- buying contract
or
agreement
or
purchase order

(upon the submission of EXP Form and Shipping Bill)

But in all cases documents of title to cargo should

be drawn only to the order of a bank designated
for this purpose by the respective exporters
(excepting exports from Type A industrial units
located in the EPZs)

 Are you ready for export?

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Understand the challenges

Manage export contracts and logistics
Secured Payment issues

Challenges;

Planning and Strategy

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Marketing
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Resources like Finances, personnel, production

Well defined strategy
Target Market research
Local regulations and customer requirements
Pricing and packaging

Export procedures
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Negotiation process, payment terms

Distribution network
Insurance, duties and taxes

 Import Regulations

Eligibility for Opening Import L/C

Valid Import Registration Certificate (IRC) issued from competent authority. However,
IRC is not required if the purpose of import is own consumption.

Valid Trade License issued from the City Corporation/Municipality

Valid membership certificate from Chamber of Commerce & Industry or any Trade
Association recognized by CCI & E

Proof of Tax Identification Number (TIN) issued from income tax authority

Value added Tax (VAT) certificate issued by National Board of Revenue

A declaration that the importer paid Income Tax or submitted tax return for the
preceding year

Board resolution in case of Limited Company.

NOC of Bill of Entry from Previous Banks

Required Documents/papers for opening L/C

Letter of Credit Authorization Form (LCAF) duly signed by the

Importer.
Letter of Credit Application Form (Stamped form) duly signed
IMP Form
Insurance Cover Note covering 110 percent value of the L/C
amount
Money Receipt of the Insurance Cover Note (Proof of payment,
i.e. pay order, credit advice)
Proforma Invoice/ Indent (Indenter's valid permission from BBK
for respective suppliers)
Credit Report of the Exporter if value exceeds BDT 200 M
approximately USD 2900 for Proforma Invoice and BDT 500M
approximately USD 7,200 for Indent.

Types of Importers
Industrial Importer (Manufacturing Company)
Commercial Importer (Trading House/Company)
Own consumption

Letter of Credit Authorization Form:

Letter of Credit Authorization (LCA) form is a form, which is
prescribed by the C.C.I.E in lieu of Import Permit/License
for opening L/C.
Types of LCAF
y Industrial
y Commercial

Sales Contract
Legally, there are four basic elements of a

sales contract.
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What is being sold.

Description of each item.

At what price.
Unit and total price.
Clearly specify the currency.

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In what quantity.
Of what quality.
New, used, premium, standard, etc.

 You may write up a formal contract of sale,

or you may use:

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A purchase order signed by the buyer.

An order acknowledgment countersigned by
the buyer.
A pro forma invoice.

International trade law governing sales contracts is

under the auspices of the UNITED NATIONS
COMMISSION ON INTERNATIONAL TRADE LAW.

 An order acknowledgement should

supplement a purchase order by:

Confirming terms and conditions of the
sale not covered by the purchase order.
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Delivery schedule
Product warranty
Payment schedule

A pro forma invoice is a document prepared in

advance of a sale to provide evidence of the
final form and amount of invoice.
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It is a form of a quotation.
Specify a time limit for the validity of the offer.

A pro forma invoice should be printed on letterhead

stationery.
A pro forma invoice should contain:

Description of each item

Quantity of each item
Unit and total price
Terms of sale
Shipping and packing charges
Net and gross weight

 A pro forma invoice should contain enough

detail to help the buyer to:

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Open a letter of credit.

Obtain an import permit.
Calculate the DUTY on the items.

International commercial terms

 TRANSFER OF FUNDS

Trade payment methods

What is an L/C ?

An L/C can be thought of as a letter from an

importers bank informing an exporter that they
will be paid for a shipment upon presentation of
the specified documentation.

All communication takes place within banking

channels and documentation must not contain
discrepancies.

What is an L/C
In summary, an L/C is:
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A formal document of payment

Opened by a party wishing to import
Communicated through banking channels
Paid by the opening bank within a specified timeframe
upon presentation of stipulated documentation

L/C flow diagram

Parties involved in LC transaction:

The Applicant is the party that arranges for the letter of credit to be issued.
The Beneficiary is the party named in the letter of credit in whose favor the
letter of credit is issued.
The Issuing or Opening Bank is the applicants bank that issues or opens
the letter of credit in favor of the beneficiary and substitutes its
creditworthiness for that of the applicant.
An Advising Bank may be named in the letter of credit to advise the
beneficiary that the letter of credit was issued. The role of the Advising Bank
is limited to establish apparent authenticity of the credit, which it advises.
The Paying Bank is the bank nominated in the letter of credit that makes
payment to the beneficiary, after determining that documents conform, and
upon receipt of funds from the issuing bank or another intermediary bank
nominated by the issuing bank.
The Confirming Bank is the bank, which, under instruction from the issuing
bank, substitutes its creditworthiness for that of the issuing bank. It ultimately
assumes the issuing banks commitment to pay.

Settlements Under a Letter of Credit

All commercial letters of credit must clearly indicate whether they are payable
by sight payment, by deferred payment, by acceptance, or by negotiation.
These are noted as formal demands under the terms of the commercial letter
of credit.

In a sight payment, the commercial letter of credit is payable when the

beneficiary presents the complying documents and if the presentation takes
place on or before the expiration of the commercial letter of credit.
In a deferred payment, the commercial letter of credit is payable on a
specified future date. The beneficiary may present the complying documents
at an earlier date, but the commercial letter of credit is payable only on the
specified future date.
An acceptance is a time draft drawn on, and accepted by, a banking
institution, which promises to honor the draft at a specified future date. The
act of acceptance is without recourse as it is a commitment to pay the face
amount of the accepted draft.
Under negotiation, the negotiating bank, a third party negotiator, expedites
payment to the beneficiary upon the beneficiarys presentation of the
complying documents to the negotiating bank. The bank pays the beneficiary,
normally at a discount of the face amount of the value of the documents, and
then presents the complying documents, including a sight or time draft, to the
issuing bank to receive full payment at sight or at a specified future date.

Types of L/Cs
There are various kinds of letter of credit. The types of
them are irrevocable credit, revocable credit,
confirmed credit, unconfirmed credit documentary
credit, clean letter credit, fixed credit and revolving
credit.
Irrevocable letter of credit: Irrevocable letter of credit is
one in which the issuing bank gives a lasting
understanding to accept and in due course to pay bills
drawn upon it. The only condition is that the exporter
fulfills the terms and conditions stipulated in the letter
relating to documents. The irrevocable letter of credit
gives a complete protection to the exporter as it is
guaranteed not by a foreign bank.

Revocable letter of credit: Revocable letter of credit as

the same signifies is one which can be modified or
cancelled by the issuing bank at any time without any
obligation on its part. As revocable letters of credit are
subject to cancellation without notification therefore they
are not usually acceptable to the businessmen.
Confirmed letter of credit: The confirmed letter of credit is
that which has the protection of the credit standing of the
importer's as well as the exporter's bank. The exporter's
bank which confirms the letter of credit takes the liability
of paying agents in case the issuing bank falls to make
payment to the exporter. The confirmed letter of credit is
useful when the financial strength and standing of the
issuing bank in the foreign country is known to the
exporter. The issuing bank does not enjoy a good
reputation. The issuing bank is not well reputed. The
political conditions in the issuing bank's country are
unsettled

 Transferable Letter of Credit: Letter of Credit

that allows all or a portion of the proceeds to

be transferred from the original beneficiary to
one or more additional beneficiaries.
Documentary Credit : Commercial Letter of

Credit providing for payment by a bank to

the name beneficiary, usually the seller of
merchandise, against delivery of documents
specified in the credit.

Import without L/C

Governed by Bangladesh Bank FE Circular No 9, Dtd 9 July, 1997 and FE Circular No 2, Dtd
11 July, 2007.
Items allowed for Import Without LC
Perishable Food Items, up to $5000 per shipment by land
Industrial Raw Materials & Capital Machinery, without limit
Documentation required
Full Set LCA Form
Full Set IMP Form (required for import payment)
Importers Application as per format in Attachment KA
Accepted Pro forma Invoice / Indent
Valid Import Registration Certificate (Industrial)
LCA registration to be done within 3 business days from date of issuance of Pro-forma Invoice
/ Indent
Payment can only be settled through the Authorized Dealer with which LCA Registration has
been done.
Exchange Control Copy of Bill of Entry to be submitted to bank within 30 days of Payment.

Import without L/C contd.

Once an LCA is registered the same cannot be amended. In

case of value increase/decrease, original LCA to be cancelled
and fresh registration to be done.
In case of DA payment, usance period interest should not be a
rate higher than LIBOR for the relative period or the equivalent
rate prevailing in the currency of the country of the supplier.
Capital Machinery can be imported on 360 days usance basis.
Industrial Raw Materials import (for own use) on 180 days
usance basis.

Advance Payment against Import

Advance remittance for permissible imports of goods and services into
Bangladesh may be effected by the banks without prior approval of the
Bangladesh Bank, against applications from the importers submitted with
signed undertaking provided that:
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The purchase contract with supplier specifically required advance
payment
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The supplier furnishes repayment guarantee acceptable to the bank
from a bank abroad, to be revoked for refund of the amount paid in
advance in the event of the suppliers default in delivering the goods or
services as per contract. Such guarantee need not be insisted upon in
cases of advance payment up to USD 2500 for books, journal or lifesaving medicines

Requests for advance remittance where the suppliers are unwilling or

unable to furnish the repayment bank guarantee, may be forwarded by the
banks, along with their recommendations, for specific decision of the
Bangladesh Bank on merit of each case.

Banks shall report to BB the cases where the goods/services against

advance payments are not received in Bangladesh in due time.

Back to Back LC

The back to back import LCs shall be opened on up to

180 days usance basis

Except in case of those opened against Export

Development Fund (EDF) administered by the
Department of Banking Operation and Development of
Bangladesh Bank in which case the back to back LC will
be opened on sight basis.

Interest for the usance period shall not exceed LIBOR, or

the equivalent interest rate in the currency of settlement.

Transfer of funds- popular payment methods

Payment

T/T or
Cash
Adva
nce

Details
T/T is the easiest payment from and is typically used when
samples or small quantity shipments are transported by air.
T/T is also used between buyers and sellers who have
already established a mutual trust, as this negates the risks
associated with this, the fastest and cheapest form of
payment.
Documents like air waybills, commercial invoices and
packing lists will be sent to you along with the shipment in
the same aircraft.
As soon as the shipment arrives, you, with documentation,
can clear the customs and pick up the goods. Shipping
happens only after money is safely in seller's bank account.
It usually takes 3-4 days for such a wire transfer anywhere in
the world.

Allocation
of Risks

100%
buyer
's risk

Transfer of funds- popular payment methods

Payment

Details

The L/C is a guarantee, given by the buyer's bank, that they

will pay for the goods exported, provided that the exporter
can provide a given set of documents in accordance with
clauses specified in the L/C and in a timely manner.
The technical term for letter of credit is "Documentary
Credit."
Letter of
Letters of credit deal in documents, not goods. Thus, the
Credit
process works both in favor of both the buyer and the seller.
(L/C)
Simply put, a letter of credit is a letter written by the
importer's bank to the exporter. It verifies that the payment
will be guaranteed when the bank is presented with concrete
documents (bills of lading and freight documents).
Most letters of credit are "irrevocable" once the importer has
had them sent, which means it cannot be changed unless
both the buyer and seller agree

Allocation
of Risks

Evenly
shared

Transfer of funds- popular payment methods

Payment

Details

Escrow

Escrow is a legal arrangement (and most commonly a

payment arrangement) whereby money is delivered
to a third party (called an escrow agent) to be held in
trust (in escrow) pending the fulfillment of
condition(s) in a contract, whereupon the escrow
agent will deliver the payment to the proper
recipient. Typically, escrow is used when the Buyer
and Seller are unknown to each other.
In an international trade context, after the Buyer and
Seller have agreed to the transaction, the buyer puts
the payment in escrow by paying the escrow agent,
which both parties have agreed to use. The seller
sends the shipment and upon acceptance by the
buyer, the escrow agent releases the payment to the
seller

Allocation
of
Risks

Evenly
shared

Transfer of funds- popular payment methods

Payment

Details

The exporter ships the goods, and then gives the

documents (including the bill of lading necessary to
claim the goods at the foreign port) to his bank, which
Document
Against
will forward them to a bank in the buyer's country,
Payment
along with instructions on how to collect the money
/Bill of
Exchange
from the buyer.
(D/P)
When the foreign bank receives the documents, they
will contact the buyer and provide documents to the
buyer only when the buyer pays.

Allocation
of Risks

Mainly with
supplier

Transfer of funds- popular payment methods

Payment

Details

Open Opposite situation to T/T: The exporter receives

Acco
payment only after the buyer has received and
unt
inspected the goods.
(O/A)

Allocation
of Risks

100%
seller
risk

Documents that required in

International Trade

Standard form of documents

When making payment for product on behalf of its

customer, the issuing bank must verify that all
documents and drafts conform precisely to the terms and
conditions of the letter of credit. Although the credit can
require an array of documents, the most common
documents that must accompany the draft include:
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Commercial Invoice
Bill of Lading
Warranty of Title
Letter of Indemnity, etc

Required documents;
- Import export documents.
- Documents of Origin.
- Commercial Documents.
- Transport documents.
- Administrative Documents.
- Other Documents.

Functions of Shipping Documents

A complete set of Shipping Documents
containing different documents, and each
document has its different purpose, but the
major functions of the complete set Shipping
documents can be defined as following:

For Transportation handling.

For cargoes delivery and receiving.
For Customs clearance.
For payment.
For legal supporting

Examples of Shipping Documents

Commercial Invoice
Packing List
Transportation Documents [Bills of Lading, Air
Waybill (AWB), Forwarder Cargo Receipt (FCR)]
Certificate of Origin
Export License (Visa)
Customs Invoice
Declaration
Certificate
Letter of Indemnity / Letter of Guarantee
Drafts
Bank Collection Order

Common documents;

Commercial Invoice
-

The billing for the goods and services.

It includes a description of merchandise, price, FOB
origin, and name and address of buyer and seller.
The buyer and seller information must correspond
exactly to the description in the letter of credit.

Unless the letter of credit specifically states otherwise, a

generic description of the merchandise is usually
acceptable in the other accompanying documents.

Information to be included in the Commercial

Invoice

Description and sale price of the goods.

Actual shipped quantities of the goods.
Name and addresses of shipper, recipient, and buyer (if not the
recipient).
Reference numbers such as P.O., etc.
Separate pricing for shipping and insurance.
Country of origin of the goods.
Payment terms.
Trade terms of the price.
Declarations.
Harmonized Tariff Schedule number.
Quota Cat. Number.
Ports of shipment and entry.
Shipment date.
Invoice date.

Bill of Lading

A bill of lading is a type of document that is

used to acknowledge the receipt of a
shipment of goods. A transportation
company or carrier issues this document
to a shipper. In addition to acknowledging
the receipt of goods, a bill of lading
indicates the particular vessel on which
the goods have been placed, their
intended destination, and the terms for
transporting the shipment to its final
destination

Purpose of B/L
A document supplied to the exporter by the shipping
company that is transporting the goods to their foreign
destination, listing, item by item, the goods being
shipped. It serves three basic purpose
1. To acknowledge receipt by the carrier of the
exporter's goods.
2. To indicate the carrier's contractual obligation to
transport the goods to their destination in exchange for
payment.
3. To record transfer of title (or ownership) from the
seller to the buyer when payment for the goods takes
place.

There are two basic types of B/L

the straight bill and the order bill.
1. A straight bill of lading is a non-negotiable
document, made out to a specifically named
consignee, from which the steamship company
acknowledges receipt of the freight and agrees to
move it to its destination.
Unlike an order bill, the straight bill does not have to
be surrendered to the carrier in order for the importer
to obtain possession of the goods.

2. An Order bill of lading is a document that is made out to

the order of the foreign importer or its bank, or the order
of the export firm, its bank, or another designated party.
Title to goods being shipped is given by possession of
the bill of lading that bears the exporter's endorsement.
Often, this endorsement is in blank, thus giving
ownership of the goods to the person possessing the bill,
and therefore making the bill highly negotiable.
The order bill of lading is handed over only when the
foreign importer has paid for the goods or made
acceptable credit arrangements.

Number of B/L copies

Customs regulations of most countries specify

the number of copies, either negotiable or nonnegotiable, of the bill of lading that must be
supplied for customs purposes.
Some Latin American countries prohibit or

otherwise discourage the use of order bills of

lading. Therefore the export firm should first
check as to the type of bill that is acceptable in
the country to which it is planning to ship its
goods.

For each shipment, two or three negotiable or

signed bills of lading are usually issued, plus as
many more non-negotiable copies as may be
required. The latter are clearly marked nonnegotiable.

Where these bills have to be presented in

duplicate or triplicate at the Customs of the
foreign country, it is usual to supply one
negotiable copy with each set of documents,
plus as many non-negotiable copies of the bill of
lading as are required.

What is a F C R ?
It is basically a transport document issued
by a freight forwarder and acts as a receipt
for the cargo, and evidence of a contract
between the shipper and the forwarder. It
is not a document of title.
The forwarder assumes responsibility for
the cargo by issuing the FCR.

Warranty of Title
-

A warranty given by a seller to a buyer of

goods that states that the title being
conveyed is good and that the transfer is
rightful.
This is a method of certifying clear title to
product transfer. It is generally issued to the
purchaser and issuing bank expressing an
agreement to indemnify and hold both
parties harmless.

 Letter of Indemnity

Specifically indemnifies the purchaser

against a certain stated circumstance.
Indemnification is generally used to
guaranty that shipping documents will be
provided in good order when available.

 Packing List

A document prepared by the shipper that

lists the kinds and quantities of
merchandise in a particular shipment. A
copy is generally sent to the consignee to
aid in checking the shipment when
received.

The 3 major functions of Packing List

The exporter, customs broker, and the

freight forwarder refer to it for the gross
weight and the measurement.
Customs uses the packing list as a
check-list to verify the cargo.
The importer uses the packing list to
inventory the incoming consignment.

Information to be included in the Packing List

Invoice number.
Actual shipped quantity of the goods.
Description of the goods.
Package / Carton numbers.
Weight (NNW, NW, GW) and Carton Measurement per carton.
Quantity breakdown per package per size assortment and color
assortment.
How many assortments per carton.
Summary and total of quantity per PO, assortment, etc.
Summary and total of Weight per PO, assortment, etc.
Vendors name and address.
Marks & Nos.
Manufacturer's company chop and authorised signature.

Issue of country of origin

When shipping products from one country to another, the products may have
to be marked with country of origin, and the country of origin will generally be
required to be indicated in the export/import documents and governmental
submissions. Country of origin will affect its admissibility, the rate of duty, its
entitlement to special duty or trade preference programs, antidumping, and
govern procurement.
Today, many products are an outcome of a large number of parts and pieces
that come from many different countries, and that may then be assembled
together in a third country. In these cases, it's hard to know exactly what is
the country of origin, and different rules apply as to how to determine their
"correct" country of origin.
Generally, articles only change their country of origin if the work or material
added to an article in the second country constitutes a substantial
transformation, or, the article changes its name, tariff code, character or use
(for instance from wheel to car). Value added in the second country may
also be an issue.

Description of the country of origin principle

The country of origin principle states that, where

an action or service is performed in one country
but received in another, the applicable law is the
law of the country where the action or service is
performed. The opposing principle is the country
of reception principle.
For example, if a sale of goods is made over the
Internet from a website in France to a purchaser
in Italy, the country of origin principle would be
said to apply if French law applied to the
transaction, and the country of reception
principle if Italian law prevailed.

GSP

The Generalized System of Preferences,

or GSP, is a formal system of exemption from
the more general rules of the world Trade
Organization (WTO), (formerly, the General
Agreement on Tariffs and Trade or GATT).
Specifically, it's a system of exemption from the
Most Favored Nation principle (MFN) that
obligates WTO member countries to treat the
imports of all other WTO member countries.

Objective of GSP.
" the objectives of the generalized, non-reciprocal,
non-discriminatory system of preferences in favor of
the developing countries, including special measures
in favor of the least advanced among the developing
countries, should be:
(a) to increase their export earnings;
(b) to promote their industrialization; and
(c) to accelerate their rates of economic growth."

Common defects in documentation

Letter of Credit has expired prior to presentation of draft.

Bill of Lading evidences delivery prior to or after the date range
stated in the credit.
Stale dated documents.
Changes included in the invoice not authorized in the credit.
Inconsistent description of goods.
Insurance document errors.
Invoice amount not equal to draft amount.
Ports of loading and destination not as specified in the credit.
Description of merchandise is not as stated in credit.
A document required by the credit is not presented.
Documents are inconsistent as to general information such as
volume, quality, etc.
Names of documents not exact as described in the credit.
Beneficiary information must be exact.
Invoice or statement is not signed as stipulated in the letter of
credit.

Q&A