Export & Import & Countertrade

Counter Trade

Countertrade involves the exchange of goods in barters or other ways in place of money. For example, if a nations currency is not exchangeable or no good overseas, they may offer a commodity or other product in place of cash.

contd.

A Little Bit of History

Scenario pre 1991

Requirement for licenses The inspector raj Bureaucratic controls Complex legislations & manufacturer protective policies High import duties
contd.

A Little Bit of History

Scenario pre 1991

Requirement for licenses The inspector raj Bureaucratic controls Complex legislations & manufacturer protective policies High import duties
contd.

Countertrade can be separated into five variants:

1. Barter 2. Counterpurchase 3. Offset 4. Buyback or compensation 5. Switch trading

contd.

Barter is simply the direct trading of goods and or services between two parties with not monetary exchange. It is normally used in one-off deals with trading partners that are not trustworthy or that lack any credit. Barter is the simplest and most restrictive type of countertrade.

Counterpurchase is a mutual buying agreement which involves one party agreeing to buy a prespecified amount of goods or services from a nation to which a sale is made.

Offset is like counterpurchase in that one firm agrees to buy goods with a certain percentage of the proceeds from the initial sale. The difference is that this party can conclude its transaction with any company or partner in the country to which the sale is made.
A buyback involves a firm building a facility or making an investment in a country and then it receives a percentage of that investments profits as partial payment for the initial contract. Switch-trading occurs when a third party trading house purchases a companys counter purchase credits and resells them to another company that can make better use of them. The trading house makes a profit along the way.

A Little Bit of History

contd.

Scenario post 1991

End of licensed raj A marked shift from protecting producers to benefiting consumers. Process of global integration of Indian economy commenced Markets opened up for import, simplification in rules Drastic cut in import duties Emergence of world wide production, broader access to factors of production in a range of foreign destinations contd

A Little Bit of History

contd.

Emergence of worldwide financial markets and better access to external financing Realization of a common global market, based on the freedom of exchange of goods and capital Increase in information flow between geographically remote locations Growth of cross cultural contacts. Our merchandise exports till 1991 (in 44 years after independence) were US$ 17.86 b and in the last 20 years these have grown (in 2010-11) to US$ 246 b !!

The Drivers

Opportunity cost Declining trade & investment barriers Role of technological change - Information technology, - Communication - Transport Infrastructure development roads, ports, airports Implications of globalisation of markets Implications of globalisation of products

Phases in Moving Towards International Business

Phase I Ideation Companies robust in domestic market. Considering but not currently exporting/importing
Phase II Initial action starting sporadic, marginal export/import. Companies see great potential. Pressure of increased attraction/external demand for export/import.

Phase III Advanced action becoming robust player in export/import. Gaining extensive overseas experience. Starting other modes of entering overseas market.

Companys Readiness to Export?

Motivational Factors:

Contribution to long term expansion of business Enhancing competitiveness Exploiting unique technology & expertise Improving return on investment

Companys Readiness to Export?

Contd.

Organizational Factors:

Commitment of Management Funding support Personal commitment & expertise Production capabilities Exporting goals

Product Readiness to Export

Product success in domestic markets Does it require modifications for the selected markets? Does it require extensive training to operate or use? Does it require considerable after sale service? Is it unique or differentiated?

Advantages of International Trade Firm

Increase in domestic competitiveness Increase in sales, profit and turnover Increase in global market share Decrease in dependence on existing markets. Spread of business risk Better use of corporate technology and technical know how (contd.)

Advantages of International Trade Firm (contd.)

Control on cyclical market fluctuations Better chances of corporate expansion. Additional incentives from the government Using excess production capacity effectively Better learning curve through information about foreign competition

Advantages to the Nation

For the nation, greater international trade activity means: More economic growth Effective exploitation and management of natural and physical resources of the country Employment generation Foreign exchange accumulation Infrastructure development Improved living standards Larger economic & political clout

The Need & Importance of Understanding International Trade Operations

To facilitate smooth flow of cargo from exporter to the importer Ensure receipt of payment from the importer Ensure safe voyage and risk cover Ensure timely receipt of the cargo in good condition from the exporter To secure export incentives on the basis of export documents

Players in the Trade Chain

ORDER/PREPARE
Exporter/importer Insurance

TRANSPORT
Freight

CUSTOMS
Custom

PAYMENT
Bank Financial

company Chamber of commerce Export/import agent Licensing authorities Embassies Credit checking company Supplier Other intermediaries

forwarder Transporter/carr ier Shipping line Export inspection agency Other intermediaries

clearance Health authorities Port management Custom brokers Other intermediarie s

institutions Other intermediaries

exporter

importer

bank in exporters country

Importers bank
Importer warehouse

Manufacturing/ Procuring customers

Secure transportation and documentation

Ship

Legal Framework An Overview

Foreign Trade (Development & Regulation) Act, 1992 Foreign Exchange Management Act (FEMA), 1999 The Customs Act, 1962 Export (Quality Control and Inspection) Act, 1963

Foreign Trade (Development & Regulation) Act, 1992

Preceded by Imports and Exports (Control) Act, 1947, Import (Control) Order, 1955 & Export (Control) Order, 1988 It is the main legislation concerning foreign trade The Act provides for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto.
contd.

Exports & Import General Provisions in Foreign Trade Policy

The interpretation of Policy: DGFT is the final authority. Any exemption from policy or procedure also to be referred to DGFT Freedom to export & import except to the extent of provisions in the Foreign Trade Policy or any other law in force Every exporter/importer must comply with the provisions of the Foreign Trade (Development & Regulation) Act 1992 No agency shall withhold consignments allowed for exports. Free movement of export goods is allowed. Authority can take undertaking from exporter in case of any doubt

Specific Provisions

Free exports All exports in freely convertible currency except in specific situations Realization of export proceeds within a specified time Exports of imported goods Export of replacement/repaired goods Deemed exports

The Guiding Factors Foreign Trade Policy

With economic reforms, globalisation of the Indian economy has been the guiding factor in formulating the trade policies. The reform measures introduced in the subsequent policies have focused on liberalization, openness and transparency. Providing an export friendly environment by simplifying the procedures for trade facilitation

Foreign Exchange Management Act, 1999

Preceded by Foreign Exchange Regulations Act 1947, Foreign Exchange Regulations Act 1973, Foreign Exchange Regulations (Amendment) Act, 1993 FEMA is an Act to consolidate and amend the law relating to foreign exchange with the objective of

revising and uniting all the laws that relate to foreign exchange facilitating external trade and payments promoting the orderly development and maintenance of foreign exchange market in India.
Contd.

EIC

Export Inspection Council, either directly or through Export Inspection Agencies, its field organization, renders services in the areas of:

Certification of quality of export commodities through installation of quality assurance systems (In-process Quality Control and Self Certification) in the exporting units as well as consignment wise inspection. Certification of quality of food items for export through installation of Food safety Management System in the food processing units. Issue of Certificates of origin to exporters under various preferential tariff schemes for export products.

Other Rules/Guidelines
In addition to the major Acts as described in the previous slides, there are a number of other rules & regulations, government guidelines relating to Export/import of commodities, Documentation, modes of insurance, modes of transportation, international conventions, These also need to be strictly observed while conducting the export & import business

Export Promotion Councils/Boards

With a view to securing active co-operation of producers and exporters in the drive for export promotion Govt. of India has sponsored number of export promotion councils /boards These are non profit organisations under the Companys Act There are about 30 such councils / boards for various commodities with branches and regional offices throughout the country.

Export Promotion Councils/Boards

All exporters of products coming under the council are entitled to become the members of the council if they wish to claim export incentives and assistance provided by the council as per governments policy. The Govt. provides grants under various heads for the councils.

Role

The main role of the EPCs is to project India's image abroad as a reliable supplier of high quality goods and services. In particular, the EPCs encourage and monitor the observance of international standards and specifications by exporters. The EPCs keep abreast of the trends and opportunities in international markets for goods and services and assist their members in taking advantage of such opportunities in order to expand and diversify exports.

Functions

To provide commercially useful information and assistance to their members in developing and increasing their exports To offer professional advice to their members in areas such as technology upgradation, quality and design improvement, standards and specifications, product development and innovation etc.

To organise visits of delegations of its members abroad to explore overseas market opportunities.

Functions- contd.

To organise participation in trade fairs, exhibitions and buyer-seller meets in India and abroad. To promote interaction between the exporting community and the Government both at the Central and State levels To build a statistical base and provide data on the exports and imports of the country, exports and imports of their members, as well as other relevant international trade data.

Support Institutions to Facilitate Exports

Some of these institutions are: Export Credit Guarantee Corporation (ECGC) Exim Bank of India India Trade Promotion Organisation (ITPO) Export Inspection council (EIC) Indian Institute of Packaging (IIP) contd.

ECGC

Provides a range of credit risk insurance covers to exporters against loss in export of goods and services Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan

How does ECGC help exporters?

Offers insurance protection to exporters against payment risks Provides guidance in export-related activities Makes available information on different countries with its own credit ratings Makes it easy to obtain export finance from banks/financial institutions Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers

Support Institutions to Facilitate Exports

contd.

Indian Council of Arbitration (ICA) Directorate General of Shipping All India Shippers Council Department of Commercial Intelligence and statistics Board of trade Zonal Export Import Advisory Committees

Directorate General of Shipping

Deals with policy and implementation regarding all things maritime

Mode of Operations

Merchant Exporter Manufacturer Exporter Sales Agent/Commission Agent Buying Agent Service Provider

Registration Procedure & Licensing Importer Exporter Code (IEC)

Obtaining the IEC number DGFT provide exporter a unique 10 digit IEC code number required for export or import. No export allowed without IEC number. Application for IEC number to be submitted to the nearest regional authority of DGFT. Application form known as "Aayaat Niryaat Form - ANF2A" can also be submitted online at the DGFT web-site: http://dgft.gov.in.
contd.

Registration Procedure & Licensing Importer Exporter Code (IEC)

(contd.)

Pre-requirements for IEC application

PAN No. from IT authorities, a bank account in the name of your company with any commercial bank authorized to deal in foreign exchange Application to be accompanied by relevant documents Validity & features of IEC number

Issued in a prescribed format Valid for all braches/divisions/units/factories of the company as indicated on the IEC number

Registration Procedure & Licensing RCMC

Registration with Export Promotion Councils/Commodity Boards/Authorities Registration cum membership Certificate (RCMC) given by above bodies on basis of application submitted in form given in Appendix3A alongwith prescribed documents RCMC indicates status of applicant as manufacturer exporter or merchant exporter in the form given in Appendix 3B

Registration Procedure & Licensing RCMC

RCMC is deemed to be valid from1st April of the licensing year in which it was issued and remains valid for 5 years, unless otherwise specified. Status holder may obtain RCMC from Federation of Indian Export Organization (FIEO) For any product not covered by EPCs/CBs, RCMC may be issued by FIEO For claiming any incentives, holding RCMC is essential

Registration Procedure & Licensing

Registration with Export Credit Guarantee Corporation (ECGC) for export credit insurance helps in covering risks Export/Import license for specific products

Prohibited items Restricted items Canalised items

The Promise and Pitfalls of Exporting

Thank You