International Business Part 2
Short Answer Type
Question 1: Discuss the formalities involved in getting an export license.
Answer: Following formalities are involved in getting an export license:
- Opening a bank account in any authorized bank and getting an account number.
- Obtaining Import Export Code (IEC) number from Directorate General Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
- Registering with appropriate export promotion council.
- Registering with Export Credit and Guarantee Corporation (ECGC) to safeguard against risks of non-payment.
Question 2: Why is it necessary to get registered with an export promotion council?
Answer: Selling through exports can be a highly competitive activity. A firm may not have the knowhow to properly promote its product in international market. Export promotion councils carry out various promotional activities to create demand for domestically manufactured products in the international market. By joining a particular export promotion council; a firm can get support in the form of continuous promotion of its products. Hence, it is necessary to get registered with an export promotion council.
Question 3: What is IEC number?
Answer: IEC number stands for Import Export Code number. This is a unique number which needs to be quoted in most of the documents related to export and import.
Question 4: What is pre-shipment finance?
Answer: Pre-shipment finance is the finance which the exporter receives for procuring raw materials and other components, processing of goods, packing of goods and transportation of goods to the port of shipment. It is given by the bank on producing letter of credit which was issued by the importer.
Question 5: Why is it necessary for an export firm to go in for pre-shipment inspection?
Answer: The government of India has taken many steps to ensure only good quality products are exported. Pre-shipment inspection is one such step. This is mandatory and is done by a competent agency which is appointed by the government. The exporter needs to contact the Export Inspection Agency (EIA) or other designated agency for pre-shipment inspection.
Question 6: Discuss the procedure related to excise clearance of goods.
Answer: As per the Central Excise Tariff Act, excise duty is payable on the materials used in manufacture of goods. The exporter has to apply to the concerned Excise Commissioner to get excise clearance. In many cases, the government exempts the excise duty or refunds the excise duty paid. This is done in order to encourage exports. The refund of excise duty is known as duty drawback.
Question 7: Explain briefly the process of customs clearance of export goods.
Answer: Before being loaded on the ship, the goods must obtain custom clearance. For this, the exporter needs to submit the shipping bill. Shipping bill is the main document on the basis of which the custom department clears the consignment for export.
Question 8: What is bill of lading? How does it differ from bill of entry?
Answer: Bill of lading is issued after payment of freight. It is issued by the shipping company. It is a proof that the shipping company has accepted to carry the consignment to the desired destination. While bill of lading is given to the exporter, the bill of entry is given to the importer. Bill of entry is issued by the customs officials.
Question 9: What is shipping bill?
Answer: Shipping bill is the main document on the basis of which the customs department grants permission for export. The shipping bill contains information about particulars of the goods being exported, name of the vessel, destination port, country of final destination, exporter’s name and address, etc.
Question 10: Explain the meaning of mate’s receipt.
Answer: The receipt issued by the commanding officer of the ship after the goods is loaded on the ship is called mate’s receipt. The mate’s receipt shows the name of the vessel, berth, date of shipment, description of package, marks and numbers, condition of cargo at the time of receipt on board the ship, etc. This document is necessary to get the bill of lading by the shipping company.
Question 11: What is a letter of credit? Why does an exporter need this document?
Answer: Letter of credit is a guarantee issued by the importer’s bank that it will honour up to a certain amount of payment of exports bill to the bank of the exporter. This is the most appropriate and secure method of payment adopted to settle international transactions. Most of the exporters demand a letter of credit from the importer.
Question 12: Discuss the process involved in securing payment for exports.
Answer: After the shipment of goods, the exporter informs the importer about the shipment. The importer needs various documents to claim the title of goods on their arrival at his/her country. These documents include; certified copy of invoice, bill of lading, insurance policy, certificate of origin and letter of credit. The exporter sends these document through his/her banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange. Bill of exchange is also sent along with the above mentioned documents. Submission of all these relevant documents to the bank is called ‘negotiation of documents’.
Bill of exchange is an order to the importer to pay a certain amount of money to, or to the order of, certain person or to the bearer of the instrument. It can be of two types, viz. document against sight (sight draft) or document against acceptance (usance draft).
Differentiate between the following
Question 1: Sight and usance drafts
Answer: In case of sight draft, the documents are handed over to the importer only after the payment. In case of usance draft, the documents are handed over to the importer on his/her acceptance of bill of exchange for making the payment at the end of a specified period.
Question 2: Bill of lading and airway bill
Answer: Bill of lading is issued in case the consignment is sent by ship. On the other hand, airway bill is issued in case the consignment is sent by air.
Question 3: Pre-shipment and post-shipment finance
Answer: Pre-shipment finance is obtained by the exporter for obtaining raw materials and other components, for production, packing and transporting the goods to the port. Post-shipment finance is obtained by the exporter once the shipment finally reaches the importer.
Explain the meaning of the following documents used in connection with import transactions
(a) Trade enquiry
Answer: This is a written request by the importing firm to the exporter to furnish information about price and various terms and conditions on which the exporter supplies goods.
(b) Import License
Answer: Import license is issued by the Directorate General Foreign Trade. While many products can be imported without a license; some products cannot be imported without an import license.
(c) Shipment of advice
Answer: This document is issued by the overseas supplier to the importer; after the goods has been loaded on the ship. This contains necessary information about the shipment.
(d) Import general manifest
Answer: This document contains the details about imported goods. This document provides the basis for unloading the goods at a particular port.
(e) Bill of entry
Answer: This form is supplied by the customs department to the importer. It is to be filled in by the importer at the time of receiving the goods. This form is filled in triplicate and submitted to the customs department.
List out major affiliated bodies of the World Bank.
Answer: The major affiliated bodies of the World Bank are as follows:
- International Development Association (IDA)
- International Finance Corporation (IFC)
- The Multinational Investment Guarantee Agency (MIGA)
- International Centre for Settlement of Investment Disputes (ICSID)
Write short notes on the following
Answer: United Nations Conference on Trade and Development (UNCTAD) was established in 1964. This is a principal organ of the United Nations and deals with trade, development and investment issues. It formulates policies related to development; including trade, aid, transport, finance and technology.
Answer: MIGA was established in 1988 to supplement the functions of World Bank and IFC. Its major objectives include encouraging FDI in less developed countries, to provide insurance cover to investors against political risks, to provide guarantee against non-political risks, etc.
(c) World Bank
Answer: The International Bank for Reconstruction and Development (IBRD) is commonly known as the World Bank. It was established as a result of Bretton Woods Conference. The main objective of setting up the World Bank was reconstruction of war-ravaged economies of Europe after the Second World War. After successfully achieving its objective in Europe, the World Bank shifted its focus on developing nations and has been engaged in that since 1950s.
Answer: India Trade Promotion Organisation (ITPO) is headquartered at Pragati Maidan, New Delhi. It is the nodal agency of Government of India for promoting country’s external trade. It organizes trade fairs to promote various products from Indian manufacturers. It also facilitates international buyers in searching for suitable vendors in India.
Answer: International Monetary Fund (IMF) is next only to the World Bank. IMF was established in 1945 and is headquartered at Washington. Its main activities include; promotion of international monetary cooperation, facilitate growth of balanced international trade, to promote exchange stability and to establish multilateral payment system.