Import trade refers to the purchase of goods from a foreign country. The procedure for import trade differs from country to country depending upon the import policy, statutory requirements and customs policies of different countries. In almost all countries of the world import trade is controlled by the government. The objectives of these controls are proper use of foreign exchange restrictions, protection of indigenous industries etc. The imports of goods have to follow a procedure. This procedure involves a number of steps.
The steps taken in import procedure are discussed as follows:
(i) Trade Enquiry
The first stage in an import transaction, like any other transaction of purchase and sale relates to making trade enquiries. An enquiry is a written request from the intending buyer or his agent for information regarding the price and the terms on which the exporter will be able to supply goods.
The importer should mention in the enquiry all the details such as the goods required, their description, catalogue number or grade, size, weight and the quantity required. Similarly, the time and method of delivery, method of packing, terms and conditions in regard to payment should also be indicated.
(ii) Procurement of Import Licence and Quota
The import trade in India is controlled under the Imports and Exports (Control) Act, 1947. A person or a firm cannot import goods into India without a valid import licence. An import licence may be either general licence or specific licence. Under a general licence goods can be imported from any country, whereas a specific or individual licence authorizes to import only from specific countries.
For the purpose of issuing licence, the importers are divided into three categories:
(a) Established importer,
(b) Actual users, and
(c) Registered exporters, i.e., those import under any of the export promotion schemes.
(iii) Obtaining Foreign Exchange
After obtaining the licence (or quota, in case of an established importer), the importer has to make arrangement for obtaining necessary foreign exchange since the importer has to make payment for the imports in the currency of the exporting country.
The foreign exchange reserves in many countries are controlled by the Government and are released through its central bank. In India, the Exchange Control Department of the Reserve Bank of India deals with the foreign exchange. For this the importer has to submit an application in the prescribed form along-with the import licence to any exchange bank as per the provisions of Exchange Control Act.
The exchange bank endorses and forwards the applications to the Exchange Control Department of the Reserve Bank of India. The Reserve Bank of India sanctions the release of foreign exchange after scrutinizing the application on the basis of exchange policy of the Government of India in force at the time of application.
The importer gets the necessary foreign exchange from the exchange bank concerned. It is to be noted that whereas import licence is issued for a particular period, exchange is released only for a specific transaction. With liberalization of economy, most of the restrictions have been removed as rupee has become convertible on current account.
(iv) Placing the Indent or Order
After the initial formalities are over and the importer has obtained the licence quota and the necessary amount of foreign exchange, the next step in the import of goods is that of placing the order. This order is known as Indent. An indent is an order placed by an importer with an exporter for the supply of certain goods.
It contains the instructions from the importer as to the quantity and quality of goods required, method of forwarding them, nature of packing, mode of settling payment and the price etc. An indent is usually prepared in duplicate or triplicate. The indent may be of several types like open indent, closed indent and Confirmatory indent.
(v) Despatching a Letter of Credit
Generally, foreign traders are not acquainted to each other and so the exporter before shipping the goods wants to be sure about the creditworthiness of the importer. The exporter wants to be sure that there is no risk of non-payment. Usually, for this purpose he asks the importers to send a letter of credit to him.
A letter of credit, popularly known as ‘L/C or ‘L.C is an undertaking by its issuer (usually importer’s bank) that the bills of exchange drawn by the foreign dealer, on the importer will be honoured on presentation upto a specified amount.
(vi) Obtaining Necessary Documents
After despatching a letter of credit, the importer has not to do much. On receipt of the letter of credit, the exporter arranges for the shipment of goods and sends Advice Note to the importer immediately after the shipment of goods. An Advice Note is a document sent to a purchaser of goods to inform him that goods have been despatched. It may also indicate the probable date on which the ship is expected to reach the port of destination.
The exporter then draws a bill of exchange on the importer for the invoice value of goods. The shipping documents such as the bill of lading, invoice, insurance policy, certificate of origin, consumer invoice etc., are also attached to the bill of exchange. Such bill of exchange with all these attached documents is called Documentary Bill. Documentary bill of exchange is forwarded to the importer through a foreign exchange bank which has a branch or an agent in the importer’s country for collecting the payment of the bill.
There are two types of documentary bills:
(a) D/P, D.P. (or Documents against payment) bills.
(b) D/A, D.A. (or Document against acceptance) bills.
(vii) Customs Formalities and Clearing of Goods
After receiving the documents of title of the goods, the importer’s only concern is to take delivery of the goods, when the ship arrives at the port and to bring them to his own place of business. The importer has to comply with many formalities for taking delivery of goods. Unless the following mentioned formalities are complied with, the goods lie in the custody of the Custom House.
(viii) Making the Payment
The mode and time of making payment is determined according to the terms and conditions as agreed to earlier between the importer and the exporter. In case of a D/P bill the documents of title are released to the importer only on the payment of the bill in full. If the bill is a D/A bill, the documents of title of the goods are released to the importer on his acceptance of the bill. The bill is retained by the banker till the date of maturity. Usually, 30 to 90 days are allowed to the importer for making the payment of such bills.
(ix) Closing the Transactions
The last step in the import trade procedure is closing the transaction. If the goods are to the satisfaction of the importer, the transaction is closed. But if he is not satisfied with the quality of goods or if there is any shortage, he will write to the exporter and settle the matter. In case the goods have been damaged in transit, he will claim compensation from the insurance company. The insurance company will pay him the compensation under an advice to the exporter.
Import Documentation Requirement for Customs Clearance
In effecting Imports as well as Exports, documentation plays a very important role. Especially in case of imports, the availability of right documents, the correctness of the information available in the documents as well as the timeliness in submitting the documents and filing the necessary applications for the Customs Clearance determines the efficiency of the Customs Clearance process. Any delay in filing or non availability of documents can delay the process and thereby importer stands not only to incur demurrage on the imported cargo but also stand to loose business opportunities.
Customs Clearance process requires set of documents to be submitted by the Importer, By the airline, shipping line or concerned Freight Forwarder as well as the Customs documentation prepared and submitted by Clearing Agent on behalf of the Importer.
Some of the documents required from Importer from his end are:
- Commercial Invoice – This is the most important document that certifies the sale as well as gives the description of the items as well as reflects the pricing or the value of the cargo.
- Customs valuation is based on the value reflected on the Commercial Invoice. Customs also verifies the rates charged in the commercial invoice and can question the rates applied incase it has sufficient cause to believe that the rates charged as not as per international market rates or the invoice is under valued to avoid duties.
- Packing List – It is mandatory to put the shipping marks on all the cargo covering each and every individual piece or parcel. The details of the number of parcels in the consignment, their dimension, the shipping marks, the gross and net weights of each of the parcels along with the number of units contained in each parcel is catalogued in the form of packing list.
- Packing List is used to identify the parcels as belonging to the particular consignment under the said Invoice.
- Certificate of Origin – Certain bilateral agreements and multi lateral agreements would enjoy favorable tariffs for import duties. In such cases when the consignments are exported from such member countries, the designated Export Agency issues Certificate of Origin to the importer for submission to Customs. Based on this certificate the Customs Department of the Importing Country classifies the cargo under specific schedule.
- Certificate of Origin also helps to avoid third party countries from routing imports through member countries and effecting third party exports to avoid duty, quantity or license restrictions.
- Bill of Lading or Airway Bill – Bill of Lading is a negotiable multi modal transport document issued by the Shipping Line certifying carriage of the said cargo under the specific invoice on behalf of the exporter or importer depending upon the terms of sale. An ‘On Board Bill of Lading’ is usually considered to be the apt Bill of Lading that signifies that the cargo has been loaded ‘On Board’ the vessel or the ship. This is one of the documents required for negotiations of payment from importer to the exporter.