CONCEPTS OF IMPORT &

EXPORT
PROCESSES
 BUSINESS TRANSACTION
• A communicative process, action or activity involving 2 parties
that reciprocally affect or influence each other.
• Int’l trade between 2 countries often means overcoming or
managing 2 databases to produce an effective transaction.
• Should be legally valid so as to be dealt under Int’l courts.
• Commonly called as a Deal or Contract.
• In trade & commerce it is a process for exchange of goods /
services & monetary values between a Buyer and a Seller.
• Has 3 Components : 1- Transfer of goods/service and money.
2- Transfer of Title of goods ( may or may not accompanied by
transfer of possession. 3- Transfer of exchange rights. e.g.
 Business Transaction … Contd.
• Looking at it from Accounting Perspective could lead to be
more complex functions like Online transaction , Revolving
transaction, Transaction Banking etc. ( beyond our scope of
this study)
 TITLE OF GOODS
• Latin maxim says “Nemo Dat Quad Non Habet” means no one
can give what he doesn’t have . This is the ground principle
regarding Transfer of Title ( Ref Sec 27 – 30 of the Sale of
Goods Act ,1930). It is about ownership rights.
• Sec 27 outlines : a)- A sale contract where Seller is not the
owner of the goods. b)- Seller has no consent from owner of
goods. c) Owner has not given authority to sell on his behalf.
e.g. A steals phone of B and sells to C who buys in good faith.
However, C will not have the title of the phone . When the
lawmaker catches up the phone has to be returned to B as
there was no transfer of title.
 Title of Goods… Contd.
• Generally and Legally Transfer of Title means “ Transfer of
Ownership of Goods ”
• When does Title of goods change ? - In the contract Seller &
Buyer agrees that Title of Goods ( purchased / sold) will
pass on to Buyer when they are shipped from Seller’s
premises.
• Why ownership /Title is important ? - Risk of loss ( partly or
fully) and Insurance claim settlement to actual owner.
• Important to note : Once transfer of title has taken place , the
Buyer may be precluded from rejecting the goods despite
valid complaints. ( Covered under Incoterms – discussed later)
COUNTRY OF ORIGIN CERTIFICATE
• An integral part of Export/Import documents for Customs
Clearance.
• Issued by exporting countries’ Chamber of Commerce.
• COO certificate establishes an evidence of Origin of Goods
into the other countries.
• Helps in realizing export/import benefits.
• Under unilateral/bilateral trade agreement between countries
Customs Duty may be exempted / reduced under specified
goods agreement. Or higher duties may be imposed to restrict
entry of goods to support the domestic producers.
• COO certificate has a specified format and Copy of
Commercial Invoice is endorsed to maintain a link. e.g.
Harmonized Commodity Classification
& Coding System
• Various items manufactured by different country based
manufacturers’ need to be “shoe horned” into some kind of
category , which gives it its essential character.
• A six digit code developed by World Customs Organization
(WCO). Came into force Jan 1, 1989.
• A multipurpose Int’l product nomenclature published in 21
Sections , 99 Chapters , arranged according to a logical
economic activity, composition, form ,function etc.
• Commonly called Harmonized Tariff System or HS Code.
• Customs Officials and Statisticians world over are referring to
HS Code to assess Customs Duties Valuation, Class & Usage of
Goods crossing International gateways.
Harmonized Commodity Classification
& Coding System…. Contd
• Frequent revisions , additions , amendments
to accommodate newer products and those
under split, merge and change modes.
• Example of a hierarchical structure : Lets
consider HS Code : 10.06.30
• Above 10 - means Chapter 10 item (Cereals).
• Next 06 – means Heading i.e. Rice
• Next 30- Sub-heading semi or wholly milled
TRANSPORTATION & MARINE INSURANCE

• To move a shipment between countries there are 3

fundamental modes of transport : a)- AIR – where distances
are considerable. b)-Water(Ocean)-When both distance &
volumes is high. c)-Land- When boundaries are connected.
• Appropriate mode depends on : Market location, Speed &
Cost.
• For perishables Air Mode is suitable .
• Cost is directly related to speed, although air worthy packing
cost is lower). Trade Off - cost Vs Speed is important.
• Importer/Exporter must remember that there is no ideal
transport mode. ( e.g. exceptions -Metro Coaches)
 TRANSPORTATION & MARINE INSURANCE … Contd.

• Airfreight is generally preferred for moving Spare Parts to

remedy costly breakdowns.
• There is a Value / Volume to Weight Equation which many a
times determines the mode as freight is charged either by
weight or Volumetric rates, whichever yields more revenue
for the carrier.
• For Petroleum, Iron Ore , Coal , Fertilizers Ocean Freight is the
only choice.
• Sea & Air Ports in India have different infrastructure levels for
receiving - Animal & Animal based products , where animal
quarantine & Certification services are Available.
[ Sea & Airports at Blr, Chn, Dl, Hyd, Kol & Mum ]
 TRANSPORTATION & MARINE INSURANCE … Contd. 2

AIR FREIGHT OCEAN / SEA FREIGHT

Cargo Mode / Courier Mode FCL ( Full Container)/ LCL ( Less Container)
Fast Transit Voyage is long/Time consuming
Fewer Trans-shipments Multiple Trans-shipments
Less risks & transit damages Higher transit risks
Freight cost high Low freight costs ( < 25% of Air freight)
Carrying Capacity is Low High Carrying Capacity
Perishable Cargo- Only Mode Not suitable for Perishables
Airport Congestion negligible Port Congestion is common
Unsuitable for low value goods ( Cotton) Economical when value is low.

Concept of Dry Ports ( Tughlakabad /

Patparganj)
 MARINE CARGO INSURANCE
“In this World 1/3rd is covered by Land, 2/3rds by Water & All
of it by INSURANCE ”
-is an insurance that covers loss or damage in transit by Ocean
Freight …and also by Air.
-Chief purpose is to cover loss or transit damage .
-Insurance can be arranged by Seller or Buyer.
- Two Forms of Insurance: 1- Special Cover ( One time ) and
- 2- Open Policy ( Blanket Coverage ).
- One time policies are expensive since risk cannot be spread
over multiple shipments.
- Insurance for shipment is a must as per Customs rule. [110%]
 DOMESTIC INSURANCE COVER.
• Goods upon arriving at Port of entry will need following type
of local insurance to safe guard against risks. This is beyond
port of entry.
• Transit from Airport till Installation site ; Storage Insurance at
site as building gets ready ; Erection and commissioning cover
which may cover damages to other equipment at site and
personnel cover.
• Such Insurance premiums are nominal but benefits are great.
 HAZARDOUS CARGO AND MSDS
• Are materials that if not properly controlled & transported present
a potential hazard to human health and safety. ( HAZMAT).
• Transportation is controlled & governed by a variety of different
Regulatory regimes operating both at Int’l and National levels. e.g
IATA’s Dangerous Goods Regulation etc.
• A s a basic requirement Hazmats are to be handled, packed,
labeled, & transported as per Regulatory body’s mandate.
• There are 9 Comprehensive Classification of Hazmats :
1- Explosives . 2- Flammable Gases. 3- Flammable Liquids.
4- Flammable Solids. 5-Oxidising. 6-Toxic & Infectious.
7-Radioactive. 8-Corrosives. 9-Misc.
[ Lower is the group no. higher is the hazard]
 HAZARDOUS CARGO AND MSDS … Contd.

• Example of 2- Gases which have a vapour

pressure of 300 Kpa or greater at 50 deg C. or
which is completely gaseous at 20 deg C.
• Example of 8 – All acids and Lead Acid type
batteries. ( Li-ion batteries both Chem &
electrical fire hazard)
• For Air and Ocean Cargo special rates apply.
• Safety during transport & storage is main
concern in the import/export process.
 HAZARDOUS CARGO AND MSDS …
Contd….2
• MSDS – Material Data Safety Sheet.
• A document that contains info on potential hazards ( health,
fire, reactivity & environmental) and how to work safely with
the product.
• MSDS also provides info on the use , storage, handling &
emergency procedures related to the hazards of the material.
• MSDS is prepared by Manufacturer / Supplier.
• Also covers Preventive and First Aid procedures.
• Basic purpose is for the Seller to be familiar with safe storage,
safe handling & potential risks in case of spillages & what to
do in an emergency. e.g.
 FORCE MAJEURE
• Relates to the law of insurance.
• Used to protect the parties in the event that a particular
contract cannot be fulfilled partly or wholly due to causes that
are outside the control of the parties, e.g. Natural disasters,
Spread of Corona Virus etc.
• It is applicable because no human foresight could anticipate
or which if anticipated is too strong to be controlled by either
party.
• Such Clause is usually attached to overseas contracts , which
safeguards against delays in delivery & consequences arising
thereof.
• Usually time for performance of the contract is suspended &
resumes after such an event ends.
 FORCE MAJEURE … Contd
• Some Force Majeure Clauses allow
termination of the contract if the disruptive
event continues over a specified period of
time.
• It is a remedy for unforgiving legal
environment due to reasons beyond control
of parties.
BUSINESS ENVIRONMENT & TRADE BARRIERS
- Following WW I , US Govt enacted Smoot-Hawley Law (1930)
that raised average US tariffs to excess of 60 %.
- In retaliation , other countries erected high tariff walls.
- International Trade was stalled.
- GATT provided a forum for member countries to negotiate a
reduction of tariffs and other barriers to trade.
- GATT- some 50 countries created ITO. The combined package
of trade rules & tariff concessions negotiated & agreed by 23
countries came to be known as General Agreement of Tariffs
& Trade , effective 1948.
- WTO- Nearly 150 countries representing @ 97% of world
trade, joined thru a consensus approach to facilitate, admin,
implement,operate trade Agreements & settle disputes.
 PROTECTIONISM & TRADE BARRIERS
- Int’l business is a world of tariffs, quotas & other obstacles to
the sale of goods in a foreign market.
- To encourage development & encourage domestic industries ,
govt. may impose tariff & non-Tariff barriers such as :
1- Tariffs ; 2- Quotas ; 3-Boycotts ; 4- Monetary barriers
( reduction in export subsidies) ; 5- Market Barriers etc.
- This protectionism is designed to protect a country’s markets
from intrusion by foreign goods.
- Nations are known to utilize Legal barriers , exchange barriers,
Psychological barriers to restrain entry of unwanted goods.
- Barriers although arbitrary in nature but they do exist.
 PROTECTIONISM & TRADE BARRIERS
Logic & Illogic of Protection :
1- Protection of Infant industries.
2-Protection of home markets.
3- Need to keep money at home.
4- Need for Capital accumulation.
5- Maintenance of living standards & wages.
6- Conservation of natural resources of the nation.
7- Industrialization & reduction of unemployment.
8- National Defence.
9- Retaliation & bargaining.
10- Protection of environment.
 PROTECTIONISM & TRADE BARRIERS

• Tariffs Barriers are a form of monetary barriers which in

general.
- Increase : Tax revenue , Govt control with a shadow of
political considerations in economic matters.
- Weaken : Balance of payment position ; Supply & demand
matters.
- Restrict : Supply sources , choice for customers, Competition.
Non- Tariff Barriers :
- Quotas : Limit on import of TV sets , sugar. i.e. Absolute
restriction on the quantity of a specific item through
Licensing route.
 PROTECTIONISM & TRADE BARRIERS

- Customs & Administrative Procedures : Valuation of Goods ,

Anti- Dumping embargo, Negative list , Complex
documentation procedure etc. [ e.g.of BARC].
- Standards : Government acceptance of testing & quality
standards , hazards of operating personnel [ e.g. X-Rays ] and
disposal of wastes etc.
- Voluntary Export Restraints : Enacted by exporting country
against threat of tariff & quota by importing country.
- Boycott : - Absolute restriction on import of goods. [ e,g, Toys]
- Exchange Restriction : Prior govt approvals for release of
foreign exchange for the importer.
 DUMPING
Dumping is a form of Price Discrimination arising from Export
Subsidies to enter markets. It is about charging different
prices for the same product in similar markets.
As a result imported goods are sold so low which becomes
detrimental to local manufacturers.
Three types of Dumping Occurs :
- Sporadic Dumping – which applies for disposal of unsold
inventory. Just to get rid of the excess.
- Predatory Dumping - To gain access to a market & kill
competition leading to a monopoly situation.
- Persistent Dumping : Permanent type.
- All price distortions are detrimental to local businesses .
 Anti Dumping Duty
Government of importing country imposes
additional surcharge on customs duty called
anti dumping duty, proportionate to estimated
subsidy given to the exporter through a
rigorous valuation exercise through data
analysis.
 THIRD PARTY INSPECTION (TPI)
• Accredited Agency of Third Party Inspection (TPIA) provides
conformity assessment services Viz: Testing, Inspection &
Certification. [ Lloyds Register; SGS; OSS follow ISO 17020]
• The guidelines for assessment are contained in ISO/IEC Int’l
standards.
• Gives buyer the confidence that it meets its requirements &
of required safety concerns.
• TPI stands f or Competence, Neutrality & Objectivity.
• Is a direct contrast to a pure self declaration certificate made
by manufacturers / suppliers.
• TPI certificate is a marketing tool due to transparency involved
• Banks accept TPI when sanctioning a loan to buyer.
 VOLUMETRIC CARGO
Shipping cost is often determined by the
amount of space that a pkg takes up rather
than weight of the pkg.
Say Package L= 60 Cm ; W = 50 cms & H = 40
cms.
Formula is L x B x H divided by DIM Factor.
For Intl Airfreight 60x50x40 / 5000 = 24 Kg.
For Road DIM is 4750 , For Sea LxBxH x 100.
( 120 Kg for same 60x50x40 Pkg)