? basic export procedures

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Chapter Ten
Performance of the Contract

• ? basic export procedures
• basic import procedures
• the preparation and application of major
  documents

At the end of this chapter, you should be able to
understand
Learning Objectives
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• Overview
• In international trade, once a sales contract is
  signed it becomes a legally binding agreement
  with rights and obligations set out for each
  party to the contract. The successful performance
  of the contract, which involves the smooth
  coordination of different parties, is not only of
  serious concern for the exporter and importer,
  but also for the national image on both sides.
• In practice, the rights and obligations vary
  according to customer requirements, trade terms,
  customary procedures, and so on. However, there
  are always the basic obligations for both parties
  in each sales contract, which are for the seller
  to deliver goods as specified in all related
  documents for the transfer of ownership of the
  goods and for the buyer to pay and take delivery
  of the goods.
• This chapter will briefly introduce the
  procedures both an exporter and importer need to
  go through particularly under L/C payment terms.
  

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10. l Export Procedures

• Sales contracts for export in China are
  mostly signed under CIF terms and by payment of
  L/C. Therefore a lot of work is involved in
  performing this kind of contracts, which mainly
  deals with the coordination of the goods, L/C,
  shipment and payment. This can be divided into
  stages of preparation, production, shipping,
  documentation and after sales issues.

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Export Contract
Obtain the Buyers Guarantee for Payment
Gather Production Documentation Instructions
Production
Space Booking
Insurance (if applicable)
L/C Management (if applicable)
Inspection
Customs Declaration
Insurance Certificate
Documentation
Inspection Certificate
Loading
B/L
Gather All Relevant Documents for negotiation
Shipping Advice (if applicable)
Negotiation for Payment
After Sales Issues
Feedback for Future Orders
Claims Settlement (if applicable)
Tax Refund
Foreign Currency Verification Cancellation
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1 Preparation

• 1) Obtaining the Buyers Guarantee for Payment
• 2) Information Collection
• 2 Production
• 1) Quality Control and Production Management
• 2) Inspection and Certification
• 3 Shipping
• 1) Space Booking
• 2) Customs Declaration
• 3) Insurance

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• 4 Documentation for Settlement of Payment
• 1) Documentation and Negotiation
• Documentation should be completed with absolute
  accuracy and clarity.
• Documents for import and export business can be
  classified into three types financial documents
  including L/C, draft,check and promissory note
  commercial documents including invoice, packing
  list, B/L and insurance policy documents under
  the control of the government including license,
  certificate of origin and inspection certificate.
• Generally the following documents should be
  presented to the bank for negotiation
• ? Invoice
  ? B/L
• ? Insurance Policy
  ? Certificate of Origin
• ? Inspection Certificate ?
  Packing List
• 2) Settlement of Payment
• ? Settlement on receipt
• ? Settlement on guarantee
• ? Settlement on set date

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• 5 After Sales Issues
• 1) Foreign Currency Verification and Cancellation
• The procedures for foreign currency verification
  and cancellation
• ? Draw the form with the permission certificate
  before customs declaration
• ?Fill out the form with exactly the same
  information as on the Customs Declaration
  Application Form
• ?Register for export
• ?Submit the form to the customs to be checked and
  stamped
• ?Receive the foreign currency payment and verify
  it with the proof of the banks credit note
  against the registration in the Foreign Currency
  Administration Bureau to be cancelled.
• 2) Tax Refund
• 3) Claims and Settlement
• Points for attention
• ? Check the legality of the documents
• ? Allocate responsibilities of different
  parties
• ? Decide a reasonable amount and reimbursement
  method according to the degree of loss.
• 4) Feedback and Future Orders

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10. 2 Import Procedures

 
The performance of an import contract generally
includes the following procedures establishing
the L/C, or paying the deposit, chartering or
booking shipping space, organizing shipping,
arranging insurance, paying against the
documents, declaring to the customs for
importing goods, inspection, taking delivery,
claims if any, etc.
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Import Contract
Book Shipping Space or Charter Ship (if
applicable)
Apply for L/C Establishment (if applicable) or
Pay Deposit
Insurance (if applicable)
Loading Instructions to the Seller( if
applicable)
Document Inspection
Shipping
Pay to Obtain the Original Documents
Goods Inspection
Customs Declaration
Receiving the Goods and Distribution
Claim (if any)
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• Most of the import transactions in China are
  under FOB trade term, and by payment of L/C.
• 1 Establish the L/C
• 2 Arrange Shipping
• 3 Check the Documents for Payment
• 4 Inspection
• 5 Customs Declaration
• 6 Take Delivery of the Goods
• 7 Claim (if any)

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1 Establish the L/C

• When opening an L/C, the buyer should be cautious
  about the following
• The L/C should be opened to fit the sales
  contract terms.
• The type of the L/C
• The amount of L/C
• The drawee / payer of the draft should be the
  issuing bank or other banks appointed in the
  L/C, not the applicant of the L/C, or otherwise,
  the draft will be considered as an additional
  paper not included in the negotiation documents.
• Whether the draft should be sight or term needs
  to be followed strictly according to the
  contract.
• Normally a whole set of clean ocean B/L blank
  endorsed made out to order is required.
• The issuing organization, form, content and
  certifying issues should be stated clearly for
  other required documents such as C/O,
  quality/weight inspection certificate, test
  certificate and so on.
• Without special instructions partial and
  transshipment are to be considered as allowed
  even if against the contract.
• The L/C is not valid without a set expiry date
  and place for the submission of negotiation
  documents.
• The L/C should require an import license number
  on the commercial invoice for customs inspection
  since China exercises strict control over foreign
  currency.
•  

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2 Arrange Shipping

• In China, FOB or FAC trade terms are
  generally used in import contracts. Therefore,
  the importer is responsible for shipment. After
  receiving the exporters notification of being
  ready for the goods, the importer should book
  shipping space and effect shipment and at the
  same time, keep the exporter informed of the
  progress to facilitate smooth
• delivery of the goods.

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3 Check the Documents for Payment

• Under sight L/C, the bank will pay the sellers
  bank at the sight of the draft and the set of
  documents if the buyer does not bring up
  objections within 3 working days after the
  documents are presented.
• The buyer then needs to buy the foreign currency
  from the bank at the rate of the day and the bank
  will issue a credit note as the evidence for the
  currency exchange.
• In practice, the bank (normally the issuing
  bank) would contact the applicant of the L/C
  within 7 working days for decisions if
  discrepancies are found in the documents, and the
  decisions are normally to
• ? refuse the payment
• ? pay partially for those which comply
• ? hold on payment until the goods have arrived
  and passed inspection
• ? pay against the letter of indemnity from the
  seller or the negotiation bank
• ? require amendments from the seller or
• ? pay while reserving the right to claim for
  compensation.

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4 Inspection

• When inspecting the goods, the importer should
• Inspect on the arrival of the goods in a timely
  manner.
• Inspect the goods within the valid time for
  claim.
• Acquire all the necessary inspection certificates
  for inspection.

CISG stipulates that after the seller has
supplied the goods, a reasonable period of time
should be provided for the buyer to inspect the
goods before being considered as accepted. The
buyer has the right to claim for compensation or
even refuse to accept the goods if the
inspections find the goods not complying with the
contract. The buyer should always inspect the
goods within the time limit set in the contract
for claims.
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5 Customs Declaration

• After the arrival and inspection of the goods,
  the importer or its authorized agent, normally
  the freight forwarder or professional customs
  broker should fill out and submit the Import
  Goods Declaration Form to the customs together
  with invoices, B/L, insurance policies, and
  inspection certificate for goods with compulsory
  inspection requirements.
• The customs will check the goods against the
  documents to see whether they match.

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6 Take Delivery of the Goods

• After the goods are cleared and collected, they
  need to be passed on to the customers directly.
  If the customers are not within the domain of
  discharging port, freight forwarders will be
  contacted to transfer the goods further to reach
  those customers. The import tax and duties/tariff
  and the cost of land freight are to be paid by
  the importer first before being reimbursed by the
  customers later on.

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7 Claim (if any)

• The buyer will sometimes lodge a claim because
  of quality, quantity, or packaging problems.
• Three main parties the buyer can claim against
   
• (1) The Seller
• (2) The Carrier
• (3) The Insurance Company
• When claiming for compensation, the buyer needs
  to consider the following
• Evidence
• Amount
• Expiry date
• .

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10.3 Major Import and Export Documents

• 1) Booking Note
• the application form from the shipper to the
  carrier to book space for the consignment. Once
  the B/N is signed and one copy returned to the
  shipper, the shipping contract is established.
• 2) Shipping Order
• Three functions
• ? the notice to let the shipper know when and
  which boat the consignment should be loaded
• ? the one of the documents the shipper needs
  to submit to the customs to apply for the release
  of the goods
• ? an order for the captain to take up this
  consignment.
• (3) Mates Receipt
• an acknowledgement that the ship owner has
  received the goods in the condition stated
  therein, but usually has no further legal
  relevance. It is usually a preliminary document
  only, which is later given up in return for the
  bill of lading.

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• (4) Bill of Lading
• (5) Bill of Exchange / Draft
• (6) Commercial Invoice
• (7) Manufacturers Invoice
• (8) Insurance Policy
• (9) Certificate of Origin
• (10) Generalized System of Preferences Documents
  (GSP)
• (11) Packing List and Weight Memo
• (12) Inspection Certificate

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• The documents mentioned above are the most
  common documents.According to the UCP, when an
  L/C requires documents other than transportation
  documents, insurance policies and commercial
  invoices, the L/C should specify the issuer and
  content of the documents required. If the L/C
  does not contain this specification, the bank
  will accept the submission of documents so long
  as the documents expression has contained
  relevant information for the goods or service as
  related to what is said on the commercial
  invoice, or when the L/C does not require a
  commercial invoice, the expression can match the
  goods or service that is described in the L/C.
  Therefore when preparing the above documents, it
  should always be done strictly in conformity with
  the L/C.

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10.6 Follow-up Practice

• 1 Review and Discussion Questions
• 1) Please describe briefly the procedures of
  performing a CIF export contract under L/C
  payment terms.
• 2) Please describe briefly the procedures of
  performing a FOB import contract under L/C
  payment terms.
• 3) Why is it important for the exporter to check
  the L/C against the sales contract carefully
  after receipt of the L/C?
• 4) When the L/C is to be amended, what are the
  points for attention?
• 5) What will the negotiation bank normally do
  when it receives documents with discrepancies?
• 6) What are the main negotiation documents for
  L/C payment and what are the general requirements
  for making out these documents?

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2 Complete the following sentences with
appropriate terms or words.

• 1) In international trade, _______________________
  _ check the L/C.
• 2) The application for amendments of an L/C
  should be submitted via ______________.
• 3) The shipper exchanges for the original B/L
  from the shipping company or its agent with
  __________________.
• 4) The payee of an L/C is normally
  ________________________.
• 5) For a CFR contract, the seller needs to
  provide _____________ to the buyer as soon as it
  is available in order for the consignment to be
  insured without delay.
• 6) In export transactions, a Form A is issued by
  _________________________.
• 7) In export transactions, without special
  instructions from an L/C, a C/O can be issued by
  _______________, ________________, or
  _________________.
• 8) For man-made damages to the goods during the
  shipment, the buyer can claim for compensation
  from ______________________.
• 9) If an L/C sets 30 November 2007 as the expiry
  date without instructions on the latest shipment
  date, ________________ should be considered the
  latest date for shipment.
• 10) If an L/C amendment notification includes
  multiple items of amendments, the seller should
  either _______________or ________________.
•  

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3 Decide whether the following statements are
true or false.

• 1) In import and export trade, the basic
  obligation for the seller is only to provide the
  buyer with the goods which comply with the
  requirements in the contract. ( )
• 2) The mates receipt is a temporary receipt
  issued by the shipping company to the shipper as
  a proof that the consignment has been loaded onto
  the ship.
• 3) For T/T payment terms, the B/L, commercial
  invoice and packing list should be sent to the
  buyer through the bank for payment.
• 4) If the seller fails to make shipment within
  the time of validity of the inspection
  certificate, he canrequest that the validity of
  the inspection certificate be extended
  automatically. ( )
• 5) The importer may refuse to pay if there are
  discrepancies in the negotiation documents. ( )
• 6) In credit operations, the bank deals with
  documents and not with goods. Any discrepancies
  may cause refusal of payments.
• 7) If an L/C states the latest shipment date of
  30 April, and expiry date of 15 May. An exporter
  ships the goods on the 12 April, and submits the
  documents complying with L/C requirements for
  negotiation on the 6th May. The bank should pay
  out according to the Uniform Customs and Practice
  for Documentary Credits. ( )
• 8) A clean B/L shows that the goods on board are
  in good condition. ( )
• 9) The expiry date in an L/C is the date for the
  seller to receive payment. ( )
• 10) For unacceptable clauses in an L/C, the
  seller should contact the issuing bank directly
  for amendments. ( )
•  

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Case Study 1

•   A Chinese exporter received an
  irrevocable sight L/C from the importer. The L/C
  required that the latest shipment date was 15th
  March 2007. Because of lack of shipping space,
  the exporter could not ship the goods on time so
  the exporter asked the importer to extend the
  shipment date to the 20th April 2007 and to
  extend the expiry date of the L/C accordingly.
  The importer replied to accept the changes with a
  phone call. The exporter then arranged the
  shipment on the 18th April and submitted the
  documents for negotiation on the 20th April, but
  was rejected by the bank. Is the bank right in so
  doing? Why?

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Case Study 2

•   An import contract is signed in July
  under FOB terms setting out August as the
  shipment month. However because of lack of ships,
  the importer fails to obtain shipping space. What
  should the importer do?
•  

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http//www
Web Links
1. http//www.mofcom.gov.cn??????? 2.
http//www.cnexp.net ????? 3. http//www.customs.g
ov.cn????? 4. http//www.info.china.alibaba.com
?????  
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• THE END

Thank You !