Class 11 Business Studies Notes Chapter 12 (International Business - II) – Business Studies Book

Alright class, let's dive deep into Chapter 12: International Business - II. This chapter is crucial as it deals with the practical procedures and documentation involved in conducting international trade – the 'how-to' of exporting and importing. Understanding these steps and documents is vital, not just for your Class 11 exams, but also frequently tested in various government recruitment exams where general commerce knowledge is required.

Pay close attention to the sequence of steps and the purpose of each document.

Chapter 12: International Business - II: Detailed Notes for Exam Preparation

Focus Areas: Export Procedure, Import Procedure, Key Documents in International Trade.

I. Export Procedure

Exporting involves sending goods and services from the home country to a foreign country. It's a systematic process:

1. Receipt of Enquiry and Sending Quotation:

   • The process starts when a prospective buyer (importer) sends an enquiry to the exporter requesting information about the price, quality, terms, and conditions for exporting specific goods.
   • The exporter responds with a quotation, often called a Proforma Invoice. This document details the price, quality specifications, grade, size, weight, mode of delivery, packing type, and payment terms.

2. Receipt of Order or Indent:

   • If the importer finds the quotation acceptable, they place an order, known as an Indent.
   • The indent contains a detailed description of the goods ordered, prices, delivery terms, packing/marking details, and delivery instructions.

3. Assessing Importer's Creditworthiness and Securing Guarantee for Payments:

   • Before proceeding, the exporter must be satisfied with the importer's creditworthiness to minimize the risk of non-payment.
   • This is often done by asking the importer to arrange a Letter of Credit (L/C) from their bank. An L/C is a guarantee issued by the importer's bank stating that it will honour payment up to a certain amount on presentation of specified documents by the exporter. This is the most secure method of payment assurance for the exporter.

4. Obtaining Export License:

   • Exporters in India must obtain an Import Export Code (IEC) number from the Directorate General of Foreign Trade (DGFT) or Regional Import Export Licensing Authority. This is a primary requirement for anyone involved in import/export.
   • Registration with the appropriate Export Promotion Council (EPC) is also necessary to avail benefits under export promotion schemes.
   • Registration-cum-Membership Certificate (RCMC) is obtained from the relevant EPC.

5. Obtaining Pre-shipment Finance:

   • Once the order is confirmed (and often backed by an L/C), the exporter approaches their bank for pre-shipment finance to undertake production or procure the goods. This finance covers costs like raw materials, processing, packing, wages, etc.

6. Production or Procurement of Goods:

   • The exporter either manufactures the goods according to the importer's specifications or procures them from the market.

7. Pre-shipment Inspection:

   • If required by the importer or the importing country's regulations, goods need to be inspected for quality. The Government of India has designated various Export Inspection Agencies (EIAs) for this purpose. After inspection, an Inspection Certificate is issued.

8. Excise Clearance:

   • Goods meant for export are generally exempt from Central Excise Duty. The exporter needs to apply to the relevant Excise Commissioner with an invoice. If goods are exported under bond, duty payment is not required; otherwise, the exporter pays the duty and later claims a refund (Duty Drawback).

9. Obtaining Certificate of Origin:

   • Some importing countries require a Certificate of Origin (C/O) to grant tariff concessions or determine the origin of goods. This certificate verifies that the goods originated in the exporter's country. It's often issued by the Chamber of Commerce or designated authorities.

10. Reservation of Shipping Space:

    • The exporter applies to a shipping company to reserve space on a vessel for the cargo. The shipping company issues a Shipping Order upon accepting the application.

11. Packing and Marking:

    • Goods are securely packed according to the importer's requirements, considering the rigours of sea/air transport. Proper marking (importer's name/address, port of destination, gross/net weight, country of origin, handling instructions) is crucial for identification.

12. Insurance of Goods:

    • The exporter arranges insurance to protect the goods against risks (loss or damage) during transit. The need for insurance depends on the contract terms (e.g., CIF - Cost, Insurance, Freight requires the exporter to insure).

13. Customs Clearance:

    • Before loading onto the ship, goods must be cleared by Customs. The exporter prepares the Shipping Bill (the main document for customs clearance) and submits it along with other required documents (Export Order, L/C, Commercial Invoice, C/O, Inspection Certificate, Insurance Policy) to the Customs Appraiser at the port.
    • After verification and assessment of duty (if any), the Port Superintendent issues the Carting Order, allowing the goods to be moved into the port area.

14. Obtaining Mate's Receipt:

    • Goods are loaded onto the ship under the supervision of the ship's captain (or Mate). The Mate issues a Mate's Receipt acknowledging the receipt of goods onboard in good condition. Details like package count, marks, condition are noted.

15. Payment of Freight and Issuance of Bill of Lading:

    • The exporter (or their Clearing & Forwarding Agent) surrenders the Mate's Receipt to the shipping company, pays the freight charges (if not pre-paid), and obtains the Bill of Lading (B/L).
    • The B/L is a crucial document:
      • It's evidence of the contract of carriage.
      • It acts as a receipt for the goods shipped.
      • It serves as a document of title to the goods (transferable by endorsement and delivery).

16. Preparation of Invoice:

    • The exporter prepares a Commercial Invoice for the dispatched goods, stating the quantity, quality, price, and total value. It's sent to the importer for payment.

17. Securing Payment:

    • The exporter submits the necessary documents (Invoice, B/L, Insurance Policy, C/O, Bill of Exchange, etc.) as specified in the L/C to their bank for negotiation and payment. The bank scrutinizes the documents and, if they comply with the L/C terms, makes the payment to the exporter. The exporter's bank then forwards the documents to the importer's bank, which releases them to the importer upon payment or acceptance of the Bill of Exchange.

II. Import Procedure

Importing involves bringing goods and services into the home country from a foreign country.

1. Trade Enquiry:

   • The importer gathers information about potential suppliers (exporters) in foreign countries regarding the goods they need, their prices, and terms. This can be done through trade directories, associations, or online platforms.

2. Obtaining Import License:

   • Similar to exporters, importers in India need an Import Export Code (IEC) number.
   • They must also check the current Export-Import (EXIM) policy to see if the goods require a specific import license.

3. Obtaining Foreign Exchange:

   • Payment for imports is made in foreign currency. The importer needs to apply to a bank authorized by the RBI to release the required foreign exchange as per exchange control regulations.

4. Placing Order or Indent:

   • After selecting the supplier, the importer places an import order or indent, specifying details like quantity, quality, price, packing, shipping, insurance, and payment terms.

5. Obtaining Letter of Credit (L/C):

   • If agreed upon in the indent, the importer requests their bank to issue an L/C in favour of the exporter, guaranteeing payment upon fulfilment of specified conditions.

6. Arranging for Finance:

   • The importer arranges finance in advance to pay the exporter upon arrival of goods or as per agreed terms.

7. Receipt of Shipment Advice:

   • After loading the goods, the exporter sends a Shipment Advice to the importer. This document contains information about the shipment, including invoice number, B/L/Air Waybill number and date, vessel name/flight number, port of export, description of goods, quantity, and date of sailing/flight.

8. Retirement of Import Documents:

   • The exporter sends the relevant documents (B/L, Invoice, Insurance Policy, C/O, Bill of Exchange etc.) through their bank to the importer's bank.
   • The importer "retires" these documents by either making payment (in case of a sight draft) or accepting the Bill of Exchange (in case of a usance draft), allowing them to take possession of the documents, especially the crucial Bill of Lading.

9. Arrival of Goods:

   • The person in charge of the carrier (ship/aircraft) informs the dock/airport authorities about the arrival of goods and provides an Import General Manifest – a document detailing the cargo carried.

10. Customs Clearance and Payment of Duty:

    • This is a critical step. The importer (or their agent) must get the goods cleared from customs.
    • They need to submit a Bill of Entry for assessment of customs duty. This document contains details about the imported goods.
    • An appraiser examines the goods and assesses the import duty payable.
    • After paying the duty, the Bill of Entry is marked accordingly, and the importer gets clearance. For goods to be taken to bonded warehouses without immediate duty payment, a Bill of Entry for Warehousing is used.

11. Taking Delivery of Goods:

    • The importer needs to pay dock dues/port charges and obtain Port Trust Dues Receipt.
    • By presenting the endorsed Bill of Lading and the Port Trust Dues Receipt, the importer gets the Delivery Order from the shipping company/port authorities, allowing them to take physical possession of the goods.

III. Principal Documents Used in International Trade

(Many covered above, summarized here for clarity)

• Proforma Invoice: A preliminary invoice sent by the exporter outlining terms; not a demand for payment.
• Commercial Invoice: The final invoice detailing goods, quantity, price, total value; used for payment and customs.
• Packing List: Details the contents of each package, including weights and dimensions. Aids identification and customs checks.
• Bill of Lading (B/L): Issued by the shipping company. Acts as a receipt, contract of carriage, and document of title for sea freight.
• Air Waybill (AWB): Similar to B/L but for air freight. It's a receipt and contract of carriage, but not typically a document of title.
• Certificate of Origin (C/O): Certifies the country where goods were manufactured. Important for tariffs and import regulations.
• Certificate of Inspection: Confirms that goods meet required quality standards, issued by an inspection agency.
• Bill of Exchange (B/E): An order from the exporter (drawer) to the importer (drawee) to pay a specified sum of money, either on demand (sight draft) or after a certain period (usance draft).
• Letter of Credit (L/C): A bank's guarantee of payment to the exporter on behalf of the importer, provided specified documents are presented.
• Mate's Receipt: Receipt issued by the ship's commanding officer (Mate) when goods are loaded onboard. Exchanged later for the Bill of Lading.
• Shipping Bill: Main document required by customs authorities for granting permission for export.
• Bill of Entry: Main document required by customs authorities for clearing imported goods. Submitted by the importer.
• Indent: An order placed by the importer on the exporter.
• Shipment Advice: Information sent by the exporter to the importer about the dispatch of goods.

Key Takeaways for Exams:

• Know the sequence of steps in both export and import procedures.
• Understand the purpose and issuer/recipient of each key document.
• Pay special attention to documents like L/C, B/L, Bill of Entry, Shipping Bill, and C/O as they are frequently tested.
• Remember the IEC code requirement for both importers and exporters.

Multiple Choice Questions (MCQs)

1. Which document is issued by the importer's bank guaranteeing payment to the exporter upon presentation of specified documents?
   a) Bill of Lading
   b) Letter of Credit
   c) Bill of Entry
   d) Proforma Invoice

2. The primary document required by customs authorities for granting permission for export is known as:
   a) Bill of Entry
   b) Mate's Receipt
   c) Shipping Bill
   d) Commercial Invoice

3. Which document serves as evidence of the contract of carriage, receipt of goods, and document of title for goods shipped by sea?
   a) Air Waybill
   b) Certificate of Origin
   c) Bill of Lading
   d) Packing List

4. An exporter needs to obtain which mandatory code/number from the DGFT before starting export activities?
   a) PAN Number
   b) GSTIN
   c) Import Export Code (IEC)
   d) Registration-cum-Membership Certificate (RCMC)

5. A prospective buyer sends an enquiry to the exporter. The exporter responds with a document detailing price, quality, and terms. This document is called:
   a) Indent
   b) Commercial Invoice
   c) Proforma Invoice
   d) Bill of Exchange

6. Which document is submitted by the importer to customs authorities for assessment of duty and clearance of imported goods?
   a) Shipping Bill
   b) Bill of Entry
   c) Mate's Receipt
   d) Letter of Credit

7. The Certificate of Origin (C/O) is primarily required by the importing country to:
   a) Ensure the quality of goods
   b) Guarantee payment to the exporter
   c) Determine applicable tariff rates and import eligibility
   d) Confirm the insurance coverage

8. After the goods are loaded onto the ship, the commanding officer (Mate) issues a receipt acknowledging the goods received onboard. This is called:
   a) Bill of Lading
   b) Shipping Order
   c) Carting Order
   d) Mate's Receipt

9. Which of the following represents an order placed by the importer on the exporter for the supply of certain goods?
   a) Quotation
   b) Indent
   c) Bill of Exchange
   d) Shipment Advice

10. Pre-shipment finance is typically obtained by the exporter to:
    a) Pay customs duty on imported raw materials
    b) Cover the costs of manufacturing or procuring goods for export
    c) Pay the shipping company for freight charges
    d) Insure the goods during transit

Answer Key for MCQs:

1. b) Letter of Credit
2. c) Shipping Bill
3. c) Bill of Lading
4. c) Import Export Code (IEC)
5. c) Proforma Invoice
6. b) Bill of Entry
7. c) Determine applicable tariff rates and import eligibility
8. d) Mate's Receipt
9. b) Indent
10. b) Cover the costs of manufacturing or procuring goods for export

Study these procedures and documents thoroughly. Understanding the flow and purpose is key to answering questions accurately in your exams. Let me know if any part needs further clarification!