Transcript Document 7314250

At the end of this chapter, you should be able to understand:
 basic export procedures
 basic import procedures
 the preparation and application of major documents
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.
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,
d o cu me n t at i o n an d af t e r s a l e s i s s u e s .

Export Contract
Obtain the Buyer’s
Guarantee for Payment
Gather Production &
Documentation Instructions
Production
Space Booking
Inspection
Customs
Declaration
Inspection
Certificate
Loading
B/L
Insurance
(if applicable)
L/C Management
(if applicable)
Insurance
Certificate
Documentation
Gather All Relevant
Documents for negotiation
Shipping Advice
(if applicable)
Negotiation
for Payment
After Sales Issues
Foreign Currency
Verification & Cancellation
Tax Refund
Claims & Settlement
(if applicable)
Feedback for
Future Orders
1 Preparation
1) Obtaining the Buyer’s 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
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
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 bank’s
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
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.
Import Contract
Book Shipping Space or
Charter Ship (if applicable)
Loading Instructions
to the Seller( if applicable)
Apply for L/C Establishment
(if applicable) or Pay Deposit
Insurance
(if applicable)
Document Inspection
Shipping
Goods Inspection
Pay to Obtain
the Original Documents
Customs
Declaration
Receiving the Goods
and Distribution
Claim (if any)
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)
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.
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
exporter’s 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.
3 Check the Documents for Payment
 Under sight L/C, the bank will pay the seller’s 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.
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.
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.
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.
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
.

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) Mate’s 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.
(4) Bill of Lading
(5) Bill of Exchange / Draft
(6) Commercial Invoice
(7) Manufacturer’s Invoice
(8) Insurance Policy
(9) Certificate of Origin
(10) Generalized System of Preferences Documents (GSP)
(11) Packing List and Weight Memo
(12) Inspection Certificate
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.
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?
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 ________________.
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 mate’s 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. ( )
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?
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?
Web Links
http://www
1. http://www.mofcom.gov.cn中国商务部网站
2. http://www.cnexp.net 外贸精英网
3. http://www.customs.gov.cn中国海关网
4. http://www.info.china.alibaba.com 阿里巴巴网