Detailed, Step-by-Step NCERT Solutions for 11 Business Studies Chapter 12 International Business 2 Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.
International Business 2 NCERT Solutions for Class 11 Business Studies Chapter 12
International Business 2 Questions and Answers Class 11 Business Studies Chapter 12
Multiple Chioce Questions
Which of the following documents are not required for Obtaining an export license?
(a) IEC number
(b) Letter of credit
(c) Registration cum
(d) Bank account number membership certificate
(b) Letter of credit
Which of the following documents is not required in connection with an import transaction?
(a) Bill of lading
(b) Shipping bill
(c) Certificate of origin
(d) Shipment advice
(c) Certificate of origin
Which of the following do not form part of duty drawback scheme?
(a) Refund of excise duties
(b) Refund of customs duties
(c) Refund of export duties
(d) Refund of income dock charges at the port of shipment
(a) Refund of excise duties
Which one of the following is not a document related to fulfill the customs formalities
(a) Shipping bill
(b) Export licence
(c) Letter of insurance
(d) Proforma invoice
(b) Export licence
Which one of the following is not a part of export documents?
(a) Commercial invoice
(b) Certificate of origin
(c) Bill of entry
(d) Mate’s receipt
(c) Bill of entry
A receipt issued by the commanding officer of the ship when the cargo is loaded on the ship is known as
(a) Shipping receipt
(b) Mate receipt
(c) Cargo receipt
(d) Charter receipt
(b) Mate receipt
Which of the following documents is prepared by the exporter and includes details of the cargo in terms of the shippers name, the number of packages, the shipping bill, port of destination, name of the vehicle carrying the cargo?
(a) Shipping bill
(b) Packaging list
(c) Mate’s receipt
(d) Bill of exchange
(a) Shipping bill
The document containing the guarantee of a bank to honour drafts drawn on it by an exporter is :
(a) Letter of hypothetication
(b) Letter of credit
(c) Bill of lading
(d) Bill of exchange
(b) Letter of credit
Which of the following does not belong to the World Bank Group?
TRIP is one of the WTO agreements that deal with :
(a) Trade in agriculture
(b) Trade in services
(c) Trade-related investment
(d) None of these measures
(d) None of these measures
Short Answer Questions
Discuss the formalities involved in getting an export license.
Important formalities in getting an export license are as follows:
- Opening a bank account in any bank authorized by the Reserve Bank of India (RBI) and getting an account number.
- Obtaining Import Export Code (EEC) number from the Directorate Genial Foreign Trade (DGFT) or Regional Import Export Licensing Authority.
- Registering with the appropriate export promotion council.
- Registering with Export Credit and Guarantee Corporation (ECGC) in order to safeguard against risks of non-payments.
Why is it necessary to get registered with an export promotion council?
It is obligatory for every exporter to get registered with the appropriate export promotion council. Various export promotion councils such as Engineering Export Promotion Council (EEPC) and Apparel Export Promotion Council (AEPC) have been set up by the Government of India to promote and develop exports of different categories of products.
It is necessary for the exporter to become a member of the appropriate export promotion council and obtain a Registration cum Membership Certificate (RCMC) for availing benefits available to export firms from the Government.
Registration with the Export promotion council is necessary in order to protect overseas payments from political and commercial risks. Such registration also helps the export firm in getting financial assistance from commercial banks and other financial institutions.
What is IEC Number?
Import Export Code (IEC) number is given to an export firm by Director General for Foreign Trade (DGFT) which the firm needs to be filled in various export/import documents. For obtaining the IEC number, a firm has to apply to the DGFT with documents such as exporter/importer profile, bank receipt of the requisite fee, a certificate from the banker on the prescribed form, two copies of photographs attested by the banker, details of the non-resident interest and declaration about the applicant’s non-association with caution listed firms.
What is pre-shipment finance?
On receipt of the letter of credit and confirmation order, the exporter approaches his banker for obtaining pre-shipment finance to undertake export production. Pre-shipment finance is the finance that the exporter needs for procuring raw materials and other components, processing, and packaging of goods, and transportation of goods to the port of shipment.
Why is it necessary for an export firm to go in for pre¬shipment inspection?
An export firm has to go in for pre-shipment inspection as required by the Government of India to ensure that only good quality products are exported from the country. The government has passed the Export Quality Control and Inspection Act, 1963 for the purpose of compulsory inspection of certain products by a competent agency as designated by the government.
If the product to be exported comes under such a category, the exporter needs to contact the Export Inspection Agency (EIA) or the other designated agency for obtaining an inspection certificate. The pre-shipment inspection report is required to be submitted along with other export documents at the time of exports.
Such an inspection is not compulsory in case the goods are being exported by star trading houses, trading houses, export houses, industrial unit’s setup in Export Processing Zones/ Special Economic Zones (EPZs/SEZs), and 100% Export Oriented Units (EOUs).
Discuss the procedure related to excise clearance of goods.
Excise duty is payable on the materials used in manufacturing goods as per Central Excise Tariff Act. The exporter, therefore, has to apply to the concerned Excise Commissioner in the region Auth an invoice.
If the Excise Commissioner is satisfied, he may issue the exercise clearance. On many products of export which are competitive in the world market, the government may exempt the payment of excise duty or make a refund of excise at later stage. This scheme of exemption of excise duty is known as Duty Drawback.
The scheme is administrated by the Directorate of Drawback under the Ministry of Finance which is responsible for fixing the rates of drawback for different products. The work relating to sanction and payment of drawback is, however, looked after by the Commissioner of Customs or Central Excise Incharge of the Concerned port, airport or land custom station from where the export of goods is considered to have taken place.
Explain briefly the process of customs clearance of export goods.
The goods must be cleared from the customs before they can be loaded on the ship. For obtaining customs clearance, the exporter prepares the shipping bill which contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporter’s name and address, etc.
Five copies of the shipping bill along with the following documents are then submitted to the Customs Appraiser at the Customs House for clearance:
- Export Contract or Export Order
- Letter of Credit
- Commercial Invoice
- Certificate of Origin
- Certificate of Inspection, where necessary
- Marine Insurance Policy
After submission of these documents, the superintendent of the concerned port trust is approached for a carting order and after obtaining it, the Cargo is physically moved into the port area arid stored in a shed.
What is a bill of lading? How does it differ from the bill of entry?
Bill of lading is a document wherein a shipping company gives
its official receipt of the goods put on board of its vessel and at the same time gives an undertaking to carry them to the port of destination. It is also a document of title to the goods and as such is freely transferable by the endorsement and delivery.
A bill of lading contains the following detail:
- Name of the Exporter or Shipper
- Name of the Consignee or Importer
- Identification Marks on Packages
- Description of Goods
- Number of Packages
- Fright Charges
- Name and Nationality of the ship
- Port of Shipment and Port of Destination.
Bill of entry – Bill of entry is a form supplied by the custom office to the importer. It is to be field in by the importer at the time of receiving the goods. It has to be submitted to custom office in triplicate. Various information such as names and address of the importer, name of the ship.
Number of packages, marks on the packages, description of goods, quantity and value of goods, name and address of the exporter, port of destination and custom duty payable should be given in the bill of entry.
What is the shipping bill?
Shipping bill is the main document on the basis of which the customs office gives permission for export. Shipping bill contains particulars of the goods being exported, the name of the vessel, the port at which goods are to be discharged, country of final destination, exporters name and address, etc. Exporter prepares the shipping bill for obtaining customs clearance. Thus, we can say the shipping bill is the bill which is prepared by the exporter and required for the customs clearance.
Explain the meaning of mate’s receipt.
A mate receipt is a receipt issued by the commanding officer of the ship when the cargo is loaded on the board, and contains the information about the name of the vessel, berth, date of shipment, description of packages, marks and numbers, condition of the cargo at the time of receipt on board the ship etc. The port superintendent, on receipt of port dues, hands over the mate’s receipt to the Clearing and Forwarding (C&F) agent.
Mate’s receipt are of two types – clean and foul receipt. If the mate at port is satisfied with packing, he will issue a receipt without remark known as Clean Receipt. But of mate is not satisfied with the condition of packing, he makes a remark to that effect on the receipt which is known as Foul Receipt may be converted into clean report by making some payment to the shipping company or by submitting indemnity bond.
What is a letter of credit? Why does an exporter need these documents?
A letter of credit is a guarantee issued by the importer’s bank that it will honor up to a certain amount of export bills to the bank of the exporter. Letter of credit is the most appropriate and secured method of payment adopted to settle international transactions.
The exporter needs this letter to Insure against the non – payment of dues by the importer in the foreign country as there is always a risk in the collection of payment from the importers. Thus, in order to protect the exporter from financial loss “Letter of credit” is needed.
Discuss the process involved in securing payment for exports.
After the shipment of goods the exporter informs the importer about the shipment of goods. Various documents needed to claim the title of goods and clearance of goods from custom include certified copy of the invoice, bill of lading, packaging list, insurance policy, certificate of origin and letter of credit.
The exporter sends these documents through banker with the instruction that these may be delivered to the importer after acceptance of the bill of exchange – a document which is sent along with the above-named documents.
Bill of exchange is an order to the importer to pay a certain amount of money only to or to order of the person or to the bearer of the instrument. On receiving the bill of exchange the importer releases the payment incase of sight draft or accepts the usance draft for making payment on maturity of bill of exchange. The exporter’s bank receives the payment through the importer’s bank and is credited to the exporter’s account.
The exporter can get immediate payment from his/her bank on the submission of documents by signing a Letter of dimity.Having received the payment for exports, the exporter needs to get a bank certificate of payment. Bank certificate of payment is a certificate which implies that the necessary documents relating to particular export consignment has been negotiated and the payment has been received in accordance with the exchange control regulations.
Differentiate between the followings:
- Sight and Usance Drafts
- Bill of Lading and Airways Bill
- Pre-shipment and Post-shipment Finance
1. Sight and Usance Drafts:
In the case of sight draft, the drawer instructs the bank to hand over the relevant documents to the importer against payment. But in the case of the usance draft, the drawer – instructs the bank to hand over the relevant documents to the importer against acceptance of the bill of exchange.
2. Bill of Lading and Airway Bill:
Bill of lading is a document prepared and signed by the master of the ship acknowledging the receipt of goods on board, it contains terms and conditions on which the goods are to be taken to the port of destination On the other hand, Airway Bill is a document wherein an airline/ shipping company gives its official receipt of the goods on board it’s aircraft and at the same time gives the undertaking to carry them to the port of destination.
3. Pre-shipment and Post – shipment Finance:
Pre-shipment finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose while the post-shipment finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country.
Explain the meaning of the following documents used in connection with import transactions:
(i) Trade enquiry
(ii) Import license
(iii) Shipment of advice
(iv) Import general manifest
(v) Bill of entry.
(i) Trade enquiry – The first thing that the importing firm has to do is together information about the countries and firms which export the given product. The importer can gather such information from the trade directories or trade associations and organisations or trade associations and organisations.
Having identified the countries and firms that export the product, the importing firm approaches the export firms with help of a trade enquiry for collecting information about their export prices and terms of exports.
A trade enquiry is a written request by an importing firm to the exporter for supply of information regarding the price and various terms and conditions on which the latter is ready to exports goods. After receiving a trade enquiry, the exporter prepares a quotation and sends it to the importer.
The quotation is known as proform an invoice. A proforma invoice is a document that contains details as to the quality’, grade, design size, weight and price of the export product, and the terms and conditions on which their export will take place.
(ii) Import licence – There are certain goods that can be imported freely, while others need licensing. The importer needs to consult that Export-Import policy in force to know whether the goods that he or she wants to import are subject to import licensing. In case goods can be imported only against the license, the importer needs to procure an import licence.
In India, it is obligatory for every importer to get registered with the Directorate General Foreign Trade or Regional Import Export Licensing Authority, and obtain an Import Export Code(IEC) number. This number is required to be mentioned on most of the import documents.
Shipment Advice – After loading the goods on the vessel, the overseas supplier dispatches the shipment advice to the importer. Shipment advice contains information about the shipment of goods. The information provided in the shipment advice includes details such as invoice number, bill of lading/airways bill number and date, name of the vessel with date, the port of export, description of goods and quantity, and the date of sailing of the vessel.
Import General Manifest – Goods are shipped by the overseas supplier as per the contract. The person in charge of the carrier (ship or airway) informs the officer in charge at the dock or the airport about the arrival of goods in the importing country. He provides the document called import general manifest.
(iii) Bill of entry- Bill of entry is a form supplied by the customs office to the importer. It is to be filled in by the importer at the time of receiving the goods. It has to be in triplicate and is to be submitted to the customs office. The bill of the entry contains information such as names and addresses of importers, name of the ship, number of packages marks on the packages, description of goods, quality and quantity of goods, value of goods, name and address of exporter, port of destination and custom duty payable.
List out major affiliated bodies of the World Bank.
International Bank for Reconstruction and Development (IBRD) commonly known as the World Bank, an International Organization that assists in the development of the underdeveloped nations of the world especially in social sectors like health and education. Over time, additional organizations have been set up under the umbrella of the World Bank. As of today, the World Bank is a group of five international organizations responsible for providing finance to different countries. The group and its affiliates headquartered in Washington DC catering to the various financial needs of nations.
The affiliates of World Bank can be listed as under:
- International Bank for Reconstruction and Development (IBRD)
- International Financial Corporation (IFC)
- International Development Association (IDA)
- Multilateral Investment Guarantee Agency (MIGA)
- International CentreforSettlementoflnvestmentDisputes(ICSID)
Write short notes on the following :
(ii) World Bank
(i) MIGA (Multilateral Investment Guarantee Agency) – The multilateral InvestmentGuarantee Agency was established in April 1988 to supplement the functions of the World Bank and IFC.
Objective of MIGA :
- To encourage flow of direct foreign investment into the less developed member countries.
- To provide insurance cover to investors against political risks.
- To provide guarantee against non-commercial risks(likedangers involved in currency transfer was and civil disturbances and breach of contract)
- To insure new investments expansion of existing investments, privatisation and financial restructuring.
- To provide promotional and advisory services.
- To establish credibility.
(ii) World Bank – The International Bank for Reconstruction and Development (IBRD) commonly known as World Bank, was result of the Bretton Woods conference. The main objectives behind setting up this international organisation were to aid the task of reconstruction of the war-affected economies of Europe and assist in the development of the underdeveloped nation of the world. For the first few years, the world bank remained preoccupied with the task of restoring war-torn nations in Europe.
Having achieved success in accomplishing this task by late 1950s, the world bank turned its attention to the development of underdeveloped nations. It realised that by investing more and more in these countries especially in social sectors like health and education; it could bring about the needed social and economic transformation of the developing countries.
To give shape to this investment aspect in the under developed nations, the International Development Association (IDA) was formed in the year 1960. The main objective underlying setting up IDA has been to provide loans on concessional terms and conditions to those countries whose per capita incomes are below a critical level.
Concessional terms and conditions mean that:
- Repayment period is much longer than the repayment period of IBRD.
- The borrowing nation need not pay any interest on the borrowed amount. IDA thus provides interest free long term loans to the poor nations. IBRD also provides loans but these carry interest charged on commercial basis.
(iii) ITPO – Indian Trade Promotion Organisation was setup on 1st January 1992 under the companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarter is at New Delhi. ITPO was formed by merging the twoerst while agencies viz., Trade development Authority and Trade Fair Authority of India.
ITPO is a service organisation and maintains regular and close interaction with trade, Industry and government. It serves the industry by organising trade fairs and exhibitions – both with in the country and outside, it helps export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commercial business information. ITPO has five regional offices at Mumbai Bangalore, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.
(iv) IMF – International Monetary Fund (IMF) is the second international organisation next to the World Bank IMF which came into existence in 1945 has its headquarters located in Washington DC, in 2005, it had I9l countries as its members. The major idea underlying the setting up of the IMF is to evolve an orderly international monetary system, i.e., facilitating a system of international payments and adjustments in exchange rates among national currencies.
The objective of IMF:
- To promote international monetary cooperation through a permanent institution.
- To facilitate the expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.
- To promote exchange stability with a view of maintaining orderly exchange arrangements among member countries.
Long Answer Questions
Rekha Garments has received an order to export 2000 men’s trousers to Swift Imports Ltd. located in Australia. Discuss the procedure that Rekha Garments would need to go through for executing the export order.
Export Procedure – The main steps involved in exporting goods from India are as follows :
(1) Receiving Trade Enquiry and Sending Quotation – The prospective buyer of a product sends an enquiry to different exporters. Generally, the following information is sought in the trade enquiry:
- Specification of goods available
- Quantity of goods available
- Price per unit
- Terms of shipment
- Terms of payment
- Schedule of delivery
In response to the trade enquiry, the exporter sends a quotation giving information sought in the trade enquiry. Sometimes the exporter may send a proforma invoice containing the necessary details and the approximate amount to be paid in case of import. Various informations regarding quality, grade, size and mode of delivery and payment are provided.
(2) Receiving an Indent and Sending Confirmation – The intending importer, after scrutiny of quotation/proforma invoice, sends an indent. The exporter may receive an indent directly from the importer or through an indent house. An indent house is an agent which imports goods on behalf of importers. It serves as a middleman or intermediary between the importers and exporters. Indent houses charge commissions for their services from importers.
An indent refers to an order received from abroad for sale (export) of goods. It contains the following details:
- Quantity’ of goods to be sent
- Quality, size and design of goods
- Nature of packing and marking
- Modi of shipment and insurance
- Period of delivery
- Method of payment
An indent is generally prepared, in duplicate one copy is sent to the exporter. The second copy is filed by the importer in his records.
(3) Securing Letter of Credit – After receipt of indent the exporter satisfies himself as to the credit-worthiness of the importer. A bank reference may be sufficient in some cases. Generally, the importer is requested to arrange a letter of credit in favour of the exporter.
A letter of credit (L/C) is an undertaking by its issuer (the importer’s bank) that the bills of exchange drawn by the foreign dealer on the importer will be honoured on presentation upto the specified amount. It is a guarantee by the bank to the foreign dealer that his bills upto the amount mentioned therein will be honoured. Letter of credit is the most appropriate and secure method of payment adopted to settle international transactions.
(4) Obtaining IEC Number and RBI Code Number – Export of goods in India is subject to custom laws which demand that the export firm must have an export licence before it proceeds with exports. Importer Exporter code (IEC) number is to be filled in various import export formalities.
In order to obtain this number, an exporter has to apply to the Regional Import-Export Licensing Authority in the prescribed form. The application should be submitted along with the following documents:
- Profile of the exporter
- Bank receipt for the required fee
- Certificate from the banker in the prescribed form
- Two copies of photographs attested by the banker
- Detail of non-resident interest, if any
- Declaration about the applicant’s non-association with a caution listed firm.
If the Regional Import Export Licensing Authority is satisfied with the documents and formalities, IEC number is issued.
Reserve Bank of India (RBI) requires exporters to obtain RBI code No. before exporting goods from India. This number has to be mentioned in various documents to obtain permission from the customs authorities for shipment of goods.
It is obligatory for every exporter to get registered with the appropriate export promotion councils such as Engineering Export Promotion Council and Apparel Export Promotion Council to promote and develop exports of different categories of products.
(5) Obtaining Registration cum Membership Certificate (RCMC) from Export Promotion Council/Commodity Board In order to avail of export incentives, concessions and facilities (e.g., cash compensatory support, REP licenses, etc.) an exporter is required to obtain a Registration-cum-membership certificate (RCMC).
This certificate is issued by Export Promotion Councils Commodity Boards/ Federation of Indian Export Organisations, etc. Application has to be made to the concerned authority in the prescribed form along with membership fee, IEC number, bank certificate and other specified documents. If the concerned authority is satisfied, a Registration-cum- membership certificate is issued.
(6) Manufacturing/Procuring Goods and Packing Them -Now the exporter starts manufacturing or procuring the goods as required by the importer. If the materials required for the manufacture of goods are subject to excise duty, excise clearance is required.
Export goods are either exempted from the excise duty’ or this duty, if paid, is refunded back to the exporter.
The exporter collects the goods from his factory or purchases the same from the market. The goods must correspond to the instructions given in the indent in regard to quantity, quality, make of the goods, etc. Then the goods are properly packed in accordance with the instructions given by the importer.
In the absence of such instructions, goods must be packed keeping in mind the safety of goods and cost of freight. These packages should be properly marked according to the instructions if any, so that they may be easily distinguished from the goods belonging to others.
(7) Procuring Export Inspection Certificate – After the goods are packed in accordance with the prescribed specifications the exporter applies to the Export Inspection Agency. The agency sends an inspector for inspecting the export consignment.
Once the inspector is satisfied that the goods confirm to the prescribed specifications, an Export Inspection Certificate is issued. This certificate is required by the customs authorities for the shipment of goods. Such inspection is not compulsory in case the goods are being exported by star trading houses, export houses, units of export processing zone and EOU units.
(8) Appointing Forwarding Agents – Once Export Inspection Certificate is obtained, the goods can be exported. But before the goods are shipped the exporters are required to get clearance from customs authorities. Generally, it is not possible or convenient for the exporter to go to the port and perform these formalities. Therefore, he engages a forwarding agent. Forwarding agents are specialists who perform the customs fonnalities on behalf of exporters in consideration for some commission.
(9) Dispatching Goods to Port and Sending Receipt to Agent – After appointing the forwarding agent, the exporter will despatch the goods by rail or truck to the port town. He will then endorse the railway receipt (R/R) or Lorry Receipt (L/R) in the agent’s favour along with the necessary instructions to the forwarding agent and send the same.
(10) Formalities by Forwarding Agent –
(i) Taking delivery of goods at port town: When the goods arrive at the port town, the forwarding agent takes delivery from the railway or truck on submission of R/R. He then arranges for storage of the consignment in a warehouse. The exporter endorses the Railway Receipt (RR) in favour of agent to enable him to take delivery of goods at port of shipment.
(ii) Obtaining shipping Order: The forwarding agent approaches a shipping company or its agent to hire space in the ship. He enters into an agreement with the shipping company. The shipping company issues ‘ a document called the ‘shipping order’ to him. The shipping order is a document containing an instruction to the captain of the ship to accept ‘ the specified goods on board the ship from the exporter whose name is mentioned in it.
Shipping order may be either a Ready Shipping Order or Forward Shipping Order. In the case of the former, the name of the ship and the date of departure of the ship are mentioned while in the latter only the date of departure is given. After the agreement is made, the exporter has to send goods by that very ship only.
Even if he is unable to send the goods due to some reason, he has to pay the full freight. Such a freight is called ‘dead freight’.In case the consignment is very large, the forwarding agent may hire a whole ship or major part of it. The agreement to hire the whole ship or major part of the ship is called charter Party’’.
(iii) Obtaining customs clearance : In order to obtain customs clearance, the exporter or his agent prepares three copies of shipping bill in printed forms. A shipping bill contains information about name and address of the exporter, port of loading port of destination, name of the ship, description and value of goods, identification marks on packages.
There, are different types of shipping bills for dutiable goods, duty free goods and duty drawback goods. Along with three copies of the shipping bill, the agent has to submit the forwarding documents to the customs office:
- Letter of credit
- Commercial invoice
- Certification of inspection and origin
- Marine insurance policy
- A declaration that the particulars given in the shipping bill are in conformity with the indent
Then the forwarding agent makes payment of export duty as calculated by the customs office (in case of dutiable goods). He gets Customs Export Pass which permits him to bring the goods to the docks.
(iv) Paying dock dues: After paying the export duty, the forwarding agent makes arrangements for carrying goods to the docks. For this purpose, he fills two copies of‘DockChallan’ and submits them to the dock authorities (Landing aid Shipping Dues Office) along with one copy of each of the shipping bill and the shipping order.
After dock charges are paid, dock authorities retain one copy of the dock challan and return the second copy duly signed to the forwarding agent. This signed copy is called ‘dock receipt’ or ‘Port Trust Dues Receipt’.
(v) Obtaining permission for shipment: Then the forwarding agent brings goods to the docks. The Customs Preventive Officer at the docks inspects the goods on the basis of the declaration given in the Shipping Bill. If the officer is satisfied he gives permission to load the goods on the ship by issuing a ‘Customs Export Pass’ or by an endorsement ‘Let Ship’ on the duplicate copy of the shipping bill.
(vi) Securing mate‘s receipt: When the goods have been loaded on the ship the captain of the ship or his assistant (called ‘mate’) issues a receipt called on ‘ Mate’s Receipt’. A mate’s receipt is a receipt issued by the commanding officer of the ships when the cargo is loaded on board and contains the information about the name of the vessel, berth, date of shipment, description of package marks and numbers, condition of the cargo at the time of receipt on board die ship etc.
(vii) Obtaining bill of lading: After dispatching the goods, the forwarding agent goes to the office of the shipping company. He submits the mate’s receipt and gets in exchange a Bill of Lading. He has to fill in three forms of bill of lading giving details regarding the goods, name of the ship, port of destination, etc. If the agent pays the freight in advance, he will get the bill of lading and Freight.
Note duly signed by an authorized official of the shipping company. In case the freight is to be paid by the importer at the port of destination, the bill of lading will be marked ‘Freight Forward’. The importer cannot obtain delivery of goods without a bill of lading.
(viii) Getting insurance policy: The forwarding agent gets the goods insured against Marine risks. Marine insurance should be done strictly according to the importer’s instructions. Generally, insurance is done for the actual cost of the goods plus a margin of profit.
(ix) Sending advice to the exporter: The forwarding agent sends the bill of lading, shipping bills, insurance policy, and other documents to exporters and informs them of the shipment of goods.
(11) Getting Certificate of Origin – Some importing countries in order to get Tariff Concession ask the exported to send a certificate of origin. Import regulations of a foreign country may require that all import consignments must carry a certificate of origin.
Trade agreements between two countries may offer preferential treatment in respect of import duties on goods produced in such countries. Goods manufactured in a particular country may be banned for import in the foreign market. In such cases, the exporter is required to send a certificate of origin to the importer. The certificate of origin certifies the name of the country in which the exported goods are manufactured.
The Government of India has authorized the Chambers of Commerce. Trade Associations and Export Promotion Councils to issue such certificates. The exporter will send the certificate of origin to the importer so that the latter may enjoy the benefit of concessional custom duties.
(12) Getting Consular Invoice – When the import duties are charged ad valorem (on the basis of the value of goods) the customs authorities will have to open the packages to calculate duties. To avoid this problem, the exporter procures a consular invoice and sends it to the importer.
The value of the goods and other particulars are stated in this invoice. It is signed by the consul of the importer’s country stationed in the exporter’s country. The consular invoice enables the importer to obtain prompt clearance of goods when they arrive at the port of destination. It saves time and trouble for the importer.
Consular invoice is prepared in triplicate one each for the importer, customs authorities in the importing country and the consul. The customs authorities abroad accept this invoice as true statement of the contents and asses custom duty on this basis without opening the packages.
(13) Preparing Commercial Invoice and Submitting Documents to Bank – Now the exporter prepares a commercial invoice for the goods shipped. It is prepared in triplicate according to the terms and conditions agreed upon between the importer and the exporter.
After preparing the invoice, the exporter submits all relevant documents-commercial invoice, bill of lading, insurance policy, certificate of origin, consular invoice, etc. to his bank for transmission to the importer’s bank.
(14) Securing Payment – The exporter needs various documents to claim the title of goods on their arrival at his country. The exporter obtains payment either by means of a documentary letter of credit or through documentary bill of exchange. The document include certified copy of invoice, bill of lading, packing list, insurance policy etc.
(15) Claiming Export Incentives – In the last step, the exporter claims export incentives offered by the Government for export promotion. These incentives are as under :
- Cash compensatory support: Exporters of specified products are paid cash compensation.
- Duty drawback : The import duty paid by the exporter on imported raw materials and excise duty paid on manufactured goods which are exported are refunded.
- Import replenishment: An import licence for import of raw materials is issued to the exporter so that he may produce export goods.
Your firm is planning to import textile machinery from Canada. Describe the procedure involved in importing.
Following is the procedure involved in importing textile machinery from Canada:
1. Trade Enquiry:
The importing firm approaches the textile machinery export firms in Canada with the help of trade enquiry they collecting information about their export prices and terms of exports. After receiving a trade enquiry, the exporter will prepare a quotation called proforma invoice and send it to our firm.
2. Procurement of Import Licence:
We will consult the Export-Import (EXIM) policy in force to know whether the textile machinery imports are subject to import licensing. In case it can be imported only against the license, we will procure an import license.
3. Obtaining Foreign Exchange:
As payment for imports will be made in Canadian dollars, our firm will have to make an application to a bank authorized by RBI to issue foreign exchange.
4. Placing Order or Indent:
After obtaining the import license, our firm will place an import order or indent with the exporter for supply of the specified products containing information about the price, quantity, grade and quality of machinery and the instructions relating to packing, shipping, ports of shipment and destination, delivery schedule, insurance and mode of payment.
5. Obtaining Letter of Credit:
If the payment terms agreed between us and the overseas supplier then our firm should obtain the letter of credit from its bank and forward it to the overseas supplier.
6. Arranging for Finance:
Our firm would make arrangements in advance to pay to the exporter on arrival of goods at the port.
7. Receipt of Shipment Advice:
Advice afterloading the ordered textile machinery on the vessel, the overseas supplier will dispatch the shipment advice to our firm which contains information about the shipment of goods.
8. Retirement of Import Documents:
After shipping the machinery, the overseas supplier will prepare a set of necessary documents including bill of exchange, commercial invoice, bill of lading/airway bill, packing list, certificate of origin, marine insurance policy, etc. and will hand it over to his or her banker for their onward transmission and negotiation to our firm.
The acceptance of bill of exchange for the purpose of getting delivery of the documents is known as retirement of import documents after which the bank handover the import documents to the importer.
9. Arrivals of Goods:
Goods will be shipped by the overseas supplier as per the contract. The officer in charge at the dock will provide the document called import general manifest on the basis of which unloading of cargo will take place.
10. Customs Clearance and Release of Goods:
Textile machinery imported into India will have to pass through customs clearance. Firstly, our firm will have to obtain a delivery order, pay dock dues and obtain port trust dues receipt and then fill in a form bill of entry has to be presented to the dock superintendent. The examiner will give his report on the bill of entry and we will present the bill of entry to the port authority who will issue the release order after receiving the necessary charges.
Discuss the principal documents used in exporting.
Principal Export Documents – These documents are required for the transfer of goods from exporter to the importer and for the realization of payment. The principal export documents are given below :
(1) Commercial invoice – This invoice is a seller’s bill for merchandise and contains information about goods such as quantity, total value, number of packages, name of ship etc. The commercial invoice contains the following details:
- Name and address of the exporter
- Name and address of the importer
- Name of the ship
- Date of sailing
- Export order number and date
- Number of packages and marks on them
- Detailed description of the goods – quantity, price, total value etc.
- Terms of payment
(2) Packing List – This list contains the date of packing, order number, corresponding invoice number, details of shipping, bill of lading number, date of sailing and details of goods in each package and marks.
(3) Certificate of Inspection – This document certifies that the consignment has been inspected as required under the law. It is issued by the Export Inspection Agency or the authorised person. It ensures that the goods exported are of proper quality. Some countries have made this certificate mandatory for the goods being imported to their countries.
(4) Insurance Policy – When goods are sent from one country’ to another country, they are exposed to various risks of loss or damage.’ In order to protect against these risks, the exporter is required to insure
the goods and obtain an insurance policy. This policy protects the risks of loss or damage in transit and is sent to the importer.
(5) Certificate of Origin – This certificate certifies the origin of the goods. It is required by the importer to obtain benefit of concessional customs duty in his country when goods produced in the exporter’s country enjoy such concession.
Certificate of origin is issued by the Exporter Promotion Council or Chamber of Commerce or the Government Department in the exporter’s country. This certificate is also required when there is a ban on imports of certain goods from selected countries. The goods are allowed to be brought into the importing country if these are not originating from the banned countries.
(6) Bill of Lading- Bill of lading is a documents wherein a shipping company gives its official receipts of the goods put on board. The main functions/features of bill of lading are as follows:
(a) A receipt of goods: Bill of lading is a receipt of goods delivered to the shipping company. It contains description and condition of the goods received by the shipping company.
(i) A document of title of goods : Bill of lading serves as a document of title to the goods. A bonafide holder of bill of lading can got ownership of the goods. The ownership can be transferred by endorsement of the bill of lading.
(ii) A contract of affreightment: Bill of lading is a written contract between the shipper (consignor) and the shipping company. It contains the terms and conditions of the contract of carriage. Under this contract the shipping company undertakes to carry the goods in consideration of a price called freight.
(iii) A collateral security: Bill of lading can be used as a collateral security for raising loan. Bill of lading is a document in writing signed on behalf of the owner of the ship in which goods are loaded acknowledging the receipt of the goods, and undertaking to’deliver them at the end of the voyage, subject to the specified conditions.
A bill of lading contains the following particulars:
- Name of the ship and its captain
- Date of shipment
- Place of loading
- Port of destination
- Name and address of the exporter
- Name and address of the importer
- Description of the goods
- Number of packages
- Marks thereon, if any
- Amount of freight
A bill of lading is prepared in triplicate. One copy is sent to the importer, another copy is given to the captain of the ship; and the third copy is retained by the exporter.
Is bill lading a negotiable instrument ? A bill of lading contains some of the features of a negotiable instrument. It can be transferred by endorsement and delivery. It is freely transferable and the transferee can sue in his own name and give a valid discharge to the person liable.
However, it is not a negotiable instrument in the sense a bill of exchange, a promissory note or a cheque is. In case of a negotiable instrument, the transferee gets a better title than that of the transferor himself provided the transferee has acquired it in good faith and for value.
In a bill of lading, the transfered does not get better title than that of the transferor. If the transferor’s title is bad or defective, the transferee also gets a bad or defective title even though he might have accepted it in good faith and for valuable consideration.Thus, a bill of lading may be called a semi-negotiable or quasi- negotiable instrument.
(7) Charter Party – A charter party is a formal agreement in writing between the shipowner and the exporter under which the whole ship or a substantial part of it is hired to carry goods for a specified voyage or for a particular time period. It is a contract of affreightment containing all the terms and conditions of the contract. A charter party usually contains the following particulars:
- Name of the ship
- Place of loading
- Port of destination
- Name and address of the exporter (consignor)
- Name and address of the importer (consignee)
- Particulars of goods
- Amount of freight
- Expected perils and lay days.
(i) Airways Bill – Like a bill of lading, an airways bill is a document wherein an airline company gives an undertaking to carry them to the port of destination the goods boarded. It is a document of title to the goods and as such is freely transferable by the endorsement and delivery.
(9) Bill of Exchange – This is a document relating to the payment for the goods supplied. According to the Negotiable Instruments Act, “a bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a person or to the bearer of the instrument”. In case of external trade, the exporter draws a bill of exchange on the importer asking him to make payment to the specified bank. With this bill, documents of title to goods are attached.
Therefore, such a bill is known a ‘documentary bill of exchange’ The exporter’s bank will send this bill and documents to its branch or agent in the importer’s country. The branch or agent will present the bill to the importer. If the bill is marked D/A (Documents against Acceptance), documents will be handed over to the importer or his bank after they have accepted the bill.
On maturity the concerned bank receives the payment and credit the amount to the exporter’s account. In case the bill is marked D/P (Documents against Payment), the documents will be delivered only after the importer has paid full amount of the bill.
List and explain various incentives and schemes that the government has evolved for promoting the country’s export.
(i) Duty drawback scheme:
Since goods meant for exports are not consumed domestically, these are not subjected to payment of various excise and customs duties. Any such duties paid on export goods are, therefore, refunded to exporters on the production of proof of exports of these goods to the concerned authorities.
Such refunds are called duty drawbacks. Some major duty drawbacks include refund of excise duties paid on goods meant for exports, refund of customs duties paid on raw materials and machines imported for export production. The latter is also called customs drawback.
(ii) Export manufacturing under bond scheme:
This facility entitles firms to produce goods without payment of excise and other duties. The firms desirous of availing such facility have to give an undertaking (i.e., bond) that they are manufacturing goods for export purposes and will export such products on their production.
(iii) Exemption from payment of sales taxes:
Goods meant for export purposes are not subject to sales tax. Even for a long time, income derived from export operations had been exempt from payment of income tax. Now this benefit of exemption from income tax is available only to 100 percent Export Oriented Units (100 percent EOUs) and units set up in Export Processing Zones (EPZs)/Special Economic Zones (SEZs) for select years.
We shall shortly discuss the 100 percent Export Oriented Units (100 percent EOUs) and units set up in Export Processing Zones (EPZs)/Special Economic Zones (SEZs) in the succeeding paragraphs.
(iv) Advance licence scheme:
It is a scheme under which an exporter is allowed the duty-free supply of domestic as well as imported inputs required for the manufacture of export goods. As such the exporter is not required to pay customs duty on goods imported for use in the manufacture of export goods. The advance licenses are available to both the types of exporters those who export on a regular basis and also to those who export on an Adhoc basis.
The regular exporters can avail themselves of such licenses against their production programmes. The firms exporting intermittently can also obtain these licenses against specific export orders.
(v) Export Promotion Capital Goods Scheme (EPCG):
The main objective of this scheme is to encourage the import of capital goods for export production. This scheme allows export firms to import capital goods at negligible or lower rates of customs duties subject to actual user conditions and fulfillment of specified export obligations. If the said conditions are fulfilled by the manufacturers, then they can import the capital goods either at zero or concessional rate of import duty.
Supporting manufacturers and service providers are also eligible to import capital goods under this scheme. This scheme is especially beneficial to the industrial units interested in modernization and upgradation of their existing plant and machinery. Now service export firms can also avail of this facility for importing items such as computer software systems required for developing software for purposes of exports.
(vi) Scheme of recognising export firms as export house, trading house and superstar trading house:
With an objective to promote established exporters and assist them in marketing their products in international markets, the government grants the status of Export House, Trading House, Star Trading House to select export firms. This status is granted to a firm on its achieving a prescribed average export of performance in past select years.
Besides attaining a minimum of past average export performance, such export firms have to also fulfill other conditions as laid down in the import-export policy. Various categories of export houses have been recognized with a view to building marketing infrastructure and expertise required for export promotion.
These houses are given national recognition for export promotion. They are required to operate as highly professional and dynamic institutions and act as an important instrument of export growth.
(vii) Export of Services:
In order to boost the export of services, various categories of service houses have been recognized. These houses are recognized on the basis of the export performance of the service providers. They are referred to as Service Export House, International Service Export House, International Star Service Export House based on their export performance.
(viii) Export finance:
Exporters require finance for the manufacture of goods. Finance is also needed after the shipment of the goods because it may take some time to receive payment from the importers. Therefore, two types of export finances are made available to the exporters by authorized banks. They are termed pre-shipment finance or packaging credit and post-shipment finance.
Under pre-shipment finance, finance is provided to an exporter for financing the purchase, processing, manufacturing or packaging of goods for export purpose. Under the post-shipment finance scheme, finance is provided to the exporter from the date of extending the credit after the shipment of goods to the export country. The finance is available at concessional rates of interest to the exporters.
(ix) Export Processing Zones (EPZs):
Export Processing Zones are industrial estates, which form enclaves from the Domestic Tariff Areas (DTA). These are usually situated near seaports or airports. They are intended to provide an internationally competitive duty-free environment for export production at low cost. This enables the products of EPZs to be competitive, both qualitywise and pripe-wise, in the international markets.
These zones have been set up at various places in India which include: Kandla (Gujarat), Santa Cruz (Mumbai), Falta(West Bengal), Noida (Uttar Pradesh), Cochin (Kerala), Chennai (Tamil Nadu), and Vishakapatnam (Andhra Pradesh). Santa Cruz zone is exclusively meant for electronic goods and gem and jewellery items. All other EPZs deal with multifarious items.
Recently the EPZs have been converted to Special Economic Zones (SEZs) which are more advanced form of export processing zones. These SEZs are free from all rules and regulations governing imports and exports units except relating to labour and banking Government has also permitted development of EPZs by private, state or joint sector. The inter-ministerial committee on private EPZs has already cleared proposals for setting up of private EPZs in Mumbai, Surat and Kanchipuram.
(x) 100 percent Export Oriented Units (100 percent EOUs):
The 100 percent Export Oriented Units scheme, introduced in early 1981, is complementary to the EPZ scheme. It adopts the same production regime, but offers a wider option in location with reference to factors like source of raw materials, ports, hinterland facilities, availability of technological skills, existence of an industrial base and the need for a larger area of land for the project. EOUs have been established with a view to generating additional production capacity for exports by providing an appropriate policy framework, flexibility of operations and incentives.
Identify various organizations that have been set up in the country by the government for promoting country’s foreign trade.
Various organizations that have been set up in the country by the government for promoting the country’s foreign trade are as follows:
1. Department of Commerce:
Department of Commerce in the Ministry of Commerce, Government of India is the apex body responsible for the country’s external trade and all matters connected with it. This may be in the form of increasing commercial relations with other countries, state trading, export promotional measures and the development, and regulation of certain export-oriented industries and commodities. The Department of Commerce formulates policies in the sphere of foreign trade. It also frames the import and export policy of the country in general.
2. Export Promotion Councils (EPCs):
Export Promotion Councils are non profit organisations registered under the Companies Act or the Societies Registration Act, as the case may be. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products falling under their jurisdiction. At present there are 21 EPC’s dealing with different commodities.
3. Commodity Boards:
Commodity Boards are the boards which have been specially established by the Government of Ifidia for the development of production of traditional commodities and their exports. These boards are supplementary to the EPCs. The functions of commodity boards are similar to those of EPCs. At present there are seven commodity boards in India: Coffee Board, Rubber Board, Tobacco Board, Spice Board, Central Silk Board, Tea Board, and Coir Board.
4. Export Inspection Council (EIC):
Export Inspection Council of India was setup by the Government of India under Section 3 of the Export Quality Control and Inspection Act 1963. The council aims at sound development of export trade through quality control and pre-shipment inspection.
The council is an apex body for controlling the activities related to quality control and pre-shipment inspection of commodities meant for export. Barring a few exceptions, all the commodities destined for exports must be passed by EIC.
5. Indian Trade Promotion Organisation(ITPO):
Indian Trade Promotion Organisation was setup on 1 st January 1992 under the Companies Act 1956by the Ministry ofCommerce, Government oflndia. Its headquarter is at New Delhi. ITPO was formed by merging the two erstwhile agencies viz., Trade Development Authority and Trade Fair Authority of lndia.
ITPO is a service organisation and maintains regular and close interaction with trade, industry and Government. It serves the industry by organising trade fairs and exhibitions both within the country and outside, It helps export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commercial business information. ITPO has five regional offices at Mumbai, Bangalore, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.
6. Indian Institute of Foreign Trade (IIFT):
Indian Institute of foreign Trade is an institution that was setup at 1963 by the Government of India as an autonomous body registered under the Societies Registration Act with the prime objective of professionalizing the country’s foreign trade management; It has recently been recognised as Deemed University. It provides training in international trade, conduct researches in areas of international business, and analysing and disseminating data relating to international trade and investments.
7. Indian Institute of Packaging (IIP):
The Indian Institute of Packaging was set up as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging industry and allied interests in 1966. Its headquarters and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkata, Delhi and Chennai.
It is a training-cum-research institute pertaining to packaging and testing. It has excellent infrastructural facilities that cater to the various needs of the package manufacturing and package user industries. It caters to the packaging needs with regard to both the domestic and export markets.
It also undertakes technical consultancy, testing services on packaging developments, training and educational programmes, promotional award contests, information services and other allied activities.
8. State Trading Organisations:
A large number of domestic firms in India found it very difficult to compete in the world market. At the same time, the existing trade channels were unsuitable for the promotion of exports and bringing about diversification of trade with countries other than European countries. It was under these circumstances that the State Trading Organisation (STC) was setup in May 1956.
The main objective of the STC is to stimulate trade, primarily export trade among different trading partners of the world. Later the government set up many more organisations such as Metals and Minerals Trading Corporation (MMTC), Handloom and Handicrafts Export Corporation (HHEC).
What is World Bank? Discuss its various objectives and role of its affiliated agencies.
World Bank – The International Bank for Reconstruction and Development (IBRD), commonly known as World Bank, was result of the Bretton Woods Conference. The main objectives behind setting up this international organization were to aid the task of reconstruction of the war-affected economies of Europe and assist in the development of the underdeveloped nations of the world. For the first few years, the World Bank remained preoccupied with the task of restoring war-torn nations in Europe.
Having achieved success in accomplishing this task by the 1950s, the World Bank turned its attention to the development of underdeveloped nations. It is felt by the World Bank that investment in underdeveloped countries in order to bring social and economic changes serve the very purpose of setting up of bank.
To give shape to this investment aspect in the underdeveloped nations, the Internal ional Development Association (IDA) was formed in the year 1960. The main objective underlying setting up IDA has been to provide loans on concessional terms and conditions to those countries whose per capita incomes are below a critical level.
Concessional terms and conditions mean that
- the repayment period is much longer than the repayment – period of IBRD, and
- the borrowing nation need not pay interest on the borrowed amount. IDA, thus, provides interest-free long-term loans to poor nations. IBRD also provides loans but these carry interest charges on a commercial basis.
Over time, additional organisations have been set up under the umbrella of the World Bank. As of today, the World Bank is a group of five international organisations responsible for providing finance to different countries. The group and its affiliates- headquartered in Washington DC catering to various financial needs are listed in Box A on World Bank and its affiliates.
Functions of the World Bank – As mentioned earlier, the World Bank is entrusted with the task of economic growth and widening of the scope of international trade. During its initial years of inception, it placed more emphasis on developing infrastructure facilities like energy, transportation and others.
No doubt all this has benefited the under-developed nations too, but the results were not found to be very satisfactory due to poor administrative structure, lack of institutional framework and non-availability of skilled labour in these countries. Moreover, since the underdeveloped countries depend heavily on agriculture and small industries, the attempt to develop infrastructure had hardly any effect on these two sectors.
Realizing these problems, the World Bank later decided to divert resources to bring about industrial and agricultural development in these countries. Besides, industrial and agricultural development the bank extended its assistance for the development of resources for education, health care, sanitation and small-scale enterprises.
Today, the services provided by the World Bank have increased manifold. The World Bank is no longer confined to simply providing financial assistance for infrastructure development, agriculture, industry, health and sanitation. It is rather significantly involved in areas like the removal of rural poverty through raising productivity, increasing income of the rural poor, providing technical support, and initiating research and cooperative ventures.
International Development Association – International Development Association (IDA) was set up in 1960 as an affiliate of the World Bank. IDA launch a soft loan scheme known as soft loan w indow of World Bank to provide financial support to less developed countries on liberal rates.
Major objectives of IDA include :
- To provide development finance on easy terms to the less developed member countries.
- To provide assistance for poverty alleviation in the poorest countries.
- To provide finance at concessional interest rates in order to promote economic development, raise productivity and living standards in less developed nations, and
- To extend macroeconomic management services such as those relating to health, education, nutrition, human resources development, and population control.
International Finance Corporation (IFC) – IFC was established in July 1956 in order to provide finance to the private sector of developing countries. IFC is also an affiliate of the World Bank, but it has its own separate legal entity,’ funds, and functions. All the members of the World Bank are eligible to become members of IFC.
The Multinational Investment Guarantee Agency (MIGA) – The Multinational Investment Guarantee Agency was established in April 1988 to supplement the functions of the World Bank and IFC.
Major objectives of MIGA are:
- To encourage the flow of direct foreign investment into the less developed member countries
- To provide insurance cover to investors against political risks
- To provide a guarantee against non-commercial risks (like dangers involved in currency transfer, war, and civil disturbances, and breach of contract);
- To ensure new investments, expansion of existing investments, privatisation, and financial restructuring;
- To provide promotional and advisory services; and
- To establish credibility.
What is IMF? Discuss its various objectives and functions.
International Monetary Fund (IMF) is the second international organisation next to the World Bank. IMF which came into existence in 1945 has its headquarters located in Washington DC. In 2005, it had 191 countries as its members. The major idea underlying the setting up of the IMF is to evolve an orderly international monetary system, i.e., facilitating a system of international payments and adjustments in exchange rates among national currencies.
Major objectives of IMF include:
- To promote international monetary cooperation through a permanent institution.
- To facilitate the expansion of balanced growth of international trade and to contribute thereby to the promotion and maintenance of high levels of employment and real income.
- To promote exchange stability with a view to maintaining orderly exchange arrangements among member countries.
- To assist in the establishment of a multilateral system of payments in respect of current transactions between members.
Functions of IMF:
Various functions are performed by the IMF to achieve the aforesaid objectives. Some of the important functions of IMF include:
- Acting as a short-term credit institution.
- Providing machinery for the orderly adjustment of exchange rates.
- Acting as a reservoir of the currencies of all the member countries, from which a borrower nation can borrow the currency of other nations.
- Acting as a lending institution of foreign currency and current transaction.
- Determining the value of a country’s currency and altering it, if needed, so as to bring about an orderly adjustment of exchange rates of member countries.
- Providing machinery for international consultations.
Write a detailed note on the features, structure, objectives, and functioning of WTO.
The member countries in World Bank and International Monetary Fund (IMF) make an arrangement for liberalising the custom tariff and restrictions among member countries known as General Agreement for Tariffs and Trade (GATT).
World Trade Organisation (WTO) and Major Agreements – GATT came into existence with effect from 1st January 1948 and remained in force till December 1994.
Various rounds of negotiations have taken place under the auspices of GATT to reduce tariff and non¬tariff barriers. The last one, known as the Uruguay Round, was the most comprehensive one in terms of coverage of issues, and also the lengthiest one from the point of view of the duration of negotiations which lasted over a period of seven years from 1986 to 1994.
One of the key achievements of the Uruguay Round of GATT negotiations was the decision to set up a permanent institution for looking after the promotion of free and fair trade amongst nations. Consequent to this decision, the GATT was transformed into World Trade Organisation (WTO) with effect from 1st January 1995.
The headquarters of WTO are situated at Geneva, Switzerland. The establishment of WTO thus represents the implementation of the original proposal of setting up of the WTO as evolved almost five decades back.
Though WTO is a successor to GATT, it is a much more powerful body than GATT. It governs trade not only in goods but also in services and intellectual property rights. Unlike GATT, the WTO is a permanent organisation created by an international treaty ratified by the governments and legislatures of member states. It is, moreover, a member-driven rule-bast organisation in the sense that all the decisions are taken by the member governments on the basis of a general consensus.
The global status of WTO like World Bank and IMF is more concerned with solving problems and provide multilateral trade negotiations among the member countries. India is a founding member of the WTO. As of 11th December 2005, there were 149 members in WTO.
Objectives of WTO – The basic objectives of WTO are similar of those of GATT, raising standards of living and incomes, ensuring full employment, expanding production and trade, and optimal use of the world’s resources.
The major difference between the objectives of GATT and WTO is that the objectives of WTO are more specific and also extend the scope of WTO to cover trade in services. WTO objectives, moreover, talk of the idea of sustainable development in relation to the optimal use of the world’s resources so as to ensure protection and preservation of the environment.
The major objectives of WTO are as under;
- To ensure the reduction of tariffs and other trade barriers imposed by different countries;
- To engage in such activities which improve the standards of living, create employment, increase income and effective demand and facilitate higher production and trade;
- To facilitate the optimal use of the world’s resources for sustainable development; and
- To promote an integrated, more viable, and durable trading system.
Functions of WTO-The major functions of WTO include:
- Promoting an environment that is encouraging to its member countries to come forward to WTO in mitigating their grievances.
- WTO lays stress on the commonly accepted code of conduct between the member countries to lessen the trade barriers of tariff and disseminating international trade relations among the member’s countries.
- Acting as a dispute settlement body;
- Ensuring that all the rules regulations prescribed in the Act are duly followed by the member countries for the settlement of their disputes;
- Holding consultations with IMF and IBRD and its affiliated agencies so as to bring better understanding and cooperation in global economic policymaking; and
- Supervising on a regular basis the operations of the revised Agreements and Ministerial declarations relating to goods, services, and Trade-Related Intellectual Property Rights (TRIPS).
Benefits of WTO – Since its inception in 1995, WTO has come a long way in constituting the legal and institutional foundation of the present-day multilateral trading system. It has been instrumental not only in facilitating trade but also in improving living standards and cooperation among member countries.
Some of the major benefits of WTO are as follows:
- WTO helps promote international peace and facilitates international business.
- All disputes between member nations are settled with mutual consultations.
- Rules make international trade and relations very smooth and predictable.
- Free trade improves the living standard of the people by increasing the income level.
- Freetradeprovidesamplescopeofgettingvarietiesofqualitative products.
- Economic growth has been fastened because of free trade.
- The system encourages good government.
- WTO helps to foster the growth of developing countries by providing them with special and preferential treatment in trade-related matters.