Chap 3

International Trade process

International Trade Processes
1. Sales Contract process
2. Letter of Credit (L/C) process
3. Cargo Shipment process
Ad1. Sales Contract process
a. Promotion/Introduction letter
Expoters promote their goods through trade exhibition, newpapers, magazine, radio
and television ads both at home and abroad. Promotion can also be made through
assistance from the National Export Development Agency (Badan Pengembangan
Ekspor Nasional - BPEN), KADIN, Trade Attache of Indonesian Embassy abroad.
b. Letter of Inquiry
Interested importer can send a letter of inquiry to exporter. This letter of inquiry
usually contains inquiry for price quote, product specification, quantity of goods,
delivery time and destination port.
c. Offersheet
In response to the letter sent by interested importer, exporter will usually reply by
sending the importer an offersheet. Offersheet contains information as requested by
the importer product price, specification, quantity (1 container / 2 container),
delivery time, destination port, packaging method, brochure, and if necessary,
sample product.
d. Ordersheet/Purchase Order
After reviewing the offersheet sent by the exporter, the importer will place an order
in a form called ordersheet or purchase order.
e. Sales Contract
Exporter will prepare a sales contract based on information specified in both the
offersheet and purchase order together with clauses on force majuere, claim,
shipment date, transshipment, partial shipment, inspection, packing and marking,
and marine cargo insurance. Sales contract must signed by both the exporter and
importer. The sales contract is made in two copies, each having the same tenor.
f. Sales confirmation
Importer will review the sales contract and sign it if it approves and send the sales
contract back to the exporter.
Ad2. L/C Opening process

a. Importer requests its forex bank to open a letter of credit (L/C) to provide some
funds to pay its liabilities to the exporter as much as agreed and specified in the
sales contract and pursuant to the provisions of The Uniform Customs and Practice
of Documentary Letter of Credit dari International Chamber of Commerce Paris No
500 or commonly referred to as UCP-DC-500. The forex bank requested by the
exporter to open an L/C is called an opening bank/issuing bank. This opening bank
will be responsible for the L/C to the exporter receiving the L/C. Importer requesting
the opening of L/C is called applicant.
b. Opening bank will issue an L/C through a correspondent bank of the country
where the exporter is from. Such L/C opening can be by letter, wire, telex, facsimile
or other legal electronic media. The correspondent bank requested by the opening
bank to deliver L/C opening mandate is referred to as advising bank
c. Advising bank notifies with a cover letter that there is an L/C opened for the
interest of the exporter. The cover letter is referred to as L/C advice. While the
exporter receiving the L/C is called beneficiary.
ad3. Cargo shipment process
a. After receiving L/C confirmation, the exporter prepares goods which are ready for
export, and files booking to the shipping company. The exporter then arranges
export formality, for example filling in PEB (Pemberitahuan Ekspor Barang) or Export
Notice, and applies certificate of origin.
b. After loading the goods to the ship, the shipping company submit receipt of
goods received, copy of forwarding contract and copy of goods ownership in the
form of bill of lading.
c. Shipping company is then responsible to forward the cargo to destination port.
d. After receiving shipping document from the opening bank, importer as consignee,
will secure import clearance in Custom and Excise of the destination port. Importer
will later contact the shipping agent in the destination port to receive the
goods/cargo.
e. Shipping agent surrenders the cargo/goods to the importer.

Short note on documentary sales.

Documentary sale refers to the sale in which the buyer pays upon the seller's
tender of documents of title covering the goods. Also, the documentary sale
includes a sight draft requiring the buyer to pay at sight. This type of sale
typically occurs before delivery of the goods, which might be en route when
the buyer pays. Documentary sale is also known as cash-against-documents
sale.

In International business, you are offered documentary sale. It means that the
goods are in transit. Authenticity must be verified. Chances of fraud are high.
Contract of sales-A contract of sale is a legal contract. It is a contract for the
exchange of goods, services or property that are the subject of exchange from seller
(or vendor) to buyer (or purchaser) for an agreed upon value in money (or money
equivalent) paid or the promise to pay same. It is a specific type of legal contract.
Bill of lading (receipt from shipper) -a detailed list of a ship's cargo in the form of a
receipt given by the master of the ship to the person consigning the goods.
Payment related documents

Pre shipment inspection agency certificate(certifies quality of goods)- A

physical inspection of goods is carried out in the country of export pre-shipping,

establishing the exact nature of the goods.

The invoice and other documents are then scrutinised and an accurate valuation, and
customs tariff code, are assigned. These are used, in conjunction with, the client country's
published duty rates, to calculate the correct duties and taxes payable.

An Intertek certificate is then issued to the importer. This is used to substantiate the
payment of full duty, prior to clearing the goods.

The actual duty collected is compared with the Intertek certificates, and any shortages can
be investigated and corrected.

Contradiction between master contract and subsidiary contract

Conventions and model laws of (international organizations involved in international

trade) :Inter government org(UNCITRAL/UNIDRIOT/WCO/ITC/UNCTAO)
Non-government organizations (IATA, FIATA, CHI, IRU)

Role of rules, legal guides and other studies/services of chamber of commerce.

ICC-International chamber of commerce- defends private enterprises and

encourages self-regulation
ICC has very commissions (task force)-appointed from various parts of the world
(headquarters in Paris)

On banking environment, financial services & insurance, intellectual property rights,

transport, taxation.
Uniforms, customs, practices
International Maritime Bureau
World Chamber federation
12000 chambers of commerce around the world. Chief executive attends the
meeting and addresses the concerns
A.T.A carnet system
International federation of freight forwarders
International Maritime committee
ICMA- Intl congress of maritime arbitration
Types of International business disputes
-

Contract on sale of goodsincluding commodities

Use model contracts

Distribution, agency & intermediary contracts

Disputes in construction industry
Construction, engineering,
Dispute resolution board (DRB)(for construction review)
Intellectual property contracts- Trademarks for sale of goods
Registration of Domain names- Internet corporation called signed names and
numbers
WIPO-World intellectual property organization (Geneva); special wing that
entertains digital complaints
Joint venture agreement- When big corporates join hands to share ; dispute if
time is extended
Pre shipment inspection agency
Customs authorities-Uniform valuation to deduce the custom duty

Chap 7- Arbitration
Alternate dispute resolution mechanism - alternative dispute resolution
(ADR) which allows disagreements between two parties to be resolved outside of
the traditional court system. In an arbitration case the parties to a dispute will
refer it to one or more persons - known as the 'arbitrators' or an 'arbitral tribunal'

- by whose decision or award they agree to be bound. Arbitration is often used to

resolve commercial disputes, particularly in the context of international
commercial transactions.
If you have opted for arbitration, you cannot go to court
New Arbitration act form 1st Jan 2016. Since 1996.
Uncitral Model Law of international commercial arbitration
Institutional arbitration - An institutional arbitration is one in which a
specialised institution intervenes and takes on the role of administering the
arbitration process. Each institution has its own set of rules which provide a
framework for the arbitration, and its own form of administration to assist in the
process. Eg:- DIAC(Dubai Institutional Arbitration centre), the London Court of
International Arbitration (LCIA), the International Chamber of Commerce (ICC),
the Dubai International Finance Centre (DIFC).
Advantages- Panel of experts who are skilled, provides final & binding verdict.
Institutional arbitration saves parties and their lawyers the effort of determining
the arbitration procedure and of drafting an arbitration clause, which is provided
by the institution. Once the parties have selected an institution, they can
incorporate that institution's draft clause into their contract.
Disadvantages- administrative fees for services and use of the facilities, which can be

considerable if there is a large amount in dispute - sometimes, more than the actual amount in
dispute; bureaucracy from within the institution, which can lead to delays and additional costs;
the parties may be required to respond within unrealistic time frames.

Pre requisite for a good arbitration process:Institutional Arbitration

Immediate notice on same day

Fixed fee according to amount
Control over total cost
Have fixed timeframe (normally 6months,fast track 3months, less than 3
months if both parties agree
Arbitrators are accountable to the institution
Arbitrator can be removed by institution when evidences are provided.
Procedures are avoidable
Immediate replacement of arbitrator
Process of scrutiny of award

Pre requisition of good institutions

List of advantages and disadvantages

Item
Arbitrations

Litigation

Finality
Most awards are final

Various appeals

International recognition
convention for enforcement

New York
of
foreign awards

Neutrality

May not get a neutral person Can

appoint neutral arbitrator

Specialized competence & personal follow up

Specialized
Witnesses
Arbitrator moves to offices to hold meeting
Speed
Confidentiality
Cost

Challenge law-If a person

Arbitration bar

ADHOC arbitration - if you appoint someone

Not immediate
No control over total cost

An ad hoc arbitration is one which is not administered by an institution such as the ICC,
LCIA, DIAC or DIFC. The parties will therefore have to determine all aspects of the
arbitration themselves - for example, the number of arbitrators, appointing those
arbitrators, the applicable law and the procedure for conducting the arbitration.

Provided the parties approach the arbitration with cooperation, ad hoc proceedings have
the potential to be more flexible, faster and cheaper than institutional proceedings. The
absence of administrative fees alone provides an excellent incentive to use the ad hoc
procedure.

Ac hoc proceedings need not be kept entirely separate from institutional arbitration.
Often, appointing a qualified arbitrator can lead to the parties agreeing to designate an

institutional provider as the appointing authority. Additionally, the parties may decide to
engage an institutional provider to administer the arbitration at any time.
Advantages- A properly structured ad hoc arbitration should be more cost effective, and
therefore better suited to smaller claims and less wealthy parties. A primary advantage of the
ad hoc process is its flexibility, enabling the parties to decide the dispute resolution procedure
themselves. However, this will of course require a greater degree of effort, cooperation and
expertise from the parties to determine the arbitration rules.
Another reason why ad hoc arbitration is less expensive than institutional arbitration is that
the parties will only have to pay fees for the arbitrators, lawyers or representatives and the
costs incurred in conducting the proceedings rather than paying fees to an arbitration
institution. If the amount in dispute is considerable, these fees can be prohibitively expensive.
In order to reduce costs, parties and the arbitrators may agree to conduct the arbitration at the
arbitrator's office.
Disadvantages- Renegotiation requires considerable time, attention and expense with no
guarantee that the terms eventually agreed will address all eventualities. Furthermore, if
parties have not agreed on arbitration terms before any dispute arises they are unlikely to
fully cooperate in doing so once a dispute has arisen.
bodies such as UNICITRAL have rules available which are designed specifically for ad hoc
proceedings. Other options available to parties wishing to proceed in this way, who are not in
need of rules drawn specifically for them, include:

using or adapting a set of institutional rules such as the ICC Rules of Arbitration;

incorporating statutory procedures, such as the English Arbitration Act of 1996;

adopting an ad hoc provision from another contract.

Specialized arbitration: An arbitrator from a specialized field of industry.
Statutory arbitration: Eg: railways have their own arbitration procedure.

Pre requisite of success of arbitration process in any country:

Does this country have good arbitration institute?

Does this country have good arbitrators?
Comprehensive code of ethics for arbitrators.
Minimum interference by court in arbitration process.

Court annexed arbitration - Court-annexed arbitration is a form of adjudicatory disputeresolution (ADR) process in which a judge acts as an arbitrator and the arbitration follows the
same procedures as followed in a regular civil case. After an expedited adversarial hearing, a
panel of arbitrators will issue a non-binding judgment on the merits of a dispute.

In a court-annexed arbitration, an arbitrator's decision addresses only the disputed legal issues
and applies legal standards. Those unhappy with the court-annexed arbitration can reject the nonbinding ruling and proceed to trial. It is a hybrid of mediation and arbitration that involves the
diversion of state trial court cases into arbitration.

Presence of an arbitration clause of an institution will prevent disputes from arising.

International federation of commercial arbitration institution
Asia Africa legal consulting committee
SAARC arbitration council
Intl centre for settlement of investment dispute
If an institution is recognized, by the judiciary & legislative and executive it is a
good institution. This good institution across the world are listed in the list of
arbitration centres around the world.(by international trade centre)
Write a short note on scrutiny of awards.
One of the main and well known advantages of arbitration is the speed of the
proceedings. In order to enhance their timeliness and efficiency, the Rules of some
arbitral institutions (e.g. Art. 33 of the ICC Rules) provide for the so called scrutiny
of the award a procedure of formal examination of the draft award carried out
before it is signed by the arbitrators, and the parties are notified of it. The idea
behind such procedure is to maximize the legal effectiveness of an award by
identifying any defects that could be used in an attempt to have it set aside at the
place of the arbitration or resist its enforcement elsewhere (Fry, Greenberg and
Mazza The Secretariats Guide to ICC Arbitration, p. 327). It can also contribute to
the timely resolution of the dispute, as it can prevent factual errors (typing errors,
errors in calculations), or the omission of parts of the dispositive in the final version
of the award. This will save time and money for the parties, as there would be no
need to apply for the correction, supplementation or interpretation of the award.
What are the pre requisite of good arbitration institution?
An appropriate combination of clarity, flexibility and efficiency with the rules
might be the answer. the adaptability of the rules to parties specific needs
and expectations is another important aspect

TAxes
Why does the government levy taxes.
What are types of taxes?
What are the 3 elements of taxes?

Whether there should be high rates of taxes with high incentives or low rates of
taxes with minimum incentives.
Aspects of taxation:

Accounting
Legal
Economics

Pinkbook. Explains memorandum explaining the provisions of the finance bill of that
current year.
Why govt levies taxes?

Public spending
Economic stabilization
Redistribution of resources

What are the 3 elements of a tax?

Tax base
Rate of tax(progressive rate of taxes, flat rate)
Tax payer(legal tax payer,economic to a payer

Difference between deduction and exemption.

Corporation tax
Company is a legal entity with shareholders having no liablity
Dividend distribution tax
Deduction, reduction tax mate

Pay your taxes as you earn