Chapter 11

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             Execution of the Contract

Objectives

After studying this chapter，you should be able to

1. describe the process of performing export contract.

2. describe the process of performing import contract.

3. explain what open policy is.

4. grasp the main points in examining the L/C.

5. list main documents of import and export.

Key terms

Export contract　　　　　　　　　　　　 　  Commodity inspection

Implementation of contract　　　　　　　     Commercial invoice

Packing list　　　　　　　　　　　　　　     Bill of exchange

Certificate of origin  Inspection certificate

Inspection application

11.1The performance of export contract

The performance of export contract refers to the whole process from the exporter's delivery of the goods to the collection of payment and involves several important stages and complicated formalities. Therefore，we should pay attention to the following points in the performance of export contract.

•Honor the contract and keep our promises.

•Make sure to prepare for the goods according to the contract or L/C.

•Establish close business relations with customers.

•Keep good cooperation with parties concerned，such as the customs authority，inspection institute，bank，insurance company and shipping company.

11.1.1 Preparation of the goods 

During the preparation，the exporter needs to pay attention to：

•The quantity，quality，specification，packing and the article number，marking of the goods must strictly follow the stipulations in the sales contract or L/C.

•The goods must be ready within the time stipulated in the contract.

11.1.2 Applying for inspection

As a usual practice，all exports before shipment are subject to inspection by an inspection authority in his country. It is also an accepted practice of exporters.

Commodity inspections usually involve quality，weight，quantity and packing of the commodities，and is carried out in accordance with the stipulations of the state and the terms and conditions laid down in foreign trade contracts.

The inspection certificate issued by AQSIQ is not only to guarantee the quality of the goods，also to protect proper rights and interests of our country and reputation of our export enterprises.

If the contract clearly stipulates the inspection clause，the goods shall be inspected according to the contract. If the contract does not stipulate the clause，the goods usually are inspected according to the relative standards commonly accepted in the international trade.

11.1.3 Implementing payment terms 

In order to collect the payment safely and perform the contract smoothly，the seller sometimes has to do the work about reminding，examining and amending the L/C.

（1）Usually the buyer would issue the L/C as required by the contract on time.

Example：Please open L/C immediately at contract price，otherwise we cannot apply for export license.

Example：PLEASE OPEN LC IMMEDIATELY AT CONTRACT PRICE OTHERWISE EL UNAVAILABLE.

Example：PLS OPN LC IMMDLY AT CONTPRC OZWS EL UNAVLBL.

（2）In practice，the letter of credit shall be examined by both the advising bank and the exporter. The advising bank mainly lays the emphasis on examining the opening bank's credit standing，political background，payment obligation etc while the exporter should examine the L/C contents according to the sales contract.

（3）After examination，if any discrepancies arise，the bank or the exporter will list them and send an advice to the buyer，asking him to make necessary amendment.

Example：Please amend L/C by telegram，otherwise cannot ship.（By message） 

PLS AMND L/C BY TEL OTHERWS CANTSHIP.（By telex） 

11.1.4 Chartering a ship and booking space 

 The procedure for chartering and booking space is as follows： 

• （1）SINOTRANS and shipping agents publish an export sailing schedule every month and hands out to export and import companies.

• （2）As soon as the goods are ready and the L/C has been received，export and import companies fill in the name，package number，gross weight，measurement of the goods，port of destination，time of shipment etc on the booking note and send it to SINOTRANS or shipping agents before the closing date of receiving as an evidence for booking space.

• （3）After receiving the booking note，SINOTRANS and shipping agents will issue shipping order and arrange the shipping space for the goods on the basis of stowage principle，nature and quantity of the goods，port of shipment and port of destination in accordance with the sailing schedule.

• （4）Forwarding company delivers the goods to the dock warehouse on behalf of the import and export company.

• （5）After shipment，the master or mate issues the mate's receipt. The shipper must exchange this temporary receipt for a regular bill of lading before the vessel sails，and at the same time pay the freight.

• 11.1.5 Customs clearance 

• Exporters should declare the export goods to the customs by filling in certain customs clearing forms and submitting appropriate documents such as commercial invoice，export license，letter of credit，copy of sales contract，and inspection certificate，the customs will inspect the export goods and decide if the goods can be cleared through. Once the goods are cleared，shipment can be made at anytime.  

11.1.6 Taking out insurance 

• Under the CIP or CIF export contract，the seller shall take out insurance with the insurance company before the shipment. The name of the goods，insurance amount，shipping line，sailing date，and insurance coverage should be specified by the insurer at the time of insuring the goods. Insurance policy or insurance certificate shall be issued by the insurance company after its acceptance of the insurance.

• If the importer is responsible for the insurance，the exporter should send the importer all the necessary information.

• 11.1.7 Sending out the shipping advice 

• After shipment，the exporter shall send out the shipping advice to the importer so that the importer could receive the goods.Especially under CFR trade terms，the exporter must send out the shipping advice in time so that the importer may take out insurance on the goods，otherwise if the goods suffer losses during the transport，the exporter shall be responsible for them. The shipping advice usually includes the number of the L/C，number of the contract，name，quantity，measurement，gross or net weight，total value of the goods，name of the vessel etc.

11.1.8 Making out documents for settlement

   Making time settlement 

• The bank at the exporter's end determines a fixed date for settlement in advance according to the time that the bank will need for collecting the money from the paying bank abroad. If the bank at the exporter's end finds no fault in the documents，it will usually change the money into CNY and transfer it to the exporter's account on the previously fixed date，no matter whether the bank has collected the money or not.

           Making settlement through negotiation 

In case of no fault in documents，the bank at the exporter's end buys the bill of exchange and shipping documents presented by the beneficiary under the L/C. The negotiation bank changes the denomination of the bill of exchange into CNY at the current buying rate and transfers it to the exporter's account after deducting the interest incurred from the date of negotiation to the actual date of receiving the money. According to international trade practices，the negotiating bank may take recourse to the beneficiary.

           Making settlement after payment is made 

After the bank at the exporter's end examines the documents presented by the beneficiary and finds no fault，the bank will airmail the documents to the opening bank or the appointed reimbursing bank to collect the money. Then after receiving the credit note from abroad，the bank at exporter's end changes the foreign exchange into CNY at the current buying rate and transfers it to exporter's account.

Questions

      （1）How to examine an L/C？ 

（2）How to prepare the goods for export？ 

（3）How many ways can be used to make settlement？ 

（4）What are the procedures for chartering and booking space？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statements.

Expiry date  Beneficiary  Discrepancy  Letter of credit  Implement

（1）Difference；failure to agree with.

（2）The one who is empowered to use the letter of credit and is usually the exporter.

（3）A document whereby a buyer undertakes payment to a seller through a bank provided the seller delivers goods in accordance with the terms of a contract.

（4）The time when an instrument becomes due.

（5）Put into effect or carry out. 

11.2 Execution of the contract

11.2.1 Applying for opening the L/C 

After the conclusion of a purchase contract，the buyer shall apply to his bank for opening the L/C in favor of the exporter；at the same time，fill in an application on the basis of the contract.

•The items in the application include the kind of L/C and the time of opening the L/C，credit number，applicant，beneficiary，advising bank，amount in figures and words，details indicating shipment of the cargo，the contract number，name of the commodity，specification，quantity，packing，shipping marks，terms of shipment，date of shipment，terms of price，special instructions and so on.

The kind of L/C and the terms in the L/C should be made to fit the sales contract terms. Otherwise，the exporter will ask the importer to amend the L/C.

•In case the contract stipulates that the L/C shall be established after the seller gets the export license or pays the performance bond，the buyer shall open the L/C after receiving the advice of the seller's having got the export license or the seller's performance guarantee money.

11.2.2 Contracting for the carriage of the goods 

In our country，most import transactions adopt FOB terms. Under FOB，the importers shall be responsible for concluding the transport contract，chartering a ship or booking space. If the contract stipulates that the seller shall inform the buyer of the expected time of shipment，the buyer shall charter a ship or book space immediately after receiving the above advice.

11.2.3 Covering insurance 

Cover open policy 

Open policy is signed with the People's Insurance Company of China for goods imported in China. On receiving the shipping advice from abroad，our importer should inform the insurance company of the name of vessel，the No. of the B/L，sailing date，name of the commodity，quantity，port of shipment，port of destination，etc as a formality for taking out the insurance.

 Cover insurance for each individual lot 

If there is no open policy beforehand，our importer shall cover insurance on each consignment with the insurance company after receiving the seller's shipping advice.

11.2.4 Examining documents and paying the purchase price 

After the delivery of the goods，the seller will present the draft and a complete set of documents，such as bills of lading，a commercial invoice，an export license，a certificate of origin and a certificate of inspection to the opening bank through his bank. After receiving the documents，the opening bank will examine the documents according to the stipulations of the L/C to see if all documents are made out in accordance with the L/C terms.

11.2.5 Making declaration to customs 

As a usual practice，all imported goods must be cleared through the customs. Therefore，after arrival of the goods，the importer will fill in a declaration for the imports and send it to the customs together with the commercial invoice，B/L，insurance policy，inspection certificate，etc for examination. The customs officer will check the goods against the documents to confirm if the goods are up to the standard stated in the sales contract.

The inspection certificate shall serve as the basis for making a claim if the goods are found not in agreement with the contract.

11.2.6 Checking the goods discharged 

After arrival of the goods at the port of destination，the port authority will be responsible for unloading the goods and check the goods discharged. In case of shortage，the port office will fill in a short-landed memo and then send it to the carrier for identification and signature. In case of loss and damage to the goods，the goods shall be stored in the warehouse appointed by the customs and the matter will be handled by the insurance company together with the inspection authority.

11.2.7 Allocating the goods 

After inspection and declaration of the goods，the foreign trade shipping company will allocate the goods to the importer or consignee if he is at the port of destination. If the importer or consignee is not at the port of destination，the foreign trade shipping company will carry and allocate the goods to the importer or consignee，at the same time collect all the carriage expenses and import duties from the importer，then the importer will make settlement with the consignee.

Questions

（1）How to apply for opening the L/C？ 

（2）What is the relation between examination of the documents and payment for the purchase price？ 

（3）Who is responsible for checking the goods discharged？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statement.

Shipping advice Certificate of origin Purchase contract Inspection certificate

（1）A contract made by the buyer.

（2）A statement issued and signed by the appropriate authority，providing evidence that the goods were inspected.

（3）A notice the seller sends to the buyer，after the goods is placed on board the vessel at the agreed time，which notifies the required information covering the shipment.

（4）A statement signed by the appropriate authority，providing evidence of the origin of the goods.

11.3The main import and export documents

11.3.1 The commercial documents

 Commercial Invoice 

 （1）The commercial invoice mainly includes the following details.

•Invoice number and date.

•Name and address of the seller and the buyer.

•Port of shipment and destination.

•Quantity，weight or measurements of the goods.

•Packing.

•Unit price and total amount payable.

•Terms of payment.

On the bottom of the commercial invoice，there are words“E.& O. E.”. If the L/C requires the exporter to issue a certified invoice，the above words shall be deleted. 

（2）The following points should be paid attention to when drawing up a commercial invoice.

•The drawer must be in conformity with the stipulation in the L/C.

•The date shall be earlier than that of B/L or insurance policy，not later than the expiration date of the L/C.

•Consignee or importer on a commercial invoice is usually the applicant under the L/C.

•Port of shipment and port of destination shall be the same in the L/C and the B/L.

•The description and specification of the goods on the invoice must be typed according to the L/C strictly.

•Quantity of the goods on the commercial invoice shall be in the conformity with the L/C.

•Invoice value.

•Commission and discount.

•Shipping marks of the goods.

Pro forma invoice

A pro forma invoice is a form of quotation to a potential buyer，inviting him to buy the goods on the terms stated. The invoice clearly states that it is a pro forma invoice and if it is accepted the details are normally transferred to a commercial invoice against which payment will be made，although in some cases payment will be made against a pro forma invoice，e.g. where payment for the goods is required before dispatch

Quality certificate

Quality certificate confirms that the quality/specification of a particular consignment of goods is in accordance with the sales contract at the time of shipment. It may be issued by the exporter or relevant inspection authority as required under letter of credit or sales contract terms. The cargo description in the quality certificate should conform to its items found in other relevant documents，such as the L/C，the commercial invoice.

Weight certificate 

Weight certificate is usually required by the importer to confirm that the weight of the goods is in conformity with the sales contract at the time of shipment. Similar to a quality certificate，it may be issued by the exporter or relevant inspection authority as required under letter of credit or sales contract terms.

11.3.2 Financial documents

 Bill of exchange 

In the collection method of payment for goods，a bill of exchange is always drawn upon the importer by the exporter to get paid. The exporter gets payment against the delivery just by a draft through the banking system for the sum agreed as settlement in the export contract. By using a draft with other shipping documents through banking system，an exporter can ensure greater control of the goods，because the goods can't be released until the bill of exchange is paid or accepted by the importer abroad.

Letter of credit 

Letter of credit is one of the most important financial documents used in international trade. Usually an exporter will be notified of the opening of L/C well before the shipment，so that he could have enough time to examine the details of the L/C. The following points should be paid special attention to when opening and checking the L/C.

Letter of credit 

•Method of advice：airmail or cable.

•Types of credit：whether the L/C is revocable or irrevocable；confirmed or non-confirmed.

•Date of expiry.

•Documents required.

•Applicant's name and address.

•Beneficiary's name and address.

•Advising bank，paying bank，confirming bank.

•Amount.

•Partial shipment/transshipment allowed or not.

•Port of shipment and port of discharge.

11.3.3 Transportation documents 

Transportation documents are documents indicating loading on board or dispatch or taking in charge. Some documents are discussed about their functions，varieties in previous chapter. Transportation documents include bill of lading，air waybill，mate's receipt，packing list，weight memo etc. The following discuss is mainly about mate's receipt，packing list，weight memo and the preparation of B/L.

Mate's receipt

Mate's receipt is issued by the master or mate of a vessel in the name of the shipping company as a receipt note for particular consignment. It is not a titled document，but just used as an interim documents until the bill of lading is issued. It gives information about a particular export consignment when offered for shipment.

Packing list and weight memo 

Packing list is a document made out by a seller when a sale is effected in international trade. It shows numbers and kinds of packages being shipped，total of gross，legal and net weights of the packages，and marks and numbers on the packages. It is used to make up the deficiency of a commercial invoice. A separate list is prepared for each package showing the weight and measures and contents，which helps identify the specific item by the importer and facilitate customs clearance. Upon arrival of the goods，the customs may carry out a partial examination by checking a certain number of the cases. If the packing list proves to be accurate，the rest of the shipment is assumed to be in order.

Bill of lading 

• （1）Kinds of B/L.

• （2）Consignor in the B/L.

• （3）Consignee in the B/L.

• （4）Description of the goods.

• （5）Freight.

• （6）Port of destination.

11.3.4 Insurance documents 

Insurance documents are contracts whereby the insurer（insurance company），on the basis of a premium paid，undertakes to indemnify the insured against loss from certain risks or perils to which the cargo insured may be exposed. Without adequate insurance and protection of the interests of those with goods in transit，international trade can not be guaranteed. There are four important insurance documents：insurance policy，insurance certificate，open policy and combined certificate. The following discussion is mainly about insurance policy.

Under L/C，the insurance policy must avoid the following discrepancies： 

•Insurance policy not issued in the currency of the credit.

•Date later than date of shipment.

•Goods incorrectly described.

•Alterations not authenticated.

•Not in a transferable form when required.

•Not endorsed and /or signed.

•Carrying vessel's name not recorded.

•No cover for transshipment when B/L indicates it will take place.

11.3.5 Other documents

Customs invoice 

The customs invoice is a document required by the customs in some import countries.

The customs invoices include the formal customs invoice，combined certificate of value and origin，certified invoice in accordance with customs regulations.

•Customs invoice shall be filled in according to the stipulations of the L/C.

•The contents of the customs invoice shall be in agreement with those in the commercial invoice.

Customs invoice usually requires the detailed statement of the background value，e.g. under CIF price，the freight，insurance premium shall be listed respectively.

Consular invoice

The importing authorities of some countries require consular invoices，especially those which enforce ad valorem import duties. Therefore before goods can be imported into some countries，consular invoice may have to be obtained. There are special forms that are available through the country's embassy in the exporter's country and usually a charge is made. In some cases the exporter's own invoices are authenticated by the embassy or consulate and these are known as legalized invoices. They usually have to be countersigned by the chamber of commerce.

Certificate of origin 

Certificate of origin indicates where the products originate or used as a certificate of the place where the products are made. Although the commercial invoice involves a statement regarding the origin of the merchandises，some countries require a separate certificate of origin.

There are two kinds of certificates of origin. One is ordinary certificate of origin，usually called “certificate of origin”；the other is generalized system of preference certificate of origin.

Generalized system of preference certificate of origin 

Generalized System of Preference is called GSP for short. At present，New Zealand，Canada，Japan and European Free Trade Association（EFTA）etc grant the generalized system of preference to our country.

Generalized System of Preference Certificate of Origin Form A is main documents of GSP.

The commonly used generalized system of preference documents are： 

（1）GSP Certificate of Origin Form A. It is used for ordinary commodities.

（2）Certificate of Origin of Textile Products. It is applied to textiles.

（3）Export License Textile Products. It is applicable to textiles with quota.

（4）Certificate in regard to Handlooms，Textile Handcrafts and Traditional Textile Products of the Cottage Industry. It is suitable for handmade textile products.

（5）Shipment Certificate Textile Products. It is for woolen products without quota.

Questions

（1）What are the main documents in export and import transaction？ 

（2）What items are to be considered in making out B/L？ 

Terminology practice

The following terms appeared in the text. Select one correct term for each of the following statement.

Drawer  Commercial invoice  Packing list  Bill of exchange  Customs invoice

（1）An invoice is required by the importing country in order to clear the customs，to compile statistics，to verify country of origin for import duty and tax purpose，etc.

（2）A document describes the merchandise，identifies the buyer and the seller，and shows the basic delivery and payment terms.

（3）An unconditional written order calling on the party to whom it is addressed to pay on demand or at a future date a sum of money to the order of a named party or to a bearer.

（4）A certificate contains item by item，the contents of cases or containers in a shipment.

（5）The person who draws a bill of exchange upon the drawee.

Key words，phrases and special terms

n Ad valorem import duties从价进口税

n AQSIQ 中国国家质量监督检验检疫总局

n Authenticationn. 认证

n Bill of exchange （B/E） 汇票

n Booking note托运单，订舱单

n Carriage expenses 运费

n Certified invoice 证实发票

n Certificate of Origin Textile Products 纺织品产地证

n Certificate of origin 产地证书

n Certified invoice in accordance with customs regulations

   证实发票

n Certificate in regard to Handlooms, Textile Handcrafts and Traditional Textile of the Cottage Industry 手工制纺织品产地证

n Combined certificate of value and origin 价格和原产地联合证书

n Commercial invoice商业发票

n Creditorn. 债权人

n Credit instrument 信用工具

n Consular Invoice 领事发票

n Deficiencyn.不足，缺乏

n Drawingn.（汇票的）出票

n Endorsern.背书人

n Endorsementn.（汇票的）背书

n Estimated time of arrival （ETA） 预计到达时间（预抵时间）

n Expeditevt. 加速

n Certificate in regard to Handlooms, Textile Handcrafts and Traditional Textile of the Cottage Industry 手工制纺织品产地证

n Combined certificate of value and origin 价格和原产地联合证书

n Commercial invoice商业发票

n Creditorn. 债权人

n Credit instrument 信用工具

n Consular Invoice 领事发票

n Deficiencyn.不足，缺乏

n Drawingn.（汇票的）出票

n Endorsern.背书人

n Endorsementn.（汇票的）背书

n Estimated time of arrival （ETA） 预计到达时间（预抵时间）

n Expeditevt. 加速

n Export license出口许可证

n Export License Textile Products纺织品出口许可证

n Foreign trade shipping company 外轮公司

n Full set of documents 全套单据

n Generalized system of preference certificate of origin

n 普惠制产地证书

n In conformity with 与……相符

n In words and figures 用数字和文字写成的（大小写）

n Impoundv.扣押，拘留

n Mate’s receipt 大副收据

n Negotiable instrument 可流通票据

n Performance bond 履约保函

n Quantity latitude 数量增减幅度

n Pro forma invoice形式发票

n Purchase price 购货款

n Releasev. （海关）放行

n Shipping order装货单

n Shipment Certificate Textile Products纺织品装船证明

n Simultaneouslyadv. 同时地

n Short⁃landed memo短卸证明,货差证明