Key Highlights of Merchanting Trade Notifications on 17.01.2014
Under RBI Circular A.P. (DIR Series) Circular Nos.106 & 4 dated June 19, 2003 and July 19, 2003 respectively, containing directions relating to merchanting or intermediary trade transactions. In the light of the recommendations of the Technical Committee on Services/Facilities to Exporters (Chairman: Shri G. Padmanabhan) to further liberalise and simplify the procedure, the existing guidelines for merchanting or intermediary trade transactions have been reviewed. Accordingly in supersession of the existing guidelines, the revised guidelines will come into effect immediately
KEY POINTS TO NOTICE:-
i) The goods involved in the merchanting should be under the prevailing Foreign Trade Policy (FTP) of India
ii) Both the legs of a merchanting or intermediary trade transaction are routed through the same AD bank.
iii) The bank to verify the documents like invoice, packing list, transport documents and insurance documents and satisfy itself about the genuineness of the trade.
iv) The entire merchanting transaction should be completed within an overall period of 9 months
v) The Financial outlay of foreign exchange should not be beyond 4 months.
iv) The commencement of merchanting would be the date of shipment / export leg receipt or import leg payment, whichever is first.
vi) The completion date would be the date of shipment / export leg receipt or import leg payment, whichever is the last;
v) Short-term credit either by way of suppliers’ credit or buyers’ credit will be available for merchanting trade transactions including the discounting of export leg LC by an AD bank;
vi) AD bank should ensure one-to-one matching in case of each merchanting trade transaction
vii) The merchanting traders have to be genuine traders of goods and not mere financial intermediaries.
viii) Confirmed orders have to be received by them from the overseas buyers.
ix) The transactions should result in reasonable profits to the merchanting trader.
x) The inward remittance from the overseas buyer (Export Proceeds) should preferably be received first and the outward remittance (Import payment) to the overseas supplier will be made subsequently.
xi) An irrevocable Letter of Credit (LC) should be opened by the buyer in favour of the merchant. On the strength of such LC the merchant in turn may open a LC in favour of the overseas supplier. The terms of payment under both the LCs should be such that payment for import LC is to be made after receipt of payment under export LC.
xii) In case of LC based trade, the export LC should be issued by the overseas buyer in the name of original merchanting trader in India and import LC should be opened by the merchanting trader in India in the favor of the original supplier overseas.
In case export leg payment is received in advance, AD banks need not insist on opening of export LC.
xiii) In case advance against the export leg is received by the merchanting trader, the advance payment may be held in a separate deposit / current account in foreign currency or Indian Rupees. The amount required for import leg should be earmarked till the payment of import and should not be made available to the merchanting trader for use, other than for import payment or short-term deployment of fund limited to the import payable, with the same AD for the intervening period.