Kegler Brown, in conjunction with Ohio Development Services Agency, presented "Exports to India: An Overview of Market Opportunities" on April 10, 2014. The seminar focused on business and export opportunities in India. Speakers included Ron Somers, president of the US-India Business Council, Vinita Bahri-Mehra, Asia-Pacific team leader + global business attorney at Kegler Brown, Martha Gabrielse, relationship executive - international banking at JPMorgan Chase, and Prem Behl, managing director of the Ohio India Office. A networking lunch of traditional Indian food followed the presentations.
TRANSCRIPT
z
ldquoA perspective on CGLGOhio India trade
mission 2014rdquo
Prem BehlManaging Director
CGLGOhio India Office
10 April 2014
INDEX
1 India An Introduction
2 India-US Bilateral Trade
3 India Trade Mission 2014
4 About Exhibitions India Group
INDIAAn Introduction
bull 28 states 7 union territoriesbullArea 33 million sq km (127 million sq miles)bull Bordered by - China Nepal Bhutan (north)- Afghanistan Pakistan (north-west)- Myanmar Bangladesh (east) - Sri Lanka (south)bull Coastline 7517 km (4670
miles)
GEOGRAPHIC PROFILE
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
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T E
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amp
I M
P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
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D I
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amp
G U
A R
A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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L E
T T
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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amp
G U
A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ldquoA perspective on CGLGOhio India trade
mission 2014rdquo
Prem BehlManaging Director
CGLGOhio India Office
10 April 2014
INDEX
1 India An Introduction
2 India-US Bilateral Trade
3 India Trade Mission 2014
4 About Exhibitions India Group
INDIAAn Introduction
bull 28 states 7 union territoriesbullArea 33 million sq km (127 million sq miles)bull Bordered by - China Nepal Bhutan (north)- Afghanistan Pakistan (north-west)- Myanmar Bangladesh (east) - Sri Lanka (south)bull Coastline 7517 km (4670
miles)
GEOGRAPHIC PROFILE
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDEX
1 India An Introduction
2 India-US Bilateral Trade
3 India Trade Mission 2014
4 About Exhibitions India Group
INDIAAn Introduction
bull 28 states 7 union territoriesbullArea 33 million sq km (127 million sq miles)bull Bordered by - China Nepal Bhutan (north)- Afghanistan Pakistan (north-west)- Myanmar Bangladesh (east) - Sri Lanka (south)bull Coastline 7517 km (4670
miles)
GEOGRAPHIC PROFILE
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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E S
F
O R
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X P
O R
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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L E
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S
O F
C
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D I
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amp
G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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S
O F
C
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D I
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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D I
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amp
G U
A R
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDIAAn Introduction
bull 28 states 7 union territoriesbullArea 33 million sq km (127 million sq miles)bull Bordered by - China Nepal Bhutan (north)- Afghanistan Pakistan (north-west)- Myanmar Bangladesh (east) - Sri Lanka (south)bull Coastline 7517 km (4670
miles)
GEOGRAPHIC PROFILE
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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P
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
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F
O R
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X P
O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
O R
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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F
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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O F
C
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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C
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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O F
C
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amp
G U
A R
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
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O F
C
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amp
G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
bull 28 states 7 union territoriesbullArea 33 million sq km (127 million sq miles)bull Bordered by - China Nepal Bhutan (north)- Afghanistan Pakistan (north-west)- Myanmar Bangladesh (east) - Sri Lanka (south)bull Coastline 7517 km (4670
miles)
GEOGRAPHIC PROFILE
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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C
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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F
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
bull Population 12 billion- 65 in the 15-65 age group- 30 urban 70 rural
bull Sex ratio 940 females per 1000 males
DEMOGRAPHIC PROFILE
30
65
5
Distribution by Age Group
0-1415-65Above 65
bull Literacy rate 74
bull Languages - Officially recognized 22- National language Hindi- Business language English
bull Religions - Hinduism Islam Christianity
Sikhism Buddhism Jainism and others
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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X P
O R
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amp
I M
P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
R S
O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
A R
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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G U
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E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
bull Federal unionbull Secular statebull Largest democracy in the worldbull Parliamentary form of government
POLITICAL PROFILEPresident Shri Pranab MukherjeePrime Minister Dr Manmohan SinghGovernment Led by the United Progressive Alliance (UPA)
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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F
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
O R
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X P
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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S
O F
C
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
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C
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D I
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G U
A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
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amp
I M
P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
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C Y
F
I N
A N
C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ECONOMIC PROFILE
Gross Domestic Product (GDP) 2012-13bull Nominal US$ 185 trillion 10th largest in the world bull PPP terms US$ 470 trillion 3rd
largest in the worldbull GDP growth rate 5 bull The services sector continues to be a
star performer with a 60 share in GDP
Per Capita GDP 2012-13 bull Nominal US$ 1501bull PPP terms US$ 3829
Agriculture 14
Industry 26
Services 60
Sectoral composition of Indian GDP 2012-13
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
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E R
S
O F
C
R E
D I
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amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ECONOMIC PROFILEbull During FY 2012-13 India attracted FDI worth US$ 2242 billion bull Worldrsquos 3rd most attractive destination for investment by MNCs
World Trade India is -bull The worldrsquos 19th largest exporter with total exports of US$ 3004
billion in FY 2012-13bull The worldrsquos 10th largest importer with total imports of US$ 4907
billion in FY 2012-13
2011-12 2012-130
50100150200250300350400450500
3059 3004
4893 4907
India-US Bilateral Trade (in US$ billion)
Indias Exports Indias Imports
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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O F
C
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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amp
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P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDIA-US BILATERAL TRADEProspects for Export Growth
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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X P
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
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E R
S
O F
C
R E
D I
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amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDIA-US BILATERAL TRADE bull From a modest US$ 56 billion in 1990 the bilateral trade between India-
US has increased to US$ 637 billion in 2013 representing an impressive 10375 growth in a span of 23 years
bull Bilateral trade in 2013 (January ndash December) increased by 2 per cent over the previous year to US$ 6370 billion
Source US Department of Commerce US Census Bureau
Indias exports to USA Indias imports from USA Total bilateral trade0
10
20
30
40
50
60
70
3615
2150
5765
4052
2210
6262
4183
2187
637
India-US Bilateral Trade (in US$ billion)
2011 2012 2013
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
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O R
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
O R
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X P
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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I C
E S
F
O R
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X P
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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S
O F
C
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amp
G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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G U
A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
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C Y
F
I N
A N
C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDIA-US BILATERAL TRADE
(US IMPORTS) (US EXPORTS)
Product Percentage
Precious stones amp metals 200
Textiles 162
Pharmaceutical 107
Mineral Fuel Oil 97
Organic chemicals 66
Machinery 50
Lac Gum Resins 30
Electrical Machinery 28
Others 260
Product Percentage
Precious stones amp metals 227
Aircraft spacecraft Parts 112
Machinery 100
Electrical machinery 70
Mineral Fuel Oil 64
Optical instruments amp equipment
61
Organic chemicals 40
Others 326
Percentage Share of Major Items (Jan-Nov 2013)
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
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Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
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Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
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uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
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8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
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ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
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O F
C
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T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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L E
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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L E
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S
O F
C
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
INDIA-OHIO TRADEGrowth in Ohiorsquos Exportsbull India is Ohiorsquos 21st largest export market in 2013bull Ohiorsquos exports to India was US$ 388 million in 2013
Industrial Machinery 26
Plastics amp Articles Thereof 12
OpticMedical In-struments 11Chemical Products 7
Electrical Machinery 7
Others 37
Ohiorsquos Top Exports to India
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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F
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
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F
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N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
CGLGOHIO INDIA TRADE MISSION
2014
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
T
A G
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F
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C I
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Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
CGLGOHIO INDIA TRADE MISSION 2014
Mission Participation Fee US$ 900 per person Brief Market Research and Appointment Setting
Fee US$3000 per company Grant funding available in many states Main goal To assist SMEs from the Great Lakes
region or Canada looking to export products and services to India
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
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L Y
P
R I
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T E
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N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
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S
O F
C
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D I
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amp
G U
A R
A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
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L E
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S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Multi-sector trade mission to India New Delhi Bangalore and Mumbai Customized one-on-one business appointments
with interested distributors agents and other prospective business partners set up by the Ohio India Office (average 3 ndash 4 appointments per day)
Brief market overview including industry sector information and target company profiles
In-country business briefing In-country staff support of Ohio India Office Group airport-hotel-airport ground transportation
in all three cities Assistance with hotel bookings
CGLGOHIO INDIA TRADE MISSION 2014
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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F
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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C
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
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amp
I M
P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ItineraryApril 22 amp 23 Depart US for India
Arrive New Delhi India
April 24 Individual Business Appointments in New Delhi
April 25 Individual Business Appointments in New Delhi
April 26 amp 27 Free Weekend in Agra
April 28 Individual Business Appointments in Bangalore
April 29 Individual Business Appointments in Bangalore Depart for Mumbai
April 30 Individual Business Appointments in Mumbai
May 1 Individual Business Appointments in Mumbai PM Depart for US
CGLGOHIO INDIA TRADE MISSION 2014
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
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T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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F
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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S
O F
C
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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amp
G U
A R
A N
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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S
O F
C
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amp
G U
A R
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ABOUT USThe Exhibitions India Group
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
O R
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O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
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O R
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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I C
E S
F
O R
E
X P
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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X P
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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D B
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L E
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S
O F
C
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D I
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amp
G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
T T
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S
O F
C
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D I
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amp
G U
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A N
T E
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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O F
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D I
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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O F
C
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D I
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amp
G U
A R
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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C
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D I
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amp
G U
A R
A N
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Exhibitions India Group is bull A trade promotion organization established in 1987 creating
opportunities for trade investments joint ventures technology transfers etc
bull An organizer of trade fairs in India with allied businesses in sales representation consulting publishing conferences travel amp hospitality and display design
bull Headquartered in New Delhi with branch offices in Ahmedabad Bangalore Chennai Hyderabad and Mumbai
bull The only trade fair organizer in India to have both ISO 90012008 amp ISO 140012004 certifications
bull Certified for transparency in international transactions by Trace International Inc (USA)
ABOUT US
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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G U
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A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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amp
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
wwwexhibitionsindiagroupcom
ABOUT US
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
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T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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amp
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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C
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amp
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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amp
G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
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C
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D I
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amp
G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
O R
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X P
O R
T E
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amp
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P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
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E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ABOUT US
bull Council of Great Lakes Governors (CGLG) India Trade Office Set up in July 2012 the CGLG India office works to promote exports from the State of Wisconsin USA to India through market research business matching trade show participation delegation visits etc
bull Ohio Development Services Agency India Office Representing the business interests of the State of Ohio USA in India since January 2008 The Ohio India Office assists Ohio companies to introduce or expand their exports in the Indian market
Comnet Consultants represents
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
O R
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X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
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E S
F
O R
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
O R
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O R
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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E R
S
O F
C
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T
amp
G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
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F
O R
E
X P
O R
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
ABOUT US
Consultancy ServicesComnet Consultants provides the following services to companies seeking to access the Indian marketbull Customized Market Research Reportsbull Partner Search Qualified contacts of potential distributors representatives
agents prospective customers JV partners etcbull Due diligence review of potential partners bull Trade mission appointment facilitation and in market support to companies bull Facilitate participation at Indian trade shows bull Other Services
ndash Facilitate contact with local law firms accountancy firms etc ndash Identify local marketing tools such as trade shows periodicals etc ndash Monthly Newslettersndash Media Promotionndash HR consulting etc
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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O R
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P O
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
R S
O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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L E
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O F
C
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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amp
G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
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O F
C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Prem Behl Managing Director CGLGOhio India Office217-B Second Floor Okhla Industrial Estate Phase 3 New Delhi 110020E-mail prembeigroupin Phone +91 11 4279 5000
THANK YOU
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Why India
Spring 2014
A Case for Deeper Economic Partnership
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
O R
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X P
O R
T E
R S
amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
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I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
O R
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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L E
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S
O F
C
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T
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G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
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F
O R
E
X P
O R
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
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D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Pakistan
China
Nepal
India
Myanmar
Bangladesh
Afghanistan
Bhutan
POK
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
O R
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X P
O R
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
R S
O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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L E
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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amp
G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
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O F
C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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amp
G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
2611 Terrorist Attack on Mumbai
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
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S
O F
C
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D I
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
$17 Trillion in Infrastructure Required Over Next 5 Years
20000 Km of road projects
350000 MW of new power
plants
Greenfield development of 25
new airports
Upgrade of 25 existing airports
A deep water navy
12 new portcontainer
projects
20000 MW of nuclear
power
A new air force
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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X P
O R
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amp
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P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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R A
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I C
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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C
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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S
O F
C
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T
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
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D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
The Next North SeaKrishna-Godavari Gas Discovery
Largest Refinery in the World Jamnagar
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
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F
O R
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X P
O R
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
O R
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X P
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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F
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
R S
O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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L E
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C
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
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O F
C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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O F
C
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G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
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C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
The Next North Sea Krishna-Godavari - Exports of US LNG
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
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F
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O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
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O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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E S
F
O R
E
X P
O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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amp
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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amp
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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S
O F
C
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D I
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A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
O F
C
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amp
G U
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T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
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C
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F I
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L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
300 Million Middle Class
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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F
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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F
I N
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N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Manufacturing Hub of South AsiaSkilled Manpower a Growing Middle-Class and a Massive
Market
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
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F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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X P
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
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L E
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S
O F
C
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amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
T T
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S
O F
C
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amp
G U
A R
A N
T E
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Can India Sustain its Competitive Edge
1 in Generic Pharmaceuticals
IPR Protections will need strengthening if India is to become the Innovation Nation of the 21st Century
Compulsory Licensing looms on the horizon which must be resisted
PHARMACEUTICALS
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
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O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
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A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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S
O F
C
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D I
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G U
A R
A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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L E
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O F
C
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D I
T
amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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L E
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
TELECOM
10 million new cell phone users each month
But can transparency issues be overcome as new spectrum is allocated
Will LCR policies trigger unintended consequences
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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F
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
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amp
I M
P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
IT is growing at impressive rates
But will India adopt Safety and Security Testing barriers that discourage investment
Will the US enact discriminatory immigration provisions
INFORMATION TECHNOLOGY
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
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8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
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S
O F
C
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G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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S
O F
C
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D I
T
amp
G U
A R
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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R A
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F
O R
E
X P
O R
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Indiarsquos Century
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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T E
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C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
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F
O R
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O R
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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E S
F
O R
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X P
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Coherent democracy PluralistSecular
WHY INDIA
Indo-US Relations Can Shape the Destiny of the 21st Century
15th Worldrsquos Population 2nd largest military in the world Common Values Fighting Terrorism Trafficking Narcotics Ideological Partner Nepal Sri Lanka Bangladesh Pak China Common Law Judicial System
2nd largest number of Doctors Engineers PhDs in the world 100000 Students to US Each Year
3 million Americans of Indian Origin Politically significant Politically integrated 54 of Indian Population is under the Age of 25
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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X P
O R
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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E S
F
O R
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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I C
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F
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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I C
E S
F
O R
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X P
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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S
O F
C
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
NaMo Wave
asymp 240 and countinghellip
2845
Magic number 272
25
29
36
3
381
10
1
33
4
82
5
0
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
presented by Vinita Bahri-MehraApril 10 2014
Preparing for Export Success in India ndash A Legal
Perspective
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
O R
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
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X P
O R
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P O
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
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S
O F
C
R E
D I
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amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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S
O F
C
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amp
G U
A R
A N
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
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D I
T
amp
G U
A R
A N
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E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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S
O F
C
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amp
G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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D I
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
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E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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F
I N
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C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
USIndia Exporting at a Glance+US Exports to India in C-Y 2012 $415 billion (a 78 increase)
+Imports from India in C-Y 2012 $6052 billion (a 95 increase)
+Total Bilateral Trade in C-Y 2012 $102 billion (a 97 increase)
+India has emerged as the 18th largest export market for US
+India has emerged as the 12th largest market for Ohio exports
+Indiarsquos GDP growth for F-Y 2013-2014 56
+Indian firms eager to buy American products and services
+Indiarsquos WTO commitments rarr resulted in opening ofmarkets
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
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L Y
P
R I
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T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
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A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
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amp
G U
A R
A N
T E
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Some Success Stories
+2nd largest small car market in the world+One of three countries that makes its own supercomputers
+2nd largest group of software developers after the US
+100 of the Fortune 500 have RampD facilities in India+Indian students represent 15 of all international students in US higher education
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
O R
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O R
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
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X P
O R
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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P
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I C
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F
O R
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X P
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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S
O F
C
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
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C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Top 5 Keys to Successful Exporting to India1 Strategic Planning ndash Finding Partners and
Agents
2 Due Diligence
3 Geographic Diversity
4 Consistent Follow Up
5 Patience and Commitment
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
>
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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O F
C
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G U
A R
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
A R
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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O F
C
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D I
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amp
G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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O F
C
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D I
T
amp
G U
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A N
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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E R
S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
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C
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D I
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amp
G U
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A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Why India
+India is the 4th largest economy in the world as measured by purchasing power
+India has a consumer base of 12 billion people
+The youngest population of the world ndash hence sustainable long term growth is assured
+Modern (organized) retail converging with the consumption boom will open up many opportunities for small and mid-size consumer companies
+Rapid growth in the number of middle class consumers
+Eager and savvy consumer market with growing buying potential
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
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F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
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R A
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F
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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amp
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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amp
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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C
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amp
G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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D I
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amp
G U
A R
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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O F
C
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D I
T
amp
G U
A R
A N
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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E N
C Y
F
I N
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N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
I N
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C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+100 foreign investment permitted in most sectors on automatic basis except
+Retail trading +New ndash Single Brand up to 100+Multi-Brand ndash 51+100 FDI is allowed in cash and carry wholesale formats B2B sales
Indiarsquos FDI Regime
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
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T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Certain sectors where FDI is prohibited+Atomic Energy+Lottery business Gambling and Betting+Agriculture+Railway Transport+Arms and Ammunition+Coal and Ignite
+Certain sectors where there are minimum capitalization requirements
+Non-banking financial services activity (certain activities ndash fee based and fund based)
+Real estate construction and development projects
Indiarsquos FDI Regime
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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F
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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O F
C
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G U
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A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Information Technology+Software and Services - $50 billion+IT-enabled Services - $17 billion+E-Commerce - $89 billion
Biotechnology+$45 billion by 2012
Retail+$300 billion by 2012
Healthcare+$16 billion potential
Energy
Potential Investment Opportunities
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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E N
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F
I N
A N
C I
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Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
E N
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Markets with Significant Export Potential+Airport and Ground Handling
Equipment
+Computers and Peripherals
+Education Services
+Electric Power Generation Distribution and Transmission
+Equipment
+Machine Tools
+Medical Equipment
+Mining and Mineral Process Equipment
+Oil and Gas Field Machinery
+Pollution Control Equipment
+Safety and Security Equipment
+Telecommunications Equipment
+Textile Machinery
+Water Treatment
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
O R
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O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
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S
O F
C
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amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
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amp
G U
A R
A N
T E
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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S
O F
C
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amp
G U
A R
A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
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E R
S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Investing in
India
Strategic Investor (FDI)
Financial Investor (FII or FVCI)
Operate as a Foreign Company
Operate as an Indian Company
Acquisition of sharesbusiness
assets of an existing Indian
Company
Invest in a US company with a services fulfillment subsidiary in
IndiaInvest in a Caymans or Mauritius
company with a services fulfillment sub in India
Direct investment in an India company from outside India (MauritiusSingapore subs)
Direct investment in an Indian company from outside India through
a venture capital fund registered with the SEBI
Liaison OfficeBranch Office
Project OfficeJoint
Ventures
Wholly owned
Subsidiary
Private
Public
Structuring Investments ndash FDI
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
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F
O R
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O R
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
A Direct Sales from US (using freight forwarder)+Key considerations
+Use accurate Incoterms 2010 for international sale or even better spell out in detail who is responsible for what
+Most common terms+EXW FOB CIF DDU DDP
+Payment Terms+NOT Incoterms
+The Incoterms generally indicate WHAT must be paid by each party not WHEN it must be paid
+Do not confuse liability with responsibility
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
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T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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C
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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S
O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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C
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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A N
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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S
O F
C
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D I
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G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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C
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D I
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A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
O R
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O R
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
+Payment Terms+Usually determined in the purchase contract+Major options based upon increasing risk
+Paid in advance (if exceeds 200000 additional criteria to be fulfilled and imports to be made in 6 months)
+Letter of credit (can be issued up to USD 20 million per transaction for one year)
+Documents against payment+Open account (remittance against imports should be
completed no later than 6 months except for payments withheld for guarantee performance disputes etc)
+Interest on import bills allowed if overdue for less than 3 years at rate prescribed for trade credit from time to time
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Decide on-Who is the ldquoimporter of recordrdquo
+Exporting directly can suit high value products or services However winning new customers is likely to require significant investments in building relations and several visits
Other Entry Routes
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
I M
P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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E S
F
O R
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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P
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F
O R
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X P
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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S
O F
C
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T
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
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X P
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
B Technology Collaborations and Trademark License
+Foreign entities can provide technical know-how andor license their trademark to Indian companies against payment of fee and royalty
+Key considerations
+Protection of Intellectual Property+Registration of trademarks copyrights and patents (ldquofirst to filerdquo ndash
jurisdiction)+Trade Secrets No statutory protection of trade secrets or confidential
information However several court precedents enforce confidentiality agreement through mandatory injunctions
+ Indian IP laws do not provide for automatic assignments+Advantage of lower withholding taxes on royalty income
stream
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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C
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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D I
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
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amp
I M
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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C Y
F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
C Agency Relationship
+Creation+ Relationship between Agent and Principal is primarily contractual in nature and
governed by terms of contract entered into between them
+ The Indian Contract Act 1872 (Act) provides the framework of rules and regulation that govern formation and performance of an agency contract
+ NO WRITTEN CONTRACT One may be implied provisions of Chapter X of the Act (ie agency law) will provide the framework for governance of performance of the relationship
+ Agency contract should contain limitations termination events territory products or goods commission structure and time of payment
+ Depending upon conduct of the parties----exclusivity can be presumed
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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F
I N
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N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
+Termination+If Agency is fixed for a term it can be terminated before the expiring
of the term in accordance with an express reservation in the contract or for sufficient cause
+Reasonable notice must be given of termination without case+Right to indemnity andor the right to compensation to the Agent in
the event of termination of the agency contract is subject primarily terms and conditions of the agency contract
+Unless the contract provides payment or full indemnity the indemnity payable to the Agent is generally equitable
+No limitation on amount of indemnitycompensation to which an Agent is entitled ndash it is the Court which determines the amount of indemnitycompensation that may be paid
+However Agent needs to prove he has actually incurred a loss or that loss is eminent
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
O R
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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O F
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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C
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amp
G U
A R
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
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S
O F
C
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amp
G U
A R
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T E
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
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amp
G U
A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
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amp
I M
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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A G
E N
C Y
F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
+Right to indemnity under agency law entitles an Agent to the following
+Commission remuneration and all expenses incurred+Right to lien over Principal property ndash received by Agent until
amount due to Agent for commission disbursements and services in respect for same has been paid
+Statute of Limitation+Agent must bring a suit for claiming compensation and indemnity
within a period of 3 years from the date of cause of action
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
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F
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O R
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
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O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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O R
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
O R
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
O R
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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S
O F
C
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amp
G U
A R
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T E
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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amp
G U
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A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
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F
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Other Entry Routes
D DistributorFranchisee Relationship
+Relationship between DistributorFranchisee amp Principal is contractual in nature and governed by the terms of the contract
+No specific law in India which governs the payment of indemnitycompensation to the DistributorFranchisee and it is open to parties to determine the conditions and amount of compensation
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
+Restrictive Covenants (ie non-compete and non-solicitation) difficult to impose post-terminationexpiration of the agreement
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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O F
C
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G U
A R
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T E
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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O F
C
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D I
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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C
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
O R
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X P
O R
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+ImportExport Process and Timeline+ Assumption standard container of goods to a large city port in India)+ India stands at 134 ranking of 189 economies on the ease of trading across
borders
+Indicator+ Number of Documents to export (eg bill of lading export declaration forms
commercial invoice) 9 + Time to Export 16 days+ Cost to Export $1170 per container
+Procedures to Export+ Document Preparation 8 days+ Custom Clearance 2 days+ Ports and Terminal Handling 3 days+ Inland Transportation 3 days
Other Entry Routes
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
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F
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
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O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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O F
C
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G U
A R
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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O F
C
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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L E
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C
R E
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
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S
O F
C
R E
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amp
G U
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A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
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F
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
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F
I N
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+BISEAR 2011 rules and regulations implementing changes to Export Controls on India (ldquoFinal Rulerdquo)
+Final rule adds India to country group A2 the group consisting of countries adhering to Missile Technology Control Regime
+Results in elimination of license requirements to export or re-export certain controlled products (ie classified as EAR99) to India
+However no unlicensed exports to prohibited parties or for prohibited end-users
+Final rule does not impact license requirement for export of defense articles to India subject to jurisdiction of ITAR and Arms Export Control Act
Key Considerations All US Exports are Subject to US Export Control Regulations
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
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F
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amp
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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O F
C
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amp
G U
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A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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C
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
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F
I N
A N
C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Labeling is an important element for products being exported to India All packets or even containers should carry pertinent declarations
+English or Hindi is the favorable language for labeling
+Custom authorities have to ensure that all pre-packaged commodities (especially those intended for direct retail sale) have all the legally required information before they enter the retail market or sold for consumption
Key Considerations Labeling and Marking Requirements
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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P
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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X P
O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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C
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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C
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G U
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A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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L E
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O F
C
R E
D I
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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G U
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E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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G U
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A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
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F
I N
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Peak rates reduced from 350 (June 1991) to an average 10 currently for some products
+Indiarsquos tariffs still very high ndash range from 125 - 150 based upon classification of goods in accordance with Harmonized System or HS
+Exports to India are zero-rated for VAT All import and export of goods tofrom India are exempted from sales tax
Key Considerations Import Tariffs
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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X P
O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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L E
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O F
C
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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O F
C
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amp
G U
A R
A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
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L E
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S
O F
C
R E
D I
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
T T
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O F
C
R E
D I
T
amp
G U
A R
A N
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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O F
C
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Basic Customs Duty (BCD) This duty is levied either as 1) a specific rate based on the unit of the item (weight number etc) or more commonly 2) ad-volorem based on the assessable value of the item In some cases a combination of the two is used
+Additional Customs Duty (ACD) This duty is typically referred to as Countervailing duty or (CVD) and is levied on the assessed value of goods plus BCD It is payable only if the imported product is such as if produce in India it would be liable for an excise duty
+Special Additional Customs Duty (known as Special CVD) Special CVD tax is applicable on all items (to offset the disadvantage to like Indian goods due to high excise duty on their input) It is levied at the rate of 4 percent of the BCD and the ACD on all imports
Types of Custom Duties
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
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P
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
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F
O R
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X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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O R
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amp
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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O F
C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
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S
O F
C
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amp
G U
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A N
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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amp
G U
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A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
T T
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O F
C
R E
D I
T
amp
G U
A R
A N
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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D B
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S
O F
C
R E
D I
T
amp
G U
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A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
R E
D I
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A G
E N
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F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Anti-dumping Duty This is levied on specified goods imported from specified countries including the United States to protect indigenous industry from injury
+Safeguard Duty The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry
Types of Custom Duties
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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F I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
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F
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X P
O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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C
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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S
O F
C
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G U
A R
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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L E
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D I
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
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S
O F
C
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D I
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amp
G U
A R
A N
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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L E
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E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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F
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Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
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Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Types of Custom Duties
+Customs Education Cess Effective 2004 India introduced a new education cess (duty) assessment The current rate is 3 percent of BCD and ACD
+Customs Handling Fee The Indian government assesses a 1 percent customs handling fee on all imports in addition to the applied customs duty
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P O
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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amp
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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C
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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L E
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O F
C
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G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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amp
G U
A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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I N
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Taxation in India
+Dividends declared can be repatriated freely through an authorized Indian bank
+Dividends are tax-free in the hands of shareholders+A distribution tax of 16 is payable by company
+Corporate income tax rate for foreign companies is 412 For domestic companies 3099
+Withholding tax on royaltiestechnical feesinterest income
+Domestic tax law ndash 10 [effective AY 2014-2015 it will become 25)
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
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O R
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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F
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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C
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
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L E
T T
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S
O F
C
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D I
T
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G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
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C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
E
X P
O R
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Taxation in India
+Indo-US DTAA ndash 10 for right to use of any industrial commercial or scientific equipment
+20 in any other case (First five years of agreement)+15 in any other case (subsequently)+Computed on ldquogross amountrdquo
+Currently tax rate of domestic law could be utilized as it is less than DTAA
+Submission of a Tax Residency Certificate (TRC) a must+Furnishing of PAN required to receive payments from India
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
T E
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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E S
F
O R
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O R
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amp
I M
P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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R A
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F
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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T E
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O
F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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O
F
C R
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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F
C R
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I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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F
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P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
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C
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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O F
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G U
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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C
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D I
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G U
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A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Taxation in India
+Service tax rate is 1236+Computed on the ldquoGross Amountrdquo charged by the service provider
+Sales tax rate (CST) Levied at 2
+Sales tax rate (VAT) Varies from state to state depending upon classification of goods Two basic rates 5 and 145
+Excise Tax Impose on good manufactured locally varies from 8 to 10-12
+Tax incentives are available during a limited time for 100 Export-Oriented Unit under Software Technology Park Scheme and Special Economic Zones Units etc
+Incentive for acquisition and installation of new plant or machineries by manufacturing company
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Taxation in India
+Elaborate Transfer Pricing Regulations+These rules govern minimum profit margin to be maintained by
the Indian companies in transaction associated enterprises+Valuations prescribed in case of export of goods to a related
party
+Avoidance of Permanent Establishment (ldquoPErdquo) status is critical
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
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R A
C T
I C
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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I C
E S
F
O R
E
X P
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T E
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
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O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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P
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F
O R
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X P
O R
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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S
O F
C
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D I
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amp
G U
A R
A N
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E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
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F
O R
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amp
I M
P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+Legal Jurisdiction Drafting choice of law and forum provision is crucial
+Remember certain issues may be subject to a law different from one agreed upon by parties For example IP transfer registration protection in vendor territory real estate labor laws bankruptcy enforcement of foreign judgmentaward
+Litigation vs Arbitration
+If the parties want to quickly end disputes arising from the contract an arbitration clause is necessary to avoid lengthy civil procedures
Contract Enforcement In India
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
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T E
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O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
T T
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S
O F
C
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D I
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
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F
O R
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X P
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amp
I M
P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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F
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Practical Tips
+Negotiations Contract negotiations can be expected to go more slowly in India ndash particularly if dealing with India bureaucracy
+Different Approach to Communication Indian parties may not disagree with you directly about contractual issues Instead they may suggest that the matter be discussed at another time or find some way to avoid an outright negative response
+Flexibility It is recommended that US companies build considerable flexibility into their approach so that prices and other contract conditions can be adjusted
+Believe Relationships and respect Building a lasting and trusting relationship is very important for a successful business venture in India
Contract Enforcement In India
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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C
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F I
D E
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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F
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O R
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
O R
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X P
O R
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amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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X P
O R
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amp
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P O
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
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I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
T
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G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
R E
D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
+There are some internal barriers that might provide obstacles in doing business or establishing business in India It is necessary to be cognizant about them in order to be well prepared For example
+Corruption (FCPA) (PCA)+Infrastructure mess+High tariffs and protectionist policies+Local content requirement+Powers of states+Slow Reform Process
Practical Advice Identify the Obstacles
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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I C
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
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S
O F
C
R E
D I
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amp
G U
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A N
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
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D I
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amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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Y
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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C
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G U
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
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F
O R
E
X P
O R
T E
R S
amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Things to Ponder
+Have knowledge of Indian business and market ndash Evaluate Product Strategies and related Pricing
+Analyze and identify the regionstate most appropriate for your business needs
+Do Business in Indiahellipthe Indian Way lsquoThink Global Act Localrsquo
+The Indianized Chinese+Kelloggs ndash no to cold cereals+KFC ndash Tandoori Chicken preferred to the lsquoKFC experiencersquo+McDonalds ndash lsquoMcVeggie Burgerrsquo amp lsquoMcAloo Tikkirsquo+Dominorsquos ndash lsquoPepper Paneerrsquo amp lsquoChicken Chettinadrsquo+Pizza HutPizza Express ndash spicing it up
+Due Diligence is the Key
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
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P
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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O R
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amp
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P O
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SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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F
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
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F
O R
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X P
O R
T E
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amp
I M
P O
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S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
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F
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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F
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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T E
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O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
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F
O R
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O R
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amp
I M
P O
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S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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O F
C
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G U
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
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T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
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L E
T T
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S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
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Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Legal Advice
+This presentation is designed to provide an overview of a number of legal principles and considerations
+As each legal issue is fact dependent this presentation should not be used or viewed as legal advice and your legal counsel should be consulted on the application of your particular factual situation to the current law
+Copyright 2014 Kegler Brown Hill + Ritter LPA
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
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R I
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R I
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English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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amp
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P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
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P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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F
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amp
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P O
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Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
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F
C R
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Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
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Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
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F
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Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
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P O
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Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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G U
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
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G U
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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G U
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
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G U
A R
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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G U
A R
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
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R A
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F
O R
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P O
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Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
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F
I N
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Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Thank You
Vinita Bahri-Mehra DirectorAsia-Pacific Team LeaderKegler Brown Hill + Rittervmehrakeglerbrowncomkeglerbrowncombahrimehra614-255-5508614-464-2634 (fax)
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
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L E
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S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
April 2014
B E S T P R A C T I C E S F O R E X P O R T E R S
LCs Guarantees and ECA Financing
S T
R I
C T
L Y
P
R I
V A
T E
A
N D
C
O N
F I
D E
N T
I A
L
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
S T
P
R A
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F
O R
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X P
O R
T E
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amp
I M
P O
R T
E R
S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
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L E
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S
O F
C
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amp
G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
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L E
T T
E R
S
O F
C
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D I
T
amp
G U
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A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
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T T
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S
O F
C
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D I
T
amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
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S
O F
C
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D I
T
amp
G U
A R
A N
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E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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S
O F
C
R E
D I
T
amp
G U
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A N
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E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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S
O F
C
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T
amp
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Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
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C
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
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F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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F
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
English_Commercial Bank
This presentation was prepared exclusively for the benefit and internal use of the JP Morgan client to whom it is directly addressed and delivered including such clientrsquos subsidiaries (the ldquoCompanyrdquo) in order to assist the Company in evaluating on a preliminary basis certain products or services that may be provided by JP Morgan This presentation is for discussion purposes only and is incomplete without reference to and should be viewed solely in conjunction with the oral briefing provided by JP Morgan It may not be copied published or used in whole or in part for any purpose other than as expressly authorized by JP Morgan
The statements in this presentation are confidential and proprietary to JP Morgan and are not intended to be legally binding Neither JP Morgan nor any of its directors officers employees or agents shall incur any responsibility or liability to the Company or any other party with respect to the contents of this presentation or any matters referred to in or discussed as a result of this document JP Morgan makes no representations as to the legal regulatory tax or accounting implications of the matters referred to in this presentation
IRS Circular 230 Disclosure JPMorgan Chase amp Co and its affiliates do not provide tax advice Accordingly any discussion of US tax matters included herein (including any attachments) is not intended or written to be used and cannot be used in connection with the promotion marketing or recommendation by anyone not affiliated with JPMorgan Chase amp Co of any of the matters addressed herein or for the purpose of avoiding US tax-related penalties
JP Morgan is a marketing name for the treasury services businesses of JPMorgan Chase Bank NA and its subsidiaries worldwide In the United Kingdom JPMorgan Chase Bank NA London branch and JP Morgan Europe Limited are authorized by the Prudential Regulation Authority Subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority
JPMorgan Chase is licensed under US patent numbers 5 910988 and 6 032 and 137
copy 2013 JPMorgan Chase amp Co All rights reserved
B E
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amp
I M
P O
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S
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
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P
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F
O R
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O R
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amp
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P O
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S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
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F
O R
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X P
O R
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amp
I M
P O
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Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
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P
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F
O R
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amp
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S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
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amp
I M
P O
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E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
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E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
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A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
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O F
C
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D I
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
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D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
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T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
SellerMost Protection
Least Protection Most Protection
Least Protection
Buyer
CASH IN ADVANCE
LETTER OF CREDIT
DOCUMENTARY COLLECTION
OPEN ACCOUNT
International sales add complexity and risk
Buyer (relationship standing credit position)
Geo-political risks in buyerrsquos country
Economic risks
Regulations (OFAC sanctions local law)
Factors to consider
Commodity price volatility
Financing requirements (both of buyer and seller)
Cost of bank services
Taxes duties and tariffs
Most common payment methods
1B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
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O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
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T E
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O
F
C R
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I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
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L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
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C
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G U
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
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O F
C
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Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
T T
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S
O F
C
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D I
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amp
G U
A R
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
T T
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O F
C
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D I
T
amp
G U
A R
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E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
JP Morgan ndash Classical and Export Finance Products
Trade Channel
Electronic Web-based system for managing all global trade needs through a single portal
Automation and process streamlining
Classical Trade
Export Finance
Standby Letters of Credit
Performance Bid Advanced Payment Bonds
International SBLC and Local Guarantee re-issuance
Intellectual property protection
Collateralization options
Import Letters of Credit
Classical and private label import LCs
Documentary collections and open account payment processing
Export Letters of Credit
Advising amp Negotiation
Confirmations (country risk mitigation)
Letter of Credit Discounting
Export Credit Agency Backed Financing
US Ex-Im Guaranteed Financing
Multi-lateral Agency Backed Financing
Legend Issues Addressed Credit Risk Mitigation Liquidity amp Working Capital Management Legal amp Compliance Technology Integration
2B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
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S
O F
C
R E
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amp
G U
A R
A N
T E
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
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D I
T
amp
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A R
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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S
O F
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T
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A R
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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L E
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E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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D I
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G U
A R
A N
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
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amp
G U
A R
A N
T E
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
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F
O R
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X P
O R
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amp
I M
P O
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S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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C
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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C
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D I
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E N
C Y
F
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C I
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z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Agenda
Page
3
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
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E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Commercial Letter of Credit Process
AdvisingConfirming Bank
2 L
C Ap
plic
ation
1 Sales Contract
3 Issue Letter of Credit
5 Shipment of Goods
4a P
aym
ent G
uara
ntee
7 Documents sent
8c Payment sent
4 C
onfir
ms
amp A
dvis
es L
C
8aR
elea
ses
docu
men
ts
6 P
rese
nts
Doc
umen
ts
BeneficiaryBeneficiary
8b S
ends
fund
s
8d P
aym
ent S
ent 3a Payment Guarantee
BuyerApplicant
Issuing Bank
SellerBeneficiary
4E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Commercial Letter of Credit Characteristics
Commercial Letters of Credit Facilitate the exporting or importing of goods
ndash Sellers of goods get paid for the goods that they sellndash Buyers of goods ensure they receive what they ordered
Provide a source of financing Offer the most protection to the sellerexporter
Three independent ldquoagreementsrdquo underpin a letter of credit Sales Contract between buyer and seller Application and Reimbursement Agreement between buyerapplicant and issuing bank Letter of Credit between issuing bank and beneficiary
Banks deal in documents only ndash buyerrsquos recourse for problems with goods (commercial dispute) is to the sales contract
Documents presented under an LC must comply with the terms and conditions stated therein otherwise there is no obligation to honor
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
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amp
G U
A R
A N
T E
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
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L E
T T
E R
S
O F
C
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D I
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amp
G U
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A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
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L E
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S
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amp
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
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Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
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S
O F
C
R E
D I
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amp
G U
A R
A N
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Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
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S
O F
C
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D I
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amp
G U
A R
A N
T E
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Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
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O F
C
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D I
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A R
A N
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Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
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amp
I M
P O
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E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
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D I
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A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
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D I
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E N
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F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Implication Constitutes a definite undertaking of confirming bank Independent of the issuing bankrsquos obligation
Removes Issuing Bank risk
Reduces Country risk (political economic FX)
Confirmation expedites payment
Payment obligation moves to beneficiaryrsquos domicile
Implication No obligation to ldquopayrdquo at sight or ldquoacceptrdquo and pay at maturity time drafts Further no obligation to pay at maturity credits that provide for ldquodeferred paymentrdquo
Purpose Authenticate issuerrsquos credit
Acceptance Payment made at some specified time after presentation of conforming document(s)
Provides short term financingmdashup to 12 months tenor
Defined in LC
Accepting bank obligated to pay at maturity
Can be discounted to exporter for earlier payment
Deferred Commitment to pay on a specified date
Payment effected when documents are presented which are in compliance with the terms and conditions of the credit
Payment may or may not occur immediately
If payable in the US
If payable in a foreign country
LC terms may contain special provisions about timing
6E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
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amp
G U
A R
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Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
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L E
T T
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O F
C
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amp
G U
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Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
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S
O F
C
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T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
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S
O F
C
R E
D I
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amp
G U
A R
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E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Ensure LC is workable Match LC terms to contractsales terms Check for appropriate Incoterms Check names and addresses Validate merchandise description Confirm that shippingdelivery dates are workable Read all document requirements amp conditions
Exporter should be able to prepareobtain all documentation easily No buyer controlled documents LC should have only what is necessary
Be aware of third party documents Legalization of documents Bills of lading Inspection requirements Other third party certificates
Commercial Letter of Credit Managing Documents
DocumentsDocuments DiscrepanciesDiscrepancies
Discrepant documents Cause payment delays Cause payment rejections Eliminate your risk protection Add extra time and cost to the transaction
Most common discrepancies Late Shipment Late Presentation Credit Expired Credit Overdrawn Missing Documents
Beneficiaryrsquos options if documents are discrepant Correct documents Cable for authority to honor on approval basis Request payment under reserveguarantee Do not send documents on collection
7E X
P O
R T
L
E T
T E
R S
O
F
C R
E D
I T
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Agenda
Page
8
Standby Letters of Credit amp Guarantees 8
Export Letters of Credit 3
Export Credit Agency Financing 17
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Standby Letters of Credit and Guarantees are instruments of security issued by JP Morgan in favor of a beneficiary JP Morgan can issue SBLCs or bank guarantees in support of contractual obligations
Standby Letters of Credit (SBLCs) are intended to be used as secondary security The underlying contract is the primary security This differs from commercial LCs which are the actual vehicle for payment in a trade transaction Financial SBLCs support a financial obligation including any investment evidencing an obligation to repay borrowed
money Performance SBLCs support an obligation to perform including losses arising from default in completion of the
underlying contract
Guarantees are an independent undertaking by the issuer to make payment to the beneficiary on behalf of its customer the applicant Payment is made on formal demand subject to the occurrence of a pre-defined event that results in nonperformance by
the applicant of the underlying contract Guarantees are most commonly issued subject to local legislation and provide an issuer commitment that is legally
independent of the underlying contract
Standby Letters of Credit and Guarantees Introduction
CharacteristicsCharacteristics
9S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
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L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Standby Letters of Credit Financial
Types Types
Credit Guarantees These are issued to financial institutions in favor of beneficiaries requiring some form of lending or financing whereby
the issuing bank will fulfill a specified monetary obligation in the event of default by the obligor
Advance Payment Guarantee This protects beneficiaries when an advance payment is to be made towards the applicant ensuring that the
payment is refunded if the applicant does not fulfill the terms of the contract
Payment Guarantee Issued as a security for any payment obligations the applicant may have towards the beneficiary In the event of
payment default by the applicant the beneficiary can claim payment under the guarantee
Rental Guarantee These are issued in favor of landlords as security towards unpaid rent or other costs incurred by the tenant during the
tenancy period Many European countries have standard wording for these guarantees They are normally required to be issued by a local bank
10S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Bid or Tender Bond This is a safety mechanism that discourages companies
from submitting frivolous bids The beneficiary (contractor) is protected in the event the applicantndash Withdraws from the tender before its expiryndash Attempts to amend the tenderndash Refuses to sign the contract when awarded the
tenderndash Fails to furnish the required performance bond or any
other guarantee Bid bonds are also used to guarantee that the applicant
(bidder) has the finances and capabilities to undertake the contract Unsuccessful bidders will have their guarantees returned while those bidders winning the contract will see their bid bond expire upon issuance of a performance bond
Performance bond Requested upon winning the contract a performance
bond guarantees the performance of the applicant under the contract from beginning to end The bank issuing the guarantee undertakes to pay a certain sum of money to the beneficiary should the applicant default and not comply with their contractual obligations
Retention bond A type of performance bond that guarantees
reimbursement of payment and correction of defects after a contractual obligation (ie job or project) has been completed and full pay
Maintenance Warranty bond This helps protect the beneficiary from a defect or
malfunction after the project has been completed This guarantee is generally valid till the end of the warranty period stipulated in the contract between the two parties
Customs and tax deferment guarantee Importers are allowed to defer paying import duty and
import tax by establishing an account with the local tax authorities if they importer issues a guarantee to the local tax authorities This tax deferment guarantee is generally valid for long periods of time or until it has been cancelled and returned by the authorities
Shipping guarantee This indemnifies a shipping company (beneficiary)
against any liability when imported goods are released to a particular consignee (applicant) without access to title documents such as the bill of lading The indemnity covers the cost of goods as well as freight legal and other costs The shipping guarantee will remain in force until the original bill of lading has been provided to the guarantor or otherwise cancelled by the beneficiary
Airway release Similar to the shipping guarantee airway releases allow
for the release of cargo or goods received by a freight forwarder at the airport on behalf of a consignee Unlike shipping guarantees airway releases may be cancelled upon providing proof of payment of the import invoice
Standby Letters of Credit Performance
Types Types
11S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Standby Letters of Credit Process
Issuing Bank
2 SBLC Issuance
ContractBid
1 SBLC Application amp
Reimbursement Agreement
ApplicantApplicant
Beneficiary
4b Payment3a Drawing
4a Payment
3 Event of default (outside of SBLC)Applicant
12S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Determine who the issuing bank will be and obtain an appropriate application form
Determine the amount and currency of the letter of credit
Determine the expiry date of the letter of credit
Determine if a special format is required by the beneficiary and if so provide a copy of that format with the application form
Determine the draw conditions meet your transaction requirements and are acceptable to the beneficiary The requirements should be clear and consistent with the underlying contract
Determine details (beneficiarys name and address accountees name and address contract number etc) are accurate
Should the LC contain special terms and conditions Automatic Extension or Expiry Notice terms (determine if notice and extension period is sufficient) Transfer terms Automatic increasedecrease schedule or terms
Know the rules that will govern the SBLC Should be either Uniform Customs and Practices (UCP) 600 International Standby Practices (ISP) 98
Determine date the Letter of credit must be delivered to the beneficiary
Determine how the letter of credit will be delivered (SWIFT overnight courier messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the letter of credit to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the letter of credit
Standby Letters of Credit Process
Process notesProcess notes
13S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Bank Guarantee Process
Issuing Bank
Contract
2 SBLC Issuance
3 B
ank
Gua
rant
ee Is
suan
ce
1 S
BLC
Appl
icati
on a
nd
Reim
burs
emen
t Agr
eem
ent
ApplicantApplicant
Beneficiary
JP Morgan International or Local Bank
4 Event of default (outside of BG)6
Noti
ce o
f dra
w
7a P
aym
ent
7c P
aym
ent
5 D
raw
ing
6a Notice of draw
7b Payment
Applicant
14S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Bank Guarantee Process
Obtain a copy of the required guarantee format from your customer prior to issuance in a language that is acceptable to you and your bank for review
Identify whether the beneficiary requires the local guarantee be issued by a specific bank
Determine how you will facilitate the issuance of the local guarantee (back to back letter of credit cash collateral local bank credit facility)
Engage the bank to review the required guarantee format Most large banks will have an in-country correspondent that may be able to review and comment on the format and local requirements
Determine the required currency amount and tenor of the guarantee
Verify the draw conditions meet your transaction requirements
Verify the details (beneficiarys name and address accounteersquos name and address contract number etc) are accurate
Know the rules that will govern the guarantee Typically local guarantees are subject to that countryrsquos laws however the preference is for the guarantee to be issued subject to the globally accepted ICCrsquos Uniform Rules for Demand Guarantees (URDG) 758
Determine date the local guarantee must be delivered to the beneficiary
Determine how the local guarantee will be delivered (through an agent messenger beneficiary pick-up etc) and provide the necessary contact information
Arrange for the local guarantee to be returned to the issuer immediately after the project transaction is complete to avoid any delays in cancelling the guarantee
Process notesProcess notes
15S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Excessive Conditions Including copies of commercial documents as
requirements for a drawing Allowing for both Transfers and Assignment of Proceeds Inclusion of contract or lease terms
Excessive Restrictions Specifying a particular date or short window for time for
drawing that would impede beneficiaryrsquos ability to draw
RulesLocal Law US
ndash LCs issued to the EPA or similar State and Federal Agencies must be issued in accordance with State or Federal Regulations which contain the format of the LC which is not subject to change
ndash JPM will not issue LCs for specific types of LCs subject to the laws of certain states based on prior case law or legal requirements
OTHERndash SBLC states it is subject to the URDG (which is for
guarantees) laws of a foreign country or doesnrsquot state any governing rules or law
Non-documentary Terms
Avoid text such as ldquoThis Letter of credit will expire on the first to occur of completion of all contract terms or the expiration daterdquo Completion of all contract terms is a non-documentary condition and the LC will remain available until it expires
Stating that the beneficiary must do something (such as send a notice) without indicating a document which evidences such action
Ambiguity LC contains language that it is subject to UCP600 and
ISP98 Guarantee contains language that it is subject to
UCP600 and URDG758 Stating conflicting information within the text of the LC
ndash Example stating partial drawings are permitted but including the full amount of the LC within the quoted demand statement
SBLC and Guarantee Best Practices
Things to avoidThings to avoid
16S T
A N
D B
Y
L E
T T
E R
S
O F
C
R E
D I
T
amp
G U
A R
A N
T E
E S
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Agenda
Page
17
Export Credit Agency Financing 17
Export Letters of Credit 3
Standby Letters of Credit amp Guarantees 8
B E
S T
P
R A
C T
I C
E S
F
O R
E
X P
O R
T E
R S
amp
I M
P O
R T
E R
S
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Export Credit Agencies and the Trade Finance Spectrum
ECAs provide a broad array of products from smallershort term facilities to largerlong term facilities
Different ECAs offer different schemes but all predicated on insurance or guarantee cover to banks offering short-to-medium term trade finance instruments (LCs Guarantees Promissory Notes Bills) through to medium-to-long term export finance loans
Product focus of the ECA reflects national industrial composition
Product focus of bank reflects ECA appetite regional strength and client drivers
Cover in the event the exporter fails to indemnify the bank on bonding facilities
Some ECAsrsquo schemes operate as an upfront pro rata risk share to provide capacity to the market for SME exporters or additional capacity where banks are full on lines for larger exporters
Bank Guarantee Cover
Cover in the event of loss from receivables discounting
Program driven by suppliers and can operate through LC drafts PNs account receivables discounting typically 1-5 year space
Supplier Credits
Cover in the event of loss from LC Issuance LC Confirmation andor LC Discounting
Short to medium term cover for funded and unfunded facilities with more products being offered by ECAs post 2008 crisis and with advent of Basel III
LC Cover
Cover in the event of loss on working capital facilities extended by a bank to an exporter to support export activities
Working Capital Cover
Cover in the event of borrower default (due to economic political risk) on loans extended to finance procurement of goods
ECA issues guarantee or insurance to lender on principal and interest obligations of borrower under a loan agreement Typically 5-12yrs or longer for some goods
Buyer Credits
Short-term Trade Products
Medium-term Supply Chain Finance
Long-term Export Finance
18E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
Lena Eliopoulos Daren Maloney
Vice President Senior Vice President
Global Trade Services Commercial Banking
312-954-5453 614-248-9785
Yelenaeliopoulosjpmchasecom Darenpmaloneychasecom
Contacts
JP Morgan ContactsJP Morgan Contacts
19E X
P O
R T
C
R E
D I
T
A G
E N
C Y
F
I N
A N
C I
N G
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
Contacts
Slide 96
z
Slide 1
ldquoA perspective on CGLGOhio India trade mission 2014rdquo Prem Beh
Slide 3
Slide 4
Slide 5
Slide 6
Slide 7
Slide 8
Slide 9
Slide 10
Slide 11
Slide 12
Slide 13
Slide 14
Slide 15
Slide 16
Slide 17
Slide 18
Slide 19
Slide 20
Slide 21
Slide 22
Slide 23
Why India
Slide 25
2611 Terrorist Attack on Mumbai
Slide 27
Largest Refinery in the World Jamnagar
Slide 29
Organized Retail Enters India Unshackling Indiarsquos Farm-to-Marke
Slide 31
Manufacturing Hub of South Asia Skilled Manpower a Growing Mid
Can India Sustain its Competitive Edge
Slide 34
Slide 35
Slide 36
Slide 37
Slide 38
Preparing for Export Success in India ndash A Legal Perspective
USIndia Exporting at a Glance
Some Success Stories
Top 5 Keys to Successful Exporting to India
Slide 43
Why India
Indiarsquos FDI Regime
Indiarsquos FDI Regime (2)
Potential Investment Opportunities
Markets with Significant Export Potential
Structuring Investments ndash FDI
Other Entry Routes
Other Entry Routes (2)
Other Entry Routes (3)
Other Entry Routes (4)
Other Entry Routes (5)
Other Entry Routes (6)
Other Entry Routes (7)
Other Entry Routes (8)
Other Entry Routes (9)
Key Considerations All US Exports are Subject to US Expor
Key Considerations Labeling and Marking Requirements
Key Considerations Import Tariffs
Types of Custom Duties
Types of Custom Duties (2)
Types of Custom Duties (3)
Taxation in India
Taxation in India (2)
Taxation in India (3)
Taxation in India (4)
Contract Enforcement In India
Contract Enforcement In India (2)
Practical Advice Identify the Obstacles
Things to Ponder
Legal Advice
Thank You
Slide 75
English_Commercial Bank
Slide 77
JP Morgan ndash Classical and Export Finance Products
Export Letters of Credit
Commercial Letter of Credit Process
Commercial Letter of Credit Characteristics
Commercial Letter of Credit Types
Commercial Letter of Credit Managing Documents
Standby Letters of Credit amp Guarantees
Standby Letters of Credit and Guarantees Introduction
Standby Letters of Credit Financial
Standby Letters of Credit Performance
Standby Letters of Credit Process
Slide 89
Bank Guarantee Process
Bank Guarantee Process (2)
SBLC and Guarantee Best Practices
Export Credit Agency Financing
Export Credit Agencies and the Trade Finance Spectrum
