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What is Merchanting Trade?
The supplier of goods will be resident in one foreign country. The buyer of goods will be resident in another foreign country. The merchant or the intermediary will be resident in India. He will book the order from the buyer, place the order with the supplier, supervise and coordinate the shipment of goods from the supplier’s country and deliver the same to buyer’s country. He will be receiving payment from the overseas buyer and making payment to the overseas supplier through an authorised dealer in foreign exchange in India. The difference between the inward remittance and the outward remittance will be the profit for the merchant. Some times goods may be imported by a buyer in India from a seller in one country and exported to a buyer in another country. Such imports are kept in bond and then exported. It is also possible that repacking may be done under customs supervision and then exported. This is basically to avoid the foreign buyer to know the source from where goods are being bought and supplied to them. Such transactions are known as Merchanting Trade as per the Indian Foreign Exchange Management Regulations.
RBI under Master Circular of Import of Goods and Services, has given norms to be followed in case of all Merchanting Transactions. Extract of the relevant section is given below.
C.17. Merchanting Trade
AD Category – I bank may take necessary precautions in handling bonafides merchanting trade transactions or intermediary trade transactions to ensure that:
- Goods involved in the transactions are permitted to be imported into India and all the rules, regulations and directions applicable to export (except Export Declaration Form) and import (except Bill of Entry) are complied with for the export leg and import leg, respectively.
- The entire merchant trade transaction is completed within a period of 6 months.
- The transactions do not involve foreign exchange outlay for a period exceeding three months.
- Payment is received in time for the export leg.
- Where the payment for export leg of the transaction precedes the payment for import leg, AD Category – I banks should ensure that the terms of payment are such that the liability for the import leg of the transaction is extinguished by the payment received for the export leg of the transaction, without any delay.