SYNOPTIC GUIDE ON LEGAL INSTRUMENTS AND DOCUMENTS FOR LOCAL AND INTERNATIONAL TRADE BY CHARLES OSA OMERE, ESQ.

A fundamental shift is occurring in the world economy in which trade barriers are shrinking due to advancement in communication and transportation technologies.

This paper helps lawyers, local and foreign business men and entities to understand international commercial practice and the various importation devices that facilitate cross border transactions in an in-depth and illuminating way.

The paper is majorly concerned with the legal documents (devices) that are used locally for international trade in Nigeria. This covers trade in visible goods and trade in invisible goods and the relevant banking requirements, practices and the various import documentations. It also offers the different mechanisms for financing exports and imports in Nigeria. Excerpts from the paper is offered below:

  • FORM M

Form M is the Form through which intending importers apply to the Federal Government of Nigeria for approval to enable them brings in goods from outside the country either for commercial or personal purposes [as the case may be] see Foreign Exchange [Monitoring and Miscellaneous] Decree of 1995. It is also a declaration to the CBN of the description of the goods the quantity and their value. For invisible goods, a corresponding document called Form A is used. The Form A would describe the beneficiary of the FX and the purpose for the payment.

  • Local Insurance Certificate

This document is a pre-requisite for the business of importation. It is an insurance certificate by a local Insurer of the goods to be imported from the place of supply to delivery point. This is without prejudice to any form of insurance that may have been procured off shore under CBN Governor there must be local insurer.

  • Letters of Credit

Commercial letters of credit, the most frequent method of payment for goods in international trade transactions, have frequently been described as the lifeblood of international commerce which in its modern form has become an integral part of all banking systems worldwide as per Acknor CJ in Intraco Ltd v. Notis Shipping Corporation of Liberia, The Bhoja Trader (1981) II Lloyds Report 256.

However, it can be argued that another, related method of payment is of equal importance, namely the independent or “on-demand” payment undertaking. This form of payment encompasses, independent or on-demand bank guarantees and performance bonds.

  • Bills for collection (BC’s)

Some importers may consider that the expense and effort involved in procuring an LC may be too cumbersome, and would opt for what is called Bills for Collection (also called BC’s).

Bills for collection is a simpler and cheaper alternative to L/C’s. This is a transaction where the customer receives his imported goods but the documents are sent to the Bank pending the time the Importer pays the Exporter or issues a legally binding undertaking to pay. For the importer this is a lower cost alternative to letter of credit.

  • Bank Guarantees and Performance Bonds

In the context of international trade finance, a guarantee typically has a different meaning. It usually means a primary and independent undertaking by the guarantor to pay if the conditions of the guarantee are satisfied. Such a guarantee is often prefaced by the words “bank”, “demand” or “first demand”. These terms appear to be used interchangeably. In other words, the word “guarantee” in the context simply means an undertaking (rather than its true legal meaning). In this context, a bank guarantee is normally an absolute undertaking by the bank to pay if the conditions for payment are satisfied.

  • Advance Payment Bonds and Guarantees

An advance payment bond or guarantee, also known as a progress bond, is a guarantee or bond provided by a party receiving an advanced payment to the party providing such advanced payment. At the exporter’s request, the issuing bank or institution issues the advance payment bond or guarantee in favour of the importer. This ensures that if the exporter fails to comply with its obligations under the relevant contract the importer can call on the advance payment bond or guarantee to be reimbursed the sums that it has paid in advance.

  • Bills of Exchange

A bill of exchange is essentially a negotiable instrument that provides an exporter with a right to receive payment at a fixed future date from the importer’s bank or nominated financial institution.

Bills of exchange can be payable either at a future date or immediately (that is, on sight). The ability to make payment by a bill that is payable at a later date is beneficial to both the importer and the exporter. The importer is granted credit on the goods that it is buying and the exporter can obtain immediate payment by selling the bill to a bank (or other financial institution). One of the key elements of a bill of exchange is that it allows for the facilitation of international trade without the intervention of any bank.

  • Draft

A draft, sometimes referred to as a bill of exchange, is the instrument normally used in international commerce to effect payment. A draft is simply an order written by an exporter instructing an importer, or importer’s agent, to pay a specified amount of money at a specified time.

  • Bill of Lading

International practice is to use drafts to settle trade transactions.  This differs from domestic practice in which a seller usually ships merchandise on an open account, followed by a commercial invoice that specifies the amount due and the terms of payment.

The bill of lading is issued to the exporter by the common carrier transporting the merchandise detailing the type, quantity and destination of goods [among other details] to be carried.

It serves three purposes:

  1. it is a receipt,
  2. a contract,
  3. and document of title.

As a receipt, the bill of lading indicates that the carrier has received the merchandise described on the face of the document.  As a contract, it specifies that the carrier is obligated to provide a transportation service in return for a certain charge.  As a document of title, it can be used to obtain payment or a written promise of payment before the merchandise is released to the importer.

  • Proforma Invoice (PFI)

This captures the details of the import items and the various terms agreed by both parties. Specifically, Description of the Items, the Quantities, Unit Price, Total Price, Freight Charge, Countries of Origin and Supply of the items, Port of Discharge, Payment Terms [among other Conditions] are covered by the Proforma Invoice.

  • Import licences
  • NAFDAC Import Permit
  • PHCN Import Permit
  • DPRI Import Permit & Evidence of storage facility
  • Pharmacists’ Council of Nigeria (PCN) Registration Certificate and Pharmaceuticals.

 

*Full details of this workshop material is contained in Volume VI,

Compendium of AlphaJuris CLE Workshop Materials.

Order Your Copy Call – 09098655520

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