NIBAF Foreign Trade cheat sheet

The Foreign Exchange Regulation Act, 1947 is Pakistan's parent exchange-control statute; the State Bank of Pakistan administers it through the Foreign Exchange Manual, which binds authorized dealers.

The Imports and Exports (Control) Act, 1950 empowers the federal government to issue the Import Policy Order and Export Policy Order, which specify prohibited, restricted and permissible goods and their conditions.

The Customs Act, 1969 governs classification under the Harmonized System, customs valuation, duty assessment, warehousing and clearance of imports and exports.

UCP 600 (ICC Publication No. 600) applies to a documentary credit only when the credit text expressly incorporates it; ISBP 745 (ICC Publication No. 745) states the examination practice that supplements it.

Incoterms 2020 contain 11 rules that allocate delivery point, risk transfer, cost and clearance obligations; they do not govern payment, title transfer or remedies for breach.

SBP Prudential Regulations, issued under the Banking Companies Ordinance, 1962, prescribe exposure limits, asset classification and provisioning for trade finance assets.

The Anti-Money Laundering Act, 2010 (as amended) together with the FATF Recommendations forms the statutory AML/CFT basis for screening and reporting trade transactions.

Pakistan is a party to the New York Convention, 1958, so foreign arbitral awards are enforceable and arbitration clauses in trade contracts are recognized by local courts.

Core import document set: commercial invoice, packing list, transport document (bill of lading or airway bill), certificate of origin, insurance document, and inspection or quality certificate where the credit or law requires it.

A bill of lading is a document of title and is negotiable when consigned 'to order'; an airway bill, sea waybill and road consignment note are not documents of title.

Under D/P the collecting bank releases documents only against payment; under D/A it releases them against acceptance of a usance draft, and in neither case does the bank undertake to pay (URC 522).

Under FOB the buyer contracts and pays main carriage and insurance; under CIF the seller does so, and the credit normally requires insurance of at least 110% of the CIF value (UCP 600 Art. 28).

Clearance in Pakistan runs through WeBOC and the Pakistan Single Window: filing of the goods declaration (bill of entry), assessment, duty payment, examination and release.

Import payments must be routed through an authorized dealer against the prescribed import form and supported by shipping documents; advance payments are subject to limits set in the Foreign Exchange Manual.

Insurance documents must be issued and signed by an insurer or underwriter, cover the risks stipulated in the credit, and be dated no later than the date of shipment.

At retirement the bank releases documents to the importer against payment or acceptance and endorses the bill of lading so the importer can claim the goods from the carrier.

Standard export set: commercial invoice, packing list, bill of lading or airway bill, certificate of origin, bill of exchange, and inspection or quality certificate where the credit requires one.

Pakistan's exchange-control rules require export proceeds to be realized and repatriated through an authorized dealer within the period fixed in the Foreign Exchange Manual, generally 180 days from shipment.

An export form (E-Form) is completed for each shipment and verified through the bank; it links the shipped goods and invoice value to the later realization of proceeds.

SBP's Export Finance Scheme provides concessional refinance to banks for pre-shipment and post-shipment export finance; the Export Facilitation Scheme, 2021 allows duty-free input imports for exporters.

Duty drawback or rebate and zero-rating of sales tax are export incentives administered by Customs and FBR; claims require proof of export and, where applicable, proof of realization.

Negotiation of export bills is purchase or discount of documents before maturity; the negotiating bank retains recourse to the exporter unless it is a confirming bank.

Under UCP 600 Art. 14(c) documents must be presented within 21 calendar days after shipment and not later than the credit expiry, unless the credit stipulates a shorter period.

A sight draft demands immediate payment, while a usance draft allows the buyer a credit period commonly expressed as 30, 60, 90 or 120 days after sight or after the bill of lading date.

UCP 600 contains 39 articles and applies only where incorporated into the credit; the credit is independent of the sale contract (Art. 4) and banks deal in documents, not goods (Art. 5).

Art. 14(b) allows a maximum of five banking days following the day of presentation to examine documents; Art. 16 requires refusal by a single notice stating each discrepancy and precludes later reliance on unstated ones.

Art. 3 interpretations: 'on or about' means plus or minus five calendar days; 'from' and 'until' include the date mentioned; 'after' excludes it; 'first half' means days 1 to 15.

Art. 28 requires an insurance document to cover at least 110% of the CIF or CIP value and to be dated no later than the date of shipment.

Art. 30 permits 10% tolerance where 'about' is used, and 5% tolerance in amount, quantity and unit price where quantity is not stated in packing units or individual items.

Art. 20 requires a bill of lading to show on-board shipment, to be signed by the carrier, master or a named agent, and to constitute the full set of originals issued.

Amendments under Art. 10 bind the issuing bank from the time it issues them, but the beneficiary is bound only on acceptance; silence by the beneficiary is not acceptance.

Credit variants include sight and usance, confirmed and unconfirmed, transferable (Art. 38), back-to-back, revolving, red-clause and standby; eUCP 600 governs electronic presentation.

URC 522 governs documentary collections: a bank receives documents under instructions from the principal and presents them to the drawee for payment or acceptance.

Parties to a collection are the principal (exporter), remitting bank, collecting or presenting bank and drawee (importer); banks act on documents only and have no duty to take charge of goods.

A bill of exchange is an unconditional written order signed by the drawer requiring the drawee to pay a sum certain to order or bearer on demand or at a fixed or determinable future time.

URDG 758 (35 articles) governs demand guarantees and counter-guarantees; payment is due only against a complying demand presented on or before the expiry date.

Common guarantee types: bid or tender bond, performance guarantee, advance payment guarantee, retention money guarantee, payment guarantee and counter-guarantee.

ISP98 (89 rules) governs standby letters of credit; it presumes irrevocability, strict compliance and presentation in the stated place and period.

Forfaiting is the non-recourse purchase of medium- or long-term export receivables, usually avalised by a bank; factoring is short-term receivables purchase with ledger management.

Avalisation is a bank's endorsement on a bill of exchange guaranteeing payment, which improves the bill's negotiability and lowers the discount rate.

SWIFT MT700 issues a documentary credit, MT707 amends it, MT103 effects a customer transfer, MT202 makes an interbank cover payment, and MT760 issues a guarantee or standby.

ISO 20022 (CBPR+) messaging is replacing SWIFT MT payment messages, with a coexistence period running until November 2025.

A nostro account is our account held with a correspondent abroad; a vostro is their account with us; a loro is a third-party account held with another bank.

Pakistan's payment infrastructure includes RTGS for large-value interbank settlement, Raast for instant retail payments, and 1LINK for ATM and switch connectivity.

Cross-border remittances to Pakistan must arrive through licensed banks, exchange companies or approved channels; the Pakistan Remittance Initiative incentivizes formal channels.

Authorized dealers may book forward cover for importers and exporters only against a genuine underlying trade transaction, documented at the time of booking.

Foreign exchange exposure in trade is classified as transaction, translation and economic exposure, hedged with forwards, swaps and options.

SWIFT gpi provides end-to-end tracking of cross-border payments with fee transparency and faster credit of funds to beneficiary accounts.

The three stages of money laundering are placement, layering and integration; TBML moves value between jurisdictions by misrepresenting trade transactions.

TBML techniques include over- and under-invoicing, multiple invoicing of the same shipment, falsely described goods, short or over-shipment, and phantom shipping.

The FATF 40 Recommendations set the global AML/CFT standard, and the Egmont Group links national financial intelligence units for exchange of financial intelligence.

Pakistan's AML Act, 2010 (as amended) requires financial institutions to file suspicious transaction and suspicious activity reports with the Financial Monitoring Unit, typically through goAML.

Customer due diligence requires identification and verification of the customer, identification of the beneficial owner, understanding of the business purpose, and ongoing monitoring.

The Trade Finance Principles issued by the Wolfsberg Group, ICC and BAFT call for screening of goods, vessels, routes, counterparties and dual-use items before processing.

Red flags include payments from unrelated third parties, unusual transit routes, free trade zones, goods inconsistent with the customer's business, and rapid circular movement of funds.

FATF Recommendation 14 requires licensing or registration and monitoring of money or value transfer services; unlicensed hawala and hundi channels are prohibited.

Expected loss is computed as PD x LGD x EAD, and drives pricing, provisioning and capital allocation for trade exposures.

Principal trade risks are credit, country and sovereign, foreign exchange, interest rate, commodity, operational, documentary, transport and fraud risk.

SBP Prudential Regulations classify advances into OAEM, substandard, doubtful and loss, each carrying prescribed provisioning percentages.

Country risk is mitigated by confirmation of credits through top-tier banks, export credit insurance, and cover from export credit agencies.

Documentary risk is reduced by pre-checking credit terms against UCP 600 and ISBP 745 before shipment and by presenting exactly the documents the credit requires.

Transport risk rests with the party holding risk under the applicable Incoterm; marine cargo clauses run from ICC(A) (widest) through ICC(B) to ICC(C) (named perils only).

Fraud indicators include forged or duplicated bills of lading, phantom shipments, related-party circular trade and round-amount invoices with no logistics evidence.

Concentration risk is controlled by single-borrower, sector and country limits set in the bank's risk appetite, alongside SBP exposure ceilings and Basel credit conversion factors on LC and guarantee commitments.