Lemery Colleges, Inc.

A. Bonifacio St., Brgy. Bagong Sikat, Lemery, Batangas

SCHOOL OF BUSINESS AND MANAGEMENT

DEPARTMENT OF CUSTOMS ADMINISTRATION

MODULES FOR
BORDER CONTROL
AND SECURITY
Customs Management
202
NAME OF
STUDENT
YEAR &
SECTION

Course Code : CM202

Course : BORDER CONTROL AND SECURITY
Description
Credit Unit : 3 Units
Instructor : Seychelle Anne H.Marasigan,LCB

MODULE 1
CUSTOMS JURISDICTION AND CUSTOMS CONTROL
Jurisdiction (from Latin juris 'law' + dictio 'declaration') is the practical authority granted to a
legal body to administer justice, as defined by the kind of case, and the location of the issue
(its situs). In federations like the United States, areas of jurisdiction apply to local, state, and
federal levels.
Colloquially it is used to refer to the geographical area to which such authority applies, e.g.,
the court has jurisdiction over all of Colorado. The legal term refers only to the granted
authority, not to a geographical area. (WIKIPEDIA)

Title III OF THE RA 10863 OF THE CUSTOMS MODERNIZATION AND

TARIFF ACT

CHAPTER 1
Customs Jurisdiction and Customs Control

SECTION 300. Customs Jurisdiction.— For the effective implementation of this Act,
the Bureau shall exercise jurisdiction over all seas within Philippine territory and all
coasts, ports, airports, harbors, bays, rivers and inland waters whether navigable or not
from the sea and any means of conveyance.

The Bureau shall pursue imported goods subject to seizure during its transport by land,
water and air and shall exercise jurisdiction as may be necessary for the effective
enforcement of this Act. When a vessel or aircraft becomes subject to seizure for violation
of this Act, a pursuit of such vessel or aircraft which began within the territorial waters or
air space may continue beyond the same, and the vessel or aircraft may be seized in the
high seas or international air space.

“SEIZURE”- shall refer to the actual or constructive taking or bringing into custody the
goods, things or chattels by virtue of a Warrant of Seizure and Detention issued by the
Collector of Customs for violation of the CMTA

CHAPTER 2
CUSTOMS CONTROL

SECTION 301. Customs Control Over Goods.— All goods, including means of
transport, entering or leaving the customs territory, regardless of whether they are liable
to duties and taxes, shall be subject to customs control to ensure compliance with this
Act.

“GOODS”- shall refer to articles, wares, merchandise and any other items which may
include Philippine and foreign notes and coins imported or exported beyond the allowable
amounts prescribed by law

In the application of customs control, the Bureau shall employ audit-based controls and
risk management systems, use automation to the fullest extent possible, and adopt a
compliance measurement strategy to support risk management.

The Bureau shall seek to cooperate and conclude mutual administrative assistance
agreements with other customs administrations to enhance customs control. The Bureau
shall consult, coordinate, and cooperate with other government regulatory agencies, free
zones authorities, and the customs stakeholders, in general, to enhance customs control.

SECTION 302. Enforcement of Port Regulation of the Bureau of Quarantine.

— Customs officials and employees shall cooperate with the quarantine authorities in the
enforcement of the port quarantine regulations promulgated by the Bureau of Quarantine
and shall give effect to the same insofar as connected with matters of shipping and
navigation.

SECTION 303. Control Over Premises Used for Customs Purposes.— The
Bureau shall, for customs purposes, have exclusive control, direction and management of
customs offices, facilities, warehouses, ports, airports, wharves, infrastructure and other
premises in the Customs Districts, in all cases without prejudice to the general police
powers of the local government units (LGUs), the Philippine Coast Guard and of law
enforcement agencies in the exercise of their respective functions.

SECTION 304. Power of the President to Subject Premises to Customs

Jurisdiction.— When public interest requires, the President may, by executive order,
declare any public wharf, landing place, infrastructure, street or land, in any port of entry
under the jurisdiction of the Bureau as may be necessary, for customs purposes and/or to
authorize a port or terminal operator to transfer overstaying cargoes in an inland depot or
terminal.

SECTION 305. Trespass or Obstruction of Customs Premises.— No person

shall enter or obstruct a customs office, warehouse, port, airport, wharf, or other premises
under the control of the Bureau without prior authority, including the streets or alleys
where these facilities are located.

SECTION 306. Special Surveillance for the Protection of Customs Revenue

and Prevention of Smuggling.— The Bureau shall conduct surveillance on vessels or
aircrafts entering Philippine territory and on imported goods entering the customs
office: Provided, That the function of the Philippine Coast Guard to prevent and suppress
the illegal entry of these goods, smuggling and other forms of customs fraud and
violations of maritime law and its proper surveillance of vessels entering anchor leaving
Philippine territory as provided in Republic Act No. 9993, otherwise known as the
“Philippine Coast Guard Law of 2009”, shall continue to be in force.

“SMUGGLING” – refers to the fraudulent act of importing any goods into the Philippines,
or the act of assisting in receiving, concealing, buying, selling, disposing or transporting such
goods, with full knowledge that the same have been fraudulently imported or exported

SECTION 307. Temporary Storage of Goods.— Subject to the rules and

regulations to be issued by the Secretary of Finance, the Commissioner shall establish a
system for temporary storage of imports prior to goods declaration in case of abandoned
or overstaying goods.

TITLE II OF THE CUSTOMS MODERNIZATION AND TARIFF ACT

CHAPTER 3
 EXERCISE OF POLICE AUTHORITY

SECTION 214. Persons Exercising Police Authority.— For the effective

implementation of this Act, the following persons are authorized to effect search, seizure,
and arrest:

(a) Officials of the Bureau, District Collectors, Deputy District Collectors, police
officers, agents, inspectors and guards of the Bureau;

(b) Upon authorization of the Commissioner, officers and members of the Armed
Forces of the Philippines (AFP) and national law enforcement agencies; and

(c) Officials of the BIR on all cases falling within the regular performance of their
duties, when payment of internal revenue taxes is involved.

All officers authorized by the Commissioner to exercise police authority shall at all times
coordinate with the Commissioner.

Goods seized by deputized officers pursuant to this section shall be physically turned-
over immediately to the Bureau, unless provided under existing laws, rules and
regulations.

For this purpose, mission orders shall clearly indicate the specific name carrying out the
mission and the tasks to be carried out.

Subject to the approval of the Secretary of Finance, the Commissioner shall define the
scope, areas covered, procedures and conditions governing the exercise of such police
authority including custody and responsibility for the seized goods. The rules and
regulations to this effect shall be furnished to the concerned government agencies and
personnel for guidance and compliance.

All seizures pursuant to this section must be effected in accordance with the provisions
on the conduct of seizure proceedings provided for in Chapters 3 and 4 of Title XI of this
Act.

“POLICE AUTHORITY”-shall refer to the authority granted to specific government

employee,to effect search,seaizure and arrest in places where authority maybe exercised
arising from the implantation of CMTA and other related laws.

SECTION 215. Place Where Authority May be Exercised.— All persons

exercising police authority as described in the preceding section shall, only exercise
powers within customs premises as provided for in Section 303 of this Act, and within the
limits of the authority granted by the Commissioner, Port and airport authorities in allports
of entry shall provide authorized customs officers with unhampered access to all premises
within their administrative jurisdiction.

“CUSTOMS PEMISES”- shall include customs offices, facilities, warehouses, ports,

airports, wharves, infrastructure and other areas within the customs districts over which the
Bureau shall have exclusive control, direction and management for customs purposes

SECTION 216, Exercise of Power of Seizure.— Any person exercising police

authority under this Act has the power and duty to seize any vessel, aircraft, cargo,
goods, animal or any other movable property when the same is subject to forfeiture or
when they are subject of a fine imposed under this Act.

SECTION 217. Duty of Officer to Disclose Official Character.— For the proper
exercise of police authority, any authorized person shall disclose the nature of the
authority upon being questioned at the time of exercise thereof and shall exhibit the
corresponding written authority issued by the Commissioner.

“CUSTOMS OFFICER” – as distinguished from clerk or employee, refers to a person

whose duty, not being clerical or manual in nature, involves the exercise of discretion in
performing the function of the Bureau. It may also refer to an employee authorized to perform
a specific function of the Bureau

SECTION 218. Authority to Require Assistance and Information.— Any person

exercising police authority may demand the assistance of and request information from
the Philippine National Police (PNP), the AFP and other national law enforcement
agencies, when necessary, to effect any search, seizure or arrest. It shall be the duty of
any police officer and other national law enforcers to give such lawful assistance.

SECTION 219. Authority to Enter Properties.— Any person exercising police

authority may, at any time, enter, pass through, and search any land, enclosure,
warehouse, store, building or structure not principally used as a dwelling house.

When a security personnel or any other employee lives in the warehouse, store, or any
building, structure or enclosure that is used for storage of goods, it shall not be
considered as a dwelling house for purposes of this Act.

“DWELLING HOUSE” – is any building or structure exclusively devoted for rest and
comfort, as distinguished from places devoted to business or offices

SECTION 220. Authority to Search Dwelling House.— A dwelling house may be

entered and searched only upon warrant issued by a Judge of a competent court, the
sworn application thereon showing probable cause and particularly describing the place
to be searched and the goods to be seized.

SECTION 221. Authority to Search Vessels or Aircrafts and Persons or

Goods Conveyed Therein.— Any person exercising police authority under this Act may
board, inspect, search and examine a vessel or aircraft and any container, trunk,
package, box or envelope found on board, and physically search and examine any
person thereon. In case of any probable violation of this Act, the person exercising police
authority may seize the goods, vessel, aircraft, or any part thereof.

Such power to search includes removal of any false bottom, partition, bulkhead, or any
other obstruction for the purpose of uncovering any concealed dutiable or forfeitable
goods.

The proceeding herein authorized shall not give rise to any claim for damage caused to
the goods, vessel or aircraft, unless there is gross negligence or abuse of authority in the
exercise thereof.
 SECTION 222. Authority to Search Vehicles, Other Carriers, Persons and
Animals.— Upon reasonable cause, any person exercising police authority may open
and examine any box, trunk, envelope, or other container for purposes of determining the
presence of dutiable or prohibited goods. This authority includes the search of
receptacles used for the transport of human remains and dead animals. Such authority
likewise includes the power to stop, search, and examine any vehicle or carrier, person or
animal suspected of holding or conveying dutiable or prohibited goods.

“PROHIBITED IMPORTATION” – the importation and exportation of the following goods

are prohibited: a. Written or printed goods in any form containing any matter advocating or
inciting treason, rebellion, insurrection, edition against the government of the Philippines, or
forcible resistance to any law of the Philippines, or written or printed goods containing any
threat to take the life of, or inflict bodily harm upon any person in the Philippines; b. Goods,
instruments, drugs and substances designed, intended or adapted for producing unlawful
abortion, or any printed matter which advertises, describes or gives direct or indirect
information where, how or by whom unlawful abortion is committed; c. Written or printed
goods, negatives or cinematographic films, photographs, engravings, lithographs, objects,
paintings, drawings or other representation of an obscene or immoral character; d. Any goods
manufactured in whole or in part of gold, silver, or other precious metals or alloys and the
stamp, brand or mark does not indicate the actual fineness of quality of the metals or alloys; e.
Any adulterated or misbranded food or goods for human consumption or any adulterated or
misbranded drug in violation of relevant laws and regulations; f.Infringing goods as defined
under the Intellectual Property Code and related laws; and g. All other goods or parts thereof
which importation and exportation are explicitly prohibited by law or rules and regulations
issued by the competent authority.

SECTION 223. Authority to Search Persons Arriving From Foreign

Countries.— Upon reasonable cause, travelers arriving from foreign countries may be
subjected to search and detention by the customs officers. The dignity of the person
under search and detention shall be respected at all times. Female inspectors may be
employed for the examination and search of persons of their own sex.

“REASONABLE CAUSE” – is that which an ordinary person of average intelligence and

sound mind would believe.

SECTION 224. Power to Inspect and Visit.— The Commissioner or any customs
officer who is authorized in writing by the Commissioner, may demand evidence of
payment of duties and taxes on imported goods openly for sale or kept in storage. In the
event that the interested party fails to produce such evidence within fifteen (15) days, the
goods may be seized and subjected to forfeiture proceedings: Provided, That during the
proceedings, the interested party shall be given the opportunity to prove or show the
source of the goods and the payment of duties and taxes thereon: Provided, Further, That
when the warrant of seizure has been issued but subsequent documents presented
evidencing proper payment are found to be authentic and in order, the District Collector
shall, within fifteen (15) days from the receipt of the motion to quash or recall the warrant,
cause the immediate release of the goods seized, subject to clearance by the
Commissioner: Provided, Finally, That the release thereof shall not be contrary to law.
EXERCISE 1

CUSTOMS JURISDICTION AND CONTROL/EXERCISE OF POLICE

AUTHORITY

Objective:
1. To clarify the extent and limits of the exercise of customs jurisdiction and police authority;
2.To know the process, areas covered and conditions governing the exercise of customs
jurisdiction and police authority over all importation, or all export shipments, suspected
smuggled and prohibited goods found anywhere in the Philippines; and carriers and persons
suspected to be in possession of smuggled and prohibited goods and all other matters which
are suspected to be violative of the CMTA and related laws.

WHAT TO DO:

 Download the Customs Administrative Order 3-2019 at http://customs.gov.ph/wp-

content/uploads/2019/04/cao-03-
2019_Customs_Jurisdiction_and_Excercise_of_Police_Authority.pdf
 Try to relate the said CAO to the laws of the RA 10863 regarding the Customs
Jurisdiction and COnrol and the Exercise of Police Authority.
 Check if the said CAO is really in line with what the law is saying in the CMTA.
 Research for a scenario that happened in the Philippines that shows Customs
Jurisdiction and Control.

MODULE II
MODES OF PAYMENT
UCC 600- The Uniform Customs & Practice for Documentary Credits (UCP 600) is a
set of rules agreed by the International Chamber of Commerce, which apply to finance
institutions which issue Letters of Credit – financial instruments helping companies finance
trade. Many banks and lenders are subject to this regulation, which aims to standardise
international trade, reduce the risks of trading goods and services, and govern trade.
 MODES OF PAYMENTS FOR IMPORTS
1.Letter of Credit (LC)
2.Documents Against Payment (D/P)
3.Documents Againts Acceptance (D/A)
4. Open Account Arrangements (O/A)
5.Direct Remittance
1. LETTER OF CREDIT
A letter of credit (LC), also known as a documentary credit or bankers
commercial credit, or letter of undertaking (LoU), is a payment mechanism used
in international trade to provide an economic guarantee from a creditworthy bank to an
exporter of goods. Letters of credit are used extensively in the financing of international trade,
where the reliability of contracting parties cannot be readily and easily determined. Its
economic effect is to introduce a bank as an underwriter, where it assumes the counterparty
risk of the buyer paying the seller for goods.(Wikipedia)
A letter of credit is an important payment method in international trade. It is
particularly useful where the buyer and seller may not know each other personally and are
separated by distance, differing laws in each country, and different trading customs. It is a
primary method in international trade to mitigate the risk a seller of goods takes when
providing those goods to a buyer. It does this by ensuring that the seller is paid for presenting
the documents which are specified in the contract for sale between the buyer and the seller.
That is to say, a letter of credit is a payment method used to discharge the legal obligations for
payment from the buyer to the seller, by having a bank pay the seller directly. Thus, the seller
relies on the credit risk of the bank, rather than the buyer, to receive payment. Upon
presentation of the documents, the goods will traditionally be in the control of the issuing
bank, which provides them security against the risk that the buyer (who had instructed the
bank to pay the seller) will repay the bank for making such a payment.
In the event that the buyer is unable to make payment on the purchase, the seller may
make a demand for payment on the bank. The bank will examine the beneficiary's demand and
if it complies with the terms of the letter of credit, will honor the demand. Most letters of
credit are governed by rules promulgated by the International Chamber of Commerce known
as Uniform Customs and Practice for Documentary Credits. The current version, UCP 600,
became effective July 1, 2007. Banks will typically require collateral from the purchaser for
issuing a letter of credit and will charge a fee which is often a percentage of the amount
covered by the letter of credit.
PARTIES TO L/C TRANSACTION

UCP 600 (2007 Revision) regulates common market practice within the letter of
credit market. It defines a number of terms related to letters of credit which categorise the
various factors within any given transaction. These are crucial to understanding the role
financial institutions play within. These include:

 The Applicant is the person or company who has requested the letter of credit to be
issued; this will normally be the buyer.
 The Beneficiary is the person or company who will be paid under the letter of credit;
this will normally be the seller (UCP600 Art.2 defines the beneficiary as "the party in
whose favour a credit is issued").
 The Issuing Bank is the bank that issues the credit, usually following a request from an
Applicant.
 The Nominated Bank is a bank mentioned within the letter of credit at which the credit
is available (in this respect, UCP600 Art.2 reads: "Nominated bank means the bank
with which the credit is available or any bank in the case of a credit available with any
bank") .
 The Advising Bank is the bank that will inform the Beneficiary or their Nominated
Bank of the credit, send the original credit to the Beneficiary or their Nominated Bank,
and provide the Beneficiary or their Nominated Bank with any amendments to the
letter of credit.
 Confirmation is an undertaking from a bank other than the issuing bank to pay the
Beneficiary for a Complying Presentation, allowing the Beneficiary to further reduce
payment risk, although Confirmation is usually at an extra cost.
 Confirming Bank is a bank other than the issuing bank that adds its confirmation to
 credit upon the issuing bank's authorization or request thus providing more security to
the beneficiary.
 A Complying Presentation is a set of documents that meet with the requirements of the
letter of credit and all of the rules relating to letters of credit.

TYPES OF LETTER OF CREDIT

According to Form

 Import/export(Commercial): — The same credit can be termed an import or export

letter of credit depending on whose perspective is considered. For the importer it is
termed an Import LC and for the exporter of goods, an Export LC.
 Revocable/ Irrevocable: — Whether a LC is revocable or irrevocable determines
whether the buyer and the issuing bank are able to manipulate the LC or make
corrections without informing or getting permissions from the seller. According to UCP
600, all LCs are irrevocable, hence in practice the revocable type of LC is increasingly
obsolete. Any changes (amendment) or cancellation of the LC (except when expired) is
done by the applicant (buyer) through the issuing bank. It must be authenticated and
approved by the beneficiary (seller).
 Confirmed/Unconfirmed: — An LC is said to be confirmed when a second bank adds
its confirmation (or guarantee) to honor a complying presentation at the request or
authorization of the issuing bank.
 Restricted/ Unrestricted: — Either the one advising bank can purchase a bill of
exchange from the seller in the case of a restricted LC or; the confirmation bank is not
specified, which means that the exporter can show the bill of exchange to any bank and
receive a payment on an unrestricted LC.
 Deferred / Usance: — A credit that is not paid/assigned immediately after
presentation, but after an indicated period that is accepted by both buyer and seller.
Typically, seller allows buyer to pay the required money after taking the related goods
and selling them.

According to Term

 At Sight: — A credit that the announcer bank immediately pays after inspecting the
carriage documents from the seller.
 Red Clause: — Before sending the products, seller can take the pre-paid part of the
money from the bank. The first part of the credit is to attract the attention of the
accepting bank. The first time the credit is established by the assigner bank, is to gain
the attention of the offered bank. The terms and conditions were typically written in red
ink, thus the name.[14]
 Back to Back: — A pair of LCs in which one is to the benefit of a seller who is not
able to provide the corresponding goods for unspecified reasons. In that event, a second
credit is opened for another seller to provide the desired goods. Back-to-back is issued
to facilitate intermediary trade. Intermediate companies such as trading houses are
sometimes required to open LCs for a supplier and receive Export LCs from buyer.
 Standby Letter of Credit: — Operates like a Commercial Letter of Credit, except that
typically it is retained as a "standby" instead of being the intended payment
mechanism. In other words, this is a LC which is intended to provide a source of
payment in the event of non-performance of contract. This is a security against an
obligation which is not performed. If you present the bank with demands of non-
payment it is not a guarantee - trigger isn't non-payment - it is presented by
documentation. UCP600 article 1 provides that the UCP applies to
Standbys; ISP98 applies specifically to Standby letters of Credit; and the United
Nations Convention on Independent Guarantees and Standby Letters of Credit applies
to a small number of countries that have ratified the Convention.

Letter of Credits

1. must be opened on or before date of shipment

2. Valid for one year
3. Only one L/C should be opened for each import transaction
 4. Documentary Requirements:

-Duly accomplished L/C application

-Firm offer or Proforma Invoice

-Permit/Clearance from appropriate government agency

-Duly Accomplished IED basis of advanced payment of duties

2. DOCUMENTS AGAINST PAYMENT (D/P)

The D/P transaction utilizes a sight draft, where payment is on demand.
After the goods are shipped, the exporter sends the sight draft to the clearing bank,
along with documents necessary for the importer/buyer to obtain the goods from customs. The
buyer has to settle the payment with the bank before the documents are released and he can
take delivery of the goods. If the buyer fails or refuses to pay, the exporter has the right to
recover the goods and resell them.
On the surface, D/P transactions seem fairly safe from the seller’s perspective.
However, in practice there are risks involved.
 The buyer can refuse to honor payment on any grounds.
 When the goods are shipped long distances, say from Hong Kong to the United States,
it is usually impractical and too expensive for the seller to pay for return transportation.
Thus, the seller is forced to sell the goods in the original country of destination at what
is usually a heavy discount.
 Unlike letters of credit, the exporter's bank does not assume liability to pay if the
importer dishonors the Bill of Exchange
 In cases of shipments by air freight, it is possible that the buyer will actually receive
the goods before going to the bank and paying for them.

3. DOCUMENTS AGAINST ACCEPTANCE (D/A)

The D/A transaction utilizes a term or time draft. In this case, the documents required
to take possession of the goods are released by the clearing bank only after the buyer accepts a
time draft drawn upon him. In essence, this is a deferred payment or credit arrangement. The
buyer’s assent is referred to as a trade acceptance.
D/A terms are usually after sight, for instance “at 90 days sight”, or after a specific
date, such as “at 150 days bill of lading date.”
As with open account terms, there are some inherent risks in selling on D/A:
 As with a D/P, the importer can refuse to accept the goods for any reason, even if they
are in good condition.
 There is a slight risk that the importer will receive their goods without the original
shipping documents (such as a bill of landing, commercial invoice, or certificate of
origin)
 The buyer can default on the payment of a trade acceptance. Unless it has been
guaranteed by the clearing bank, the seller will need to institute collection procedures
and/or legal action.
 OPEN ACCOUNT (O/A) ARRANGEMENTS
An open account transaction is a sale where the goods are shipped and delivered
before payment is due. Obviously, this option is the most advantageous for the importer in
terms of cash flow and cost, but it is consequently the highest risk option for an exporter.
Because of intense competition in export markets, foreign buyers often press exporters for
open account terms, since the extension of credit by the seller to the buyer is more common
abroad. Therefore, exporters who are reluctant to extend credit may lose a sale to their
competitors. However, the exporter can offer competitive open account terms while
substantially mitigating the risk of non-payment by using of one or more of the appropriate
trade finance techniques, such as export credit insurance.
The goods, together with all the necessary documents, are shipped directly to the
importer who has agreed to pay the exporter's invoice at a specified date. The exporter should
be absolutely confident that the importer will accept shipment and pay at the agreed time and
that the importing country is commercially and politically secure. Open account terms may
help win customers in competitive markets and can be used with one or more of the
appropriate trade finance techniques that mitigate the risk of non-payment.

 DIRECT REMITTANCE
Commercial banks may service applications for direct remittance of import
payments effected through modes other than those under L/D, D/P, D/A or O/A only upon
presentation of the complete original shipping documents as well as copy of the CRF and/or
imports clearance for regulated items issued by concerned government agencies, if applicable.

CBP CIRCULAR NO. 1389

Series of 1993

CONSOLIDATED FOREIGN EXCHANGE RULES AND REGULATIONS

Pursuant to Monetary Board Resolution No. 246 dated March 26, 1993 the foreign exchange rules and
regulations on current accounts, capital accounts, foreign currency deposit units, offshore banking units
and representative offices of foreign banks are hereby consolidated as follows:

PART I

Current Accounts

CHAPTER I

Non-Trade Foreign Exchange Receipts and Disbursements, Transfers of Local Currencies and Gold
Transactions

SECTION 1. Disposition of Foreign Exchange Receipts. — Foreign exchange receipts, acquisitions

or earnings of residents from non-trade sources may, at the option of said residents, be sold for pesos
to Authorized Agent Banks (AABS) or outside the banking system, retained, or deposited in foreign
currency accounts, whether in the Philippines or abroad. All categories of banks (except Offshore
Banking Units [OBUs]), duly licensed by the Central Bank shall be considered as AABs.

SECTION 2. Sales of Foreign Exchange by AABs. — AABS may sell foreign exchange to residents,
(including the Government, its political subdivisions and instrumentalities and government-owned and
-controlled corporations, upon the latter's written application for any non-trade purpose without need of
prior Central Bank approval. However, foreign exchange for payment of obligations that are foreign
loan- or foreign-investment related, may be sold by AABs to residents upon showing that Central Bank
approval and/or registration has been obtained for the loan or investment, whenever required by these
regulations. AABs selling foreign exchange for remittance abroad shall ensure that taxes, when
required, have been paid and that the remittance is net of such taxes.

SECTION 3. Purchases of Foreign Exchange by Non-Residents. — Non-residents may purchase

foreign exchange from AABs only to the extent of the amount shown to have been sold by them for
pesos to AABs. Departing non-residents may reconvert at airports or other ports of exit unspent pesos
of up to a maximum of US$200 or an equivalent amount in any other foreign currency calculated at
prevailing exchange rates, without need of showing proof of previous sale by them of foreign exchange
to AABs.

SECTION 4. Import/Export of Philippine Currency. — No person may import or export nor bring with
him into or out of the country, or electronically transfer legal tender Philippine notes and coins, checks,
money order and other bills of exchange drawn in pesos against banks operating in the Philippines in
an amount exceeding P5,000.00 without authorization by the Central Bank.

The term "electronic transfer" as used herein shall mean a system where the authority to debit or credit
an account (bank, business or individual) is provided by wire, without a source document being mailed
to evidence the authority.

SECTION 5. Buying and Selling of Foreign Exchange and of Gold by Residents.

1. Foreign exchange may be freely bought and sold outside the banking system.

2. Except as provided in this Circular, gold and gold-bearing metals may likewise be bought and sold
without specific approval of the Central Bank.

3. Gold from small-scale miners shall be sold to Central Bank. All other forms or types of gold may, at
the option of the owner or producer thereof and with the consent of Central Bank, be sold and delivered
to the Central Bank.

The Central Bank may sell gold grains/pellets/bars and sheets to local jewelry manufacturers and other
industrial users upon application, or to banks exclusively for resale to jewelry manufacturers/industrial
users, at the Central Bank gold-selling price plus a service fee to cover costs including cost of
conversion and packaging.

CHAPTER II

Foreign Trade Transactions

A. Import Trade Transactions

SECTION 6. General Policy. — As a general rule, all kinds of merchandise imports are allowed.
However, the importation of certain commodities are regulated or prohibited for reasons of public health
and safety, national security, international commitments, and development/rationalization of local
industry.

SECTION 7. Classification of Imports. — Imports are classified as follows:

1. Freely Importable Commodities. These are commodities the importation of which is neither regulated
nor prohibited as defined under (2) and (3) hereunder. The importation may be effected without the
prior approval of or clearance from any government agency.

2. Regulated Commodities. These are commodities the importation of which requires

clearances/permits from appropriate government agencies including the Central Bank. They are
enumerated under Appendix I of this Circular.

3. Prohibited Commodities. These are commodities the importation of which is not allowed under
existing laws. They are enumerated under Appendix 2 of this Circular.

SECTION 8. Modes of Payment for Imports. — Commercial banks may sell foreign exchange to
service payments for imports under any of the following arrangements without prior CB approval
subject to the provisions of Section 9 to 12:

1. Letter of Credit (L/C);

2. Documents Against Payment (D/P);
3. Documents Against Acceptance (D/A);
4. Open Account Arrangement (O/A); and
5. Direct Remittance.

SECTION 9. Letter of Credit

1. Requirements for L/C Opening. All L/Cs must be opened on or before the date of shipment with
maximum validity of one (1) year. Likewise, only one L/C should be opened for each import transaction.
For purposes of opening an L/C, importers shall submit to the commercial bank the following
documents:

a. The duly accomplished L/C application;

b. Firm offer/proforma invoice which shall contain information on specific quantity of the importation,
unit cost and total cost, complete description/specification of the commodity and Philippine Standard
Commodity Classification statistical code;

c. Permits/clearances from appropriate government agencies, whenever applicable; and

d. Duly accomplished Import Entry Declaration (IED) Form which shall serve as basis for payment of
advance duties as required under PD 1853.

2. Amendments of L/Cs. L/C amendments need not be referred to the Central Bank for prior approval.
However, amendments extending the total validity period of an L/C for more than one (1) year, if
payment of the L/C is to be sourced from the banking system, shall be referred to the Central Bank for
prior approval.

3. Negotiation of L/Cs. L/Cs shall be negotiated in accordance with the terms and conditions set forth in
the L/C and shall be governed by the Uniform Customs and Practices on Documentary Credits. The
requirement of pre-shipment inspection/Clean Report of Findings (CRF) shall be strictly observed,
whenever applicable.

SECTION 10. Documents Against Payment (D/P)

1. Under the D/P arrangement, commercial banks shall advise the importer of the receipt of the
complete original shipping documents (inclusive of the CRF whenever applicable) and shall effect the
release of said documents to the importer upon receipt of payment.

2. Commercial banks shall remit payment to the supplier through the correspondent bank abroad.
SECTION 11. Documents Against Acceptance (D/A) and Open Account (O/A) Arrangements. — Under
a D/A arrangement, the shipping documents are released to the importer by the local bank concerned
thru the seller's bank upon the importers acceptance of the seller's bill of exchange obligating the
importer to pay for the shipment of some future date. Under an O/A arrangement, the shipping
documents are sent and released by the seller directly to the importer without coursing the documents
thru the banks, upon the importer's promise to pay at some future date after shipment.

1. Eligible Firms. Producers/manufacturers whether for the domestic or export market, oil firms,
franchised public utility concerns and importers-traders importing raw materials required by domestic
manufacturers are allowed to import under D/A and O/A arrangements.

2. Registration and Payment of D/A and O/A imports.

a. Importations under D/A and O/A arrangements shall be covered by a Central Bank Release
Certificate (CBRC) and registered with the Central Bank upon availment for monitoring purposes.
Commercial banks are authorized to issue the CBRC upon receipt of the complete shipping documents
inclusive of the CRF, if applicable, and submission by the importer of the duly accomplished Record of
Goods Imported (RGI) and the pertinent import permit (if applicable);

b. Payments sourced from the commercial banking system shall not be effected for unregistered
DA/OA imports. Payments prior to maturity date can be made provided these have already been
registered. Payments subsequent to the original maturity date may be allowed without prior Central
Bank approval provided that:

1) the importers report the extension of the maturity period to a specific date; and
2) the cumulative length of the maturity periods, including all extensions, does not in any case exceed
one (1) year from date of draft acceptance for D/A and B/L (Bill of Lading) date for O/A.

c. Payments of D/A and O/A obligations, the maturities of which shall have exceeded 360 days from
date of draft acceptance in case of D/A or B/L date in case of O/A shall be referred to the Central Bank
for approval; and

d. Mechanics of Registration Appendix 3 of this Circular contains the mechanics of reporting and
registration of D/A and O/A imports.

SECTION 12. Direct Remittance. — Commercial banks may service applications for direct remittance
of import payments effected through modes other than those under L/D, D/P, D/A or O/A only upon
presentation of the complete original shipping documents as well as copy of the CRF and/or imports
clearance for regulated items issued by concerned government agencies, if applicable.

SECTION 13. Other Import Arrangements. — Import arrangements not involving payments using
foreign exchange purchased from the banking system are also allowed without prior Central Bank
approval. These include:

1. Self-Funded/(No-Dollar) Imports. These are imports funded from importer's foreign currency deposit
accounts or those sent by suppliers abroad for which no payment in foreign exchange will be made
whether immediate or potential.

2. Importations on Consignment Basis. These are importations by export producers of raw materials
and accessories/supplies from foreign suppliers/buyers abroad for the manufacture or processing of
products destined for export to said foreign suppliers/buyers. These shall also include
machinery/equipment and spare parts consigned to the local manufacturer/processor for eventual
reexport to the consignor, provided that the equipment involved shall be used only in connection with
the processing of products for export.

SECTION 14. Comprehensive Import Supervision Scheme (CISS). — Goods destined for
importation into the Philippines shall be subject to inspection by the inspector(s) duly authorized by the
Government in the countries of supply, as to the quality, quantity, price/HCV, verification of Tariff and
Customs Code, classification and verification of Tariff rate, under a Comprehensive Import Supervision
Scheme (CISS).
Pursuant to Joint Order 1-91 (Appendix 4) which governs the implementation of the CISS, the following
commodities are subject to inspection:

1. Goods sold and/or supplied from all countries with FOB value of US$500.00 and above.

2. Goods invoiced or declared in the shipping documents as off-quality under such descriptive terms as
stocklots, side-runs, call rolls, seconds, mill lots, scraps, off-grade, reconditioned, used, junk or similar
terms conveying or purporting to convey the condition of the article as not being brand-new or first
quality, regardless of value.

B. Export Trade Transactions

SECTION 15. General Policy. — It is the policy of the Central Bank to encourage commodity exports
which generate foreign exchange earnings for the country. Accordingly, commodity exports are allowed
without restriction except for certain commodities which are regulated or prohibited for reasons of
national interest or by provision of law.

SECTION 16. Classification of Exports

1. Freely Exportable Commodities. These are commodities the exportation of which is neither regulated
nor prohibited. They may be effected without prior approval of or clearance from any government
agency.

2. Regulated Commodities. — These are commodities the exportation of which requires

clearances/permits from appropriate government agencies. The list of these products and the
appropriate government agencies/offices is shown in Appendix 5.

3. Prohibited Exports. — These are commodities the exportation or sale of which is

prohibited/penalized by law.

SECTION 17. Export Declaration (ED)

1. Individual Export Declaration

a. With Foreign Exchange Proceeds. — For every export shipment with foreign exchange proceeds,
exporters must accomplish Form (CBP 6-21-02, Revised 1991 (ED With Foreign Exchange Proceeds).
Exporters to ASEAN countries must likewise accomplish this ED even if the shipment is paid for in
Philippine pesos. The duly accomplished ED shall be submitted to the commercial bank which shall in
turn forward the same to the Bureau of Customs (BOC); and

b. Without Foreign Exchange Proceeds. — Every export shipment without foreign exchange proceeds
shall be covered by an Export Declaration Without Foreign Exchange Proceeds, issued by a
commercial bank using CBP Form No. 6-21-04. Household and personal effects forming part of the
accompanied baggage of an outgoing passenger leaving the Philippines shall be exempted from this
requirement.

2. Monthly Export Declaration (MED). — The use of a MED may be allowed by the commercial bank for
exports with or without foreign exchange proceeds that are frequent and recurring, using the same form
for ED under Section 17 but adding the word "Monthly" to the form title provided that the exporter shall
submit a summary report to the commercial bank of all shipments effected under the said MED. The
authority to use such a MED shall be valid for a period of one (1) year.

3. Registration and Issuance. — The commercial bank shall register all EDs it issues and shall adopt a
control number for each ED as prescribed by the Central Bank attached herewith as Appendix 6. No
ED shall be issued unless the Letter of Credit (L/C), Purchase Order (P. O.) or Sales Contract (S.C.) is
submitted to the commercial bank.

4. Validity Period. — An ED shall have a maximum validity period of ninety (90) days from date of
issue, inclusive of extensions, provided that the expiry date does not go beyond the delivery period
specified in the L/C, P. O. or S.C.

5. Amendments. — Amendments to the ED may be allowed by commercial banks at any time before
export negotiation without prior Central Bank approval.

6. Cancellation of ED. — Requests for cancellation of an ED may be given due course by the
commercial bank upon submission by the exporter of the original ED1 thereon or Certificate of Non-
Shipment issued by the Bureau of Customs.

SECTION 18. Modes and Currency of Payment

1. Authorized Modes. — Payments for exports may be made under any of the following modes without
prior Central Bank approval.
a. Letter of Credit (L/C);
b. Documents Against Payment (D/P)/Cash Against Document (CAD);
c. Documents Against Acceptance (D/A);
d. Open Account (O/A);
e. Intercompany Open Account Offset (Interco O/A) Arrangement (can be availed of only by firms with
parent/affiliate relationship abroad); and
f. Consignment.

2. Other Authorized Modes. — Payments for exports may also be made under the following modes
without prior Central Bank approval:

a. Export Advance — if the remittance is received more than thirty (30) days before shipment; and
b. Prepayment — if the remittance is received within thirty (30) days before shipment.

To enable the commercial bank to determine whether the remittance received is a prepayment or an
export advance, the exporter upon receipt of such remittance shall disclose to the commercial bank the
date the shipment is to be effected. Bank draft/telegraphic transfer, buyer's checks, traveller's checks or
acceptable foreign currency notes may be used in prepayment/export advance, but for buyer's checks,
the same shall be cleared before shipment.

3. Acceptable Currencies

a. Payments for exports may be made in the following currencies:

1) U.S. Dollar 13) Australian Dollar

2) Japanese Yen 14) Ringgit Malaysia

3) Pound Sterling 15) Italian Lira

4) Deutsche Mark 16) Saudi Rial

5) Hongkong Dollar 17) Kuwaiti Dinar

6) Swiss Franc 18) Bahrain Dinar

7) French Franc 19) Brunei Dollar

8) Canadian Dollar 20) Indonesian Rupiah

9) Netherlands Guilder 21) Thai Baht

10) Austrian Schilling 22) United Arab Emirates Dirham

11) Singapore Dollar 23) Such other currencies that may be

12) Belgian Franc declared acceptable by Central Bank

b. Payments may, however, be made in Philippine pesos for the following:

1) Exports to ASEAN countries provided that Central Bank shall not be asked to intervene in the
clearing of any balances from this payment scheme; and
2) Gold sales to Central Bank which are considered as constructive exports.

SECTION 19. Negotiation and Payment Procedures

1. Negotiation. — The exporter shall negotiate his bill of exchange/account with the commercial bank
together with the bill of lading/airway bill, signed commercial invoice and other documents as required.

The commercial bank shall certify to the said negotiation in the ED2 copy which shall form part of the
commercial banks Daily Report on Export Negotiations.

In case of availments of export advances, the commercial bank thru which the availment was made
must also be the same bank to negotiate the export documents.

In cases where a shipment is fully prepaid, or is on O/A basis, the exporter may send the documents
directly to the buyer. However, copies of these documents must be submitted to the commercial bank
which issued the ED.

2. Payment. — Payment shall be subject to the guidelines set forth under Appendix 7 of this Circular.
Upon receipt of the export proceeds, the commercial bank shall certify to such receipt on the ED5 copy
thereof.

SECTION 20. Disposition of Export Proceeds. — Foreign Exchange receipts, acquisitions or

earnings of residents from exports may, at the option of said exporter, be sold for pesos to AABs or
outside the banking system, retained, or deposited in foreign currency accounts, whether in the
Philippines or abroad and may be used freely for any purpose.

SECTION 21. Gold and Constructive Exports

1. Gold. — All exports of gold in any form may be allowed except for gold from small-scale mining
which is required to be sold to the Central Bank pursuant to Republic Act No. 7076 dated June 27,
1991. Gold from small-scale mining includes panned gold.

2. Constructive Exports. — In addition to gold sales to the Central Bank, the following sales of residents
paid for in foreign currency shall be considered as constructive exports:

a. Gold sales to the Central Bank even if paid for in Philippine currency;
b. Sales of residents paid for in foreign currency to the following entities:

1) Bonded manufacturing warehouses of export producers/manufacturers;

2) Export Processing Zones;
3) BOI-registered export traders operating bonded trading warehouses supplying raw materials used in
the manufacture of export products;
4) Diplomatic missions in the Philippines;
5) Duty Free Philippines Inc. (DFP); and
6) Foreign buyers of goods/products to be delivered directly to local consumers at the instruction of the
former and paid for in foreign currency.

An ED for each sale shall be accomplished, provided that the exporter shall submit a delivery receipt
signed by the buyer in lieu of the bill of lading/airway bill. For sales of DFP, a MED shall be
accomplished instead of an ED.
EXERCISE 2

MODES OF PAYMENT

Objective:
1. Recognize the important terms for modes of payments and the Central Bank
Circular.
Direction:Modified True or False. Write TRUE if the statement is correct. If it is wrong
underline the words or phrases that made it wrong and write FALSE on the space provided.
Strictly NO ERASURES.WRONG SPELLING IS WRONG

_________________1. Foreign exchange receipts, acquisitions or earnings of residents from

non-trade sources may, at the option of said residents, be sold for dollars to Authorized Agent
Banks (AABS) or outside the banking system, retained, or deposited in foreign currency
accounts, whether in the Philippines or abroad.
_________________2. AABS may sell foreign exchange to residents, (including the
Government, its political subdivisions and instrumentalities and government-owned and
-controlled corporations, upon the latter's written application for any non-trade purpose with
the need of prior Central Bank approval.
_________________3. Residents may purchase foreign exchange from AABs only to the
extent of the amount shown to have been sold by them for pesos to AABs.
_________________4. Any person may import or export nor bring with him into or out of the
country, or electronically transfer legal tender Philippine notes and coins, checks, money order
and other bills of exchange drawn in pesos against banks operating in the Philippines in an
amount exceeding P5,000.00 without authorization by the Central Bank.
_________________5. The term "electronic transfer" as used herein shall mean a system
where the authority to debit or credit an account (bank, business or individual) is provided by
wire, with a source document being mailed to evidence the authority.
_________________6. Foreign exchange may not be freely bought and sold outside the
banking system.
_________________7. Except as provided in this Circular, gold and gold-bearing metals may
likewise be bought and sold without specific approval of the BSP.
_________________8. Gold from small-scale miners shall be sold to Central Bank. All other
forms or types of gold may, at the option of the seller or exporter thereof and with the consent
of Central Bank, be sold and delivered to the Central Bank.
_________________9. As a general rule, all kinds of merchandise imports are not allowed.
_________________10. The importation of certain commodities are regulated or prohibited
for reasons of public health and safety, national security, international commitments, and
development/rationalization of foreign industry.
_________________11. All L/Cs must be opened on or before the date of shipment with
maximum validity of Two (2) years.
_________________12. L/Cs shall be negotiated in accordance with the terms and conditions
set forth in the L/C and shall be governed by the Uniform Customary and Practices on
Documentary Credits.
_________________13. Commercial banks shall not remit payment to the supplier through the
correspondent bank abroad.
_________________14. Under a D/P arrangement, the shipping documents are released to the
importer by the local bank concerned thru the seller's bank upon the importers acceptance of
the seller's bill of exchange obligating the importer to pay for the shipment of some future
date.
________________15. Under an D/A arrangement, the shipping documents are sent and
released by the seller directly to the importer without coursing the documents thru the banks,
upon the importer's promise to pay at some future date after shipment.
________________16. Payments of D/A and O/A obligations, the maturities of which shall
have exceeded 120 days from date of draft acceptance in case of D/A or B/L date in case of
O/A shall be referred to the Central Bank for approval.
________________17. Restricted Commodities. These are commodities the importation of
which requires clearances/permits from appropriate government agencies including the Central
Bank. They are enumerated under Appendix I of this Circular.
________________18. SECTION 9 of BSP Circular 1389 is entitled. Modes of Payment for
Imports.
________________19. Firm offer/packing list shall contain information on specific quantity of
the importation, unit cost and total cost, complete description/specification of the commodity
and Philippine Standard Commodity Classification statistical code;
________________20. ICC means Import Commodity Clearance at BSP Circular 1389.

 IDENTIFICATION. Identify which is being described by the statements below. Strictly

NO ERASURES.WRONG SPELLING IS WRONG.

__________________21.It is to make payment to or to the order of third party or is to accept

bills of exchange drawn by the beneficiary.
__________________22. Who is the beneficiary in a Letter of Credit?
__________________23.These are also called bills of exchange.
__________________24.He is also referred as the account party.
__________________25. It is also called the opening bank.
__________________26.How many days shall the payment be made to the beneficiary?
__________________27. It normally stands for the seller of the goods who has to receive
payments from the applicants.
__________________28.It provides advice to the beneficiary and takes the responsibility for
sending the documents to the issuing bank.
__________________29.This adds its guarantee to the credit opened by another bank.
__________________30. This negotiates the documents submitted to them by the beneficiary
under the credit.
__________________31. This is authorized to honor the reimbursement claim in settlement of
negotiation or assistant.
__________________32. It is the person who represent the first or original beneficiary of
credit in his absence.
__________________33. This kind of LC may be revoked.
__________________34.This is a kind of LC which cannot be amended without the
agreement of the issuing bank.
__________________35. This is a special type of LC in which another bank has added its
guarantee.
__________________36. This is also termed as Countervailing Credit.
__________________37. It is the credit period agreed between the buyer and the seller.
__________________38.this was first published in 1933 which are sets of predefined rule on
Letter of Credit
__________________39. This ensures that the payment to the seller will only be made after
the terms have been made.
__________________40.This circular in the Philippines issued by BSP says that payments of
imports shall take effect through letter of credit.
__________________41. This is simply a letter of notification of a bank addressed to one or
more bank certifying that a person whose name appears therein is entitled to draw on it or
credit up to a certain maximum amount.
__________________42. In a letter of credit, it means that it approves1 the properly evaluated
credit risk and is willing to extend the customer the amount stipulated.
__________________44. It is an order drawn by one party who is the drawer directing th
edrawee to pay a third party who is the payee a specified sum of money at a certain
determinable date.
__________________45. These are written accounts of goods shipped by any person.
Exercise 3.

LETTERS OF CREDIT

Objective:
1. To know more about letter of credits

Direction: Identify the following:

1. Classification and types of Letter of Credit.

2. Explain the 9 steps in the LETTER OF CREDIT PROCESS.
 MODULE III
Bureau of quarantine and Philippine coast guard

Bureau of Quarantine
The health authority and a first class line bureau of the Department of Health (DOH)
mandated to ensure security against the introduction and spread of infectious diseases,
emerging diseases and public health emergencies of international concern.

Vision

A world class bureau for local and international health surveillance in the prevention of global
spread of diseases.

Mission

To prevent international spread of diseases of global impact with minimum interference to

international travel and trade through:

 Effective surveillance and control measures on infectious diseases and other health
concerns with global impact through local and international networking.
 Strong and comprehensive national sanitation programs in all seaports and airports of
entry in partnership with local counterparts.
 Partnerships in research and development.

Philippine Coast Guard

Mandates

The Philippine Coast Guard is mandated and responsible to perform maritime search
and rescue, maritime law enforcement, maritime safety, marine environmental protection and
maritime security.

Vision

“By 2028, PCG is a world class guardian of the sea committed to save lives, ensure
safe maritime transport, cleaner seas, and secure maritime jurisdiction.”

Mission

"We are a uniformed armed service that implements and enforces all national and
international maritime safety, security, search and rescue, and marine environmental protection
laws in support of the integrated Maritime Transportation Network objectives, national
security and economic development of the Philippines."
Exercise 4

Bureau of Quarantine and Philippine Coast Guard

Objective:
1.To know more about the 2 governing bodies that help in Customs Control and
Security.

Direction: Research about the Organizational Charts of both government agencies and also
who are the current leaders too.

MODULE IV
 CONVERSION FACTORS

UNIT CONVERSION AND CONVERSION FACTORS

A unit conversion expresses the same property as a different unit of measurement.
For instance, time can be expressed in minutes instead of hours, while distance can be
converted from miles to kilometers, or feet, or any other measure of length. Often
measurements are given in one set of units, such as feet, but are needed in different units, such
as chains. A conversion factor is a numeric expression that enables feet to be changed to chains
as an equal exchange.
In Customs Administration, we use conversions to compute for the right amount of
duties taxes and other charges of goods being imported or exported to and from our country.
Example 1 - Ralph wants to know how many seconds are in 3 hours and 36 minutes.

Step 1. Change 3 hours and 36 minutes to the same units. This unit can be hours or minutes.
Using minutes is easier because the end time value will need to be in seconds.

The appropriate conversion factor is: 1 hour = 60 minutes.

3 hours and 36 minutes = 180 minutes plus 36 minutes = 216 minutes

Step 2. Set up the cancellation table so all units will cancel, except the desired unit, seconds.

The appropriate conversion factor is:

1 minute = 60 seconds.

There are 12,960 seconds in 3 hours 36 minutes.

Notice that the hour units on the top and bottom cancel along with the minutes, leaving
seconds as the only unit.

Setting up a unit cancellation table helps keep units straight, even for the most seasoned
professional firefighter. These tables are particularly important when more than one unit
conversion is necessary to obtain the desired unit. Answers should always be presented with
the appropriate number of significant digits. For information about significant digits and
rounding, please review Section 1.6, Using Decimals.

Example 2 - How many pints are in a 5-gallon pail? How many cups are in a 5-gallon pail?

Step 1. Find the appropriate conversion factors in Table 2.1 at the end of this chapter.
1 gallon = 4 quarts, 1 quart = 2 pints, 1 pint = 2 cups

Step 2. Set up the cancellation table so all units will cancel, except the desired unit, pints.

There are 40 pints in 5 gallons.

There are 80 cups in 5 gallons.

Example 3 - Javier constructed 2,678 feet of dozer line. How many chains of dozer line did he
construct?

Step 1. Find the appropriate conversion factor in Table 2.1. 1 chain = 66 feet

Step 2. Set up the cancellation table so all units will cancel, except the desired unit, chains.

Javier constructed 41 chains of dozer line.

Notice that Table 2.2 has two conversions for each set of units. When setting up the
cancellation table, it is not important which conversion factor is used. What is important is that
the appropriate units cancel so that the correct end result is achieved.

BASIC PRINCIPLES ON CONVERSION OF UNITS

1. Memorize various conversion formulas
2. Learn how to convert them into algebraic expressions.

Example: 1ft = 12 inches

Exercise 5
Conversion Factors
Objective: To be familiar with the widely used conversion factors.
Direction: Memorize the following conversions of units.

1.00 in = 2.54 cm
1.00 lb = 453.5 g
1.000 kg = 2.205 lb
1.000 L = 1.057 qt (0.946 L = 1.00 qt)
1.00 atm = 760. mmHg = 760. torr

1 kilo = 103 base unit

1 deci = 10-1 base unit (10 deci = 1 base unit)
1 centi = 10-2 base unit (102 centi = 1 base unit)
1 milli = 10-3 base unit (103 milli = 1 base unit)
1 micro* = 10-6 base unit (106 micro = 1 base unit)
*1 micro = 1 μμ = 1 mc

103 micro = 1 milli (1 micro = 10-3 milli)

1 cm3 = 1 mL = 1 cc
Metric base units

g = gram
m = meter
L = liter
s = second

English units

lb = pound
Ounce vs Fluid Ounce: oz is a mass unit and fl oz is a volume unit in the
English system.
oz = ounce
pt = pint
qt = quart
gal = gallon

8 fluid oz = 1 cup
2 cups = 1 pt
2 pt = 1 qt
4 qt = 1 gallon

MODULE V
INTERNATIONAL COMMERCIAL TERMS OR INCOTERMS 2020
The Incoterms rules are the world’s essential terms of trade for the sale of goods.
Whether you are filing a purchase order, packaging and labelling a shipment for freight
transport, or preparing a certificate of origin at a port, the Incoterms ® rules are there to guide
you. The Incoterms® rules provide specific guidance to individuals participating in the import
and export of global trade on a daily basis.
An overview of Incoterms® 2020 for 11 Terms, 7 for any mode of transport.

EXW – Ex-Works or Ex-Warehouse

 Ex works is when the seller places the goods at the disposal of the buyer at the seller’s
premises or at another named place (i.e., works, factory, warehouse, etc.).
 The seller does not need to load the goods on any collecting vehicle. Nor does it need
to clear them for export, where such clearance is applicable.

FCA – Free Carrier

 The seller delivers the goods to the carrier or another person nominated by the buyer at
the seller’s premises or another named place.
 The parties are well advised to specify as explicitly as possible the point within the
named place of delivery, as the risk passes to the buyer at that point.

FAS – Free Alongside Ship

  The seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a
barge) nominated by the buyer at the named port of shipment.
 The risk of loss of or damage to the goods passes when the products are alongside the
ship. The buyer bears all costs from that moment onwards.

FOB – Free On Board

 The seller delivers the goods on board the vessel nominated by the buyer at the named
port of shipment or procures the goods already so delivered.
 The risk of loss of or damage to the goods passes when the products are on board the
vessel. The buyer bears all costs from that moment onwards.

CFR – Cost and Freight

 The seller delivers the goods on board the vessel or procures the goods already so
delivered.
 The risk of loss of or damage to the goods passes when the products are on board the
vessel.
 The seller must contract for and pay the costs and freight necessary to bring the goods
to the named port of destination.

CIF – Cost, Insurance and Freight

 The seller delivers the goods on board the vessel or procures the goods already so
delivered. The risk of loss of or damage to the goods passes when the products are on
the ship.
 The seller must contract for and pay the costs and freight necessary to bring the goods
to the named port of destination.
 The seller also contracts for insurance cover against the buyer’s risk of loss of or
damage to the goods during the carriage.
 The buyer should note that under CIF the seller is required to obtain insurance only on
minimum cover. Should the buyer wish to have more insurance protection, it will need
either to agree as much expressly with the seller or to make its own extra insurance
arrangements.

CPT – Carriage Paid To

 The seller delivers the goods to the carrier or another person nominated by the seller at
an agreed place (if any such site is agreed between parties).
 The seller must contract for and pay the costs of carriage necessary to bring the goods
to the named place of destination.

CIP – Carriage And Insurance Paid To

 The seller has the same responsibilities as CPT, but they also contract for insurance
cover against the buyer’s risk of loss of or damage to the goods during the carriage.
 The buyer should note that under CIP the seller is required to obtain insurance only on
minimum cover. Should the buyer wish to have more insurance protection, it will need
either to agree as much expressly with the seller or to make its own extra insurance
arrangements.

DAP – Delivered At Place

 The seller delivers when the goods are placed at the disposal of the buyer on the
arriving means of transport ready for unloading at the named place of destination.
 The seller bears all risks involved in bringing the goods to the named place.

DPU – Delivered At Place Unloaded (replaces Incoterm® 2010 DAT)

 DPU replaces the former Incoterm® DAT (Delivered At Terminal). The seller delivers
when the goods, once unloaded are placed at the disposal of the buyer at a named place
 of destination.
 The seller bears all risks involved in bringing the goods to, and unloading them at the
named place of destination.

DDP – Delivered Duty Paid

 The seller delivers the goods when the goods are placed at the disposal of the buyer,
cleared for import on the arriving means of transport ready for unloading at the named
place of destination.
 The seller bears all the costs and risks involved in bringing the goods to the place of
destination. They must clear the products not only for export but also for import, to
pay any duty for both export and import and to carry out all customs formalities.

Watch https://www.youtube.com/watch?v=7g7IC4IzjDM for more detailed explanation of

INCOTERMS 2020.
 OTHER CHARGES INCLUDED IN EACH INCOTERMS 2020
Definition of Terms:
Port to Port Insurance- Generic name for Insurance Premium paid covering international
transport by air or sea.This is procured by seller to cover risks against loss or damage to the
cargo during pendency of the voyage port or origin to port of destination.
Internal Insurance- Insurance taken up by the seller to cover risks of loss or damage to the
goods while in transit from his premises to a delivery point at origin.
Main Carriage – Refers to the freight cost, by air or sea, charge by the carrier or amount paid
by the shipper to carrier for the transport of goods from country of origin to country of
destination.
Pre-Carriage – Refers to the cost of transport for hauling goods from seller’s premises to a
designated point at country of origin.Also known as “Origin Inland Freight”
Local Insurance – Insurance premium paid to cover risks against loss or damage to the gods
while in transit from country of origin to country of destination,insurance coverage secured by
buyer from a domestic surety firm.
LCL Charges- Refers to the cost of handling and moving loose or break bulk cargoes within
seaport at origin.
On Carriage – Refers to the cost of transport for hauling goods from the port of discharge or
destination to buyer’s warehouse or designated place. Also known as “destination inland
freight”.
Freight Prepaid – Means the main carriage for the exported goods was paid by seller prior to
departure from country of origin and therefore included in his selling price.
Terminal Handling Charges (THC) – refers to the cost of handling and moving
containerized cargoes within a sea port or terminal facilities at port of origin or destination.
Other Charges – Refers to incidental expenses included in seller’s invoice price.
Freight Collect – Means main carriage is to be paid by the buyer upon arrival of imported
goods at country of destination.
Multimodal Transport – refers to the transit of goods involving main carriage that can be
carried out both by air and by sea.

Exercise 6
INCOTERMS
I.Direction: Identification. Identify which is being asked in the statement. Wrong spelling is
wrong.STRICTLY NO ERASURES.

_____________________1. They are widely used in International commercial

transactions or procurement processes as the use in international sales is encouraged by trade
councils, courts and international lawyers.
____________________2. A series of three-letter trade terms related to common contractual
sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks,
costs, and risks associated with the transportation and delivery of goods.
____________________3. The seller makes the goods available at their premises, or at another
named place. This term places the maximum obligation on the buyer and minimum obligations on
the seller.
____________________4. The seller delivers the goods, cleared for export, at a named place
(possibly including the seller's own premises). The goods can be delivered to a carrier nominated
by the buyer, or to another party nominated by the buyer.
____________________5. The seller pays for the carriage of the goods up to the named place of
destination. However, the goods are considered to be delivered when the goods have been
handed over to the first or main carrier, so that the risk transfers to buyer upon handing goods
over to that carrier at the place of shipment in the country of Export.
____________________6. This Incoterm requires that the seller delivers the goods, unloaded, at
the named terminal. The seller covers all the costs of transport (export fees, carriage, unloading
from main carrier at destination port and destination port charges) and assumes all risk until arrival
at the destination port or terminal.
____________________7. The seller delivers when the goods are placed at the disposal of the
buyer on the arriving means of transport ready for unloading at the named place of destination.
Under DAP terms, the risk passes from seller to buyer from the point of destination mentioned in
the contract of delivery.
____________________8. Seller is responsible for delivering the goods to the named place in the
country of the buyer, and pays all costs in bringing the goods to the destination including import
duties and taxes.
____________________9. The seller delivers when the goods are placed alongside the buyer's
vessel at the named port of shipment.
____________________10. The seller bears all costs and risks up to the point the goods are
loaded on board the vessel.
____________________11. The seller pays for the carriage of the goods up to the named port of
destination.
____________________12.They are the ones who published these international commercial
terms.
____________________13. Who is known as the buyer?
____________________14. Who is known as the seller?
____________________15. How many commercial terms are we using these days?

MODULE VI
PRACTICAL COMPUTATION OF INCOTERMS

FORMULAS
1. EXW = FOB + O/C
2. FOB = EXW + O/C
3. FCA = EXW + O/C
4. FAS = EXW + O/C
5. CFR = EXW + O/C + FRT
6. CIF = EXW + O/C + INS + FRT
7. CPT = FCA + FRT
8. CIP = FCA + INS + FRT
9. DUP = FOB + FRT + O/C (SEA)
DUP = FCA + FRT + O/C (AIR)
10. DAP= FOB + FRT + O/C (SEA)
DAP = FCA + FRT + O/C (AIR)
11. DDP = FOB + FRT + O/C (SEA)
DDP = FCA + FRT + O/C (AIR)

COUNTRY OF ORIGIN/EXPORT
1. Exw = cost of goods (named place of delivery)
Delivery: Seller’s warehouse at origin
 2. FCA(named place of delivery)= EXW + O/C
Where: Other Charges (all expenses incidental in placing goods at carrier’s disposal)
-loading to delivery vehicle at sellers warehouse
-trucking/haulage/ inland freight (seller’s warehouse to carrier)
-internal insurance (seller’s warehouse to carrier)
-export documentation/clearing
- carrier- responsible for unloading of goods from delivery vehicle and unloading them to
carrying vessel or aircraft at origin.

3. FAS

(named place) = EXW + O/C

Where: Other Charges (all expenses incidental in placing goods Along side vessel on the
quay/wharf or lighters)
-loading to delivery vehicle at sellers warehouse
-inland freight (seller’s warehouse to carrier)
-internal insurance (seller’s warehouse to carrier)
-export documentation/clearing
- carrier- responsible for unloading of goods from delivery vehicle and unloading them to
carrying vessel or aircraft at origin.

4. F
O
B

(named port of shipment) = EXW + O/C

Where: Other Charges (all expenses incidental in placing goods Along side vessel on the
quay/wharf or lighters)
-loading to delivery vehicle at sellers warehouse
-inland freight (seller’s warehouse to carrier)
-internal insurance (seller’s warehouse to carrier)
-export documentation/clearing
 -Main Carriage:Freight Collect paid by buyer at destination.

5. CFR

(named port of destination) = FOB + O/C

Where: Other Charges deemed included in FOB cost if not stipulated as a separate value from
FOB (CMO 43-93)
-FRT ocean charges paid by the seller
-Marine Insurance- at the buyers option be secured from local surety or firm.

6. CIF (named port of destination) = FOB + INS + FRT

Where: FOB = cost of goods plus other charges
FRT= Freight paid by the seller
 INS = Cost of Marine Insurance Premium

7. C
P
T
(named port of destination) = FCA + FRT
Where: Other Charges deemed included in FCA cost if not stipulated as a separate value from
FCA (CMO 43-93)
-AIR FREIGHT paid by the seller
- Insurance- at the buyers
option be secured from local
surety or firm.

8. CIP (named
port of
destination) = FCA + INS + FRT
Where: FCA = cost of goods plus other charges
FRT= Air Freight paid by the seller
INS=paid by the seller

9. D
A
P(
named place of destination) = FOB + FRT + O/C (SEA)
DAP = FCA + FRT + O/C (AIR)

Where : Origin O/C – All cost incurred in bringing goods from the seller’s warehouse until
loaded on board carrying vessel or aircraft at origin
Destination O/C- Unloading of goods from vessel/aircraft at destination
-import customs doc. Unclearing (brokerage fee)
- payment of duties,taxes and other charges
- arrastre/wharfage, other port charges
-handling from port of discharge to buyers named place
FRT= Air or Ocean Freight
 10. DDP (named place of destination) = FOB + FRT + O/C (SEA)
DDP = FCA + FRT + O/C (AIR)

Where : Origin O/C – All cost incurred in bringing goods from the seller’s warehouse until
loaded on board carrying vessel or aircraft at origin

Destination O/C- Unloading of goods from vessel/aircraft at destination

-import customs doc. Unclearing (brokerage fee)

- payment of duties,taxes and other charges

- arrastre/wharfage, other port charges

-handling from port of discharge to buyers named place

FRT= Air or Ocean Freight

OTHER SAMPLE COMPUTATIONS:
 NOTES TO REMEMBER IN COMPUTATION OF INCOTERMS

 Always memorize the formulas

 Remember that the formulas can always be interchanged
 Always remember to follow the MDAS Rule
 The first thing to do is to substitute the given to the formulas
 Remember the rule in Algebra that when you are transposing numbers the sign should be
changed. For example, you are transposing a positive number, when you put it on the
other side of the expression, it will now be changed to negative or minus.
 Know the rule of cancellation of similar terms.
 If the given is a percentage of a number, you can always compute that percentage and
then substitute and then continue on solving the expressions.
Exercise 7

PRATICAL COMPUTATION OF INCOTERMS

Direction:Computations. Compute for the incoterms that are missing. Show your complete
solution and formulas used. Use separate sheet for answers.

1. Juan imported some spare parts and had FOB-POM as its Term of shipment with the
Seller. He incurred transportation cost from the warehouse to the local carrier of 56
USD. He also paid domestic insurance for the security of the goods in the exporting
country of 35 usd. He paid Total FOB of 2,000 USD. Find your EXW.
2. Joanne sells strawberries with John with FCA terms of shipiment. She pays for domestic
freight of $3500 and the fee for loading the strawberries to the truck for $100. The
strawberries cost $200,000.00. John pays for the main carriage of $450 and Customs
Duties of $45,000.00. Find FCA Value.
3. An air shipment of flammables arrived at NAIA with FOB value of $65,450.00 and FCA
value of $34,450. The term of shipment is CIP and freight is 15% of FCA. Find INS and
total CIP value.
4. Given:
CIF=10973.60 dangerous cargo
Frt= 12% of fob
Oc= 3% of fob
Exw=?
Fob=?
Given:
TOS:CIF-POM
EXW = $35,350.00
O/C= $ 2,500.00
FRT = 5% EXW
INS = 4% EXW
FIND: FOB & CIF
5. Given:
Shipment : Various Foodstuff
EXW - $43,250.00
O/C - 5%EXW
FRT - 15%FOB
Find FOB?

6. Given:
100% Cotton T-SHirts FOB Usd10,000.00
Freight Usd 300.00
Insurance Usd 100.00
FIND: CIF
7. Given: TOS: DAT-PH
DAT = P 4,500.00.00
FRT = 12% of DAT
Origin o/c = 5% of DAT
Destination o/c = 6% of DAT
Find: FOB and EXW in USD if Exchange Rate is 48Php/1USD
8. Given. TOS: CFR-MICP
CFR = $ 45,650.00
FRT = 4% of CFR
o/c = 3% of CFR
FIND: FOB
9. Given:
CIF = 36,450.00
o/c = 3% exw
FRT = 7% EXW
INS = 2% EXW
FIND: EXW