in Foreign Exchange,
of Authorized Dealers is invited to para 57 Chapter XIII
of the Exchange Control Manual, (6th Edition
1987) in terms of which State Bank considers on case
to case basis applications from residents of Pakistan to
finance import of goods for residents in foreign countries
provided arrangements are made to receive appropriate reimbursements
from the country of import in each case either through back-to
back letter of credit or advance payment.
It has now been decided with the approval of the Government
to give general permission to three way merchanting trade
through back-to-back letters of credit providing for payment
in convertible currency or advance payments excluding payments
under bilateral/multilateral accounts, in respect of the
following 8 commodities:-
Dealers are, therefore, permitted to open Letters of Credit
in favour of third country exporters either against an irrevocable
letter of Credit on sight basis or against advance remittance
in convertible currency received from the ultimate importer
differential includes intermediarys commission
at not less than one percent, plus actual chargers incurred
on account of opening of back-to-back Letter of Credit,
buying and selling rates differential etc.
of Credit to be established by Pakistani intermediary
in favour of third country supplier will carry sufficient
usance so that payment become due only after receipt
of payment from the importer. In case where Letters
of Credit are to be opened against Advance remittance
the condition of usance will not be obligatory.
of foreign exchange representing the price differential
including commission will be converted in Pak. Rupees.
or any other claim of whatsoever nature will be allowed
to be remitted from Pakistan.
line such as export finance etc. will be available.
will be shipped directly from the country of supply
to the country of import.
cover facility will be available for trade under this
arrangement. However, if desired, the intermediary Pakistani
trader can open a "Special Foreign Currency Account"
with an Authorized Dealer in Pakistan for deposit of
the proceeds of the Letters of Credit/Advance remittances
received from the third country buyer pending (i) eventual
payments to the third country suppliers under the back-to-back
Letter of Credit stipulating reimbursement to the third
country suppliers out of Special Foreign Currency Account
and (ii) conversion in Pakistan rupees of the amount
left out after making payment to the third country supplier
against back-to-back Letters of Credit. Interest accruing
on balances held in the Special Foreign Currency Account
will be required to be converted into Pakistan rupees.
General permission is hereby accorded to the Authorized
Dealers for opening and maintaining Special Foreign Currency
Accounts for merchanting trade which will be subject to
the following terms, conditions and the procedure:-
will be fed exclusively through remittances emanating
either from the realization of proceeds under an irrevocable
Letter of Credit opened by an overseas buyer for third
country goods or advance remittance made by such buyer
for supply of third country goods.
will be kept outside the scope of Foreign Currency Accounts
Scheme as embodied in Chapter VI of the Exchange Control
Manual (6th Edition 1987) as amended
from time to time. In other words the foreign currency
received in such accounts will not be required to be
surrendered to the State Bank. Authorized Dealers can
hold such foreign currency abroad in addition to the
normal balances permitted to be held abroad. However,
such balances will be reflected in Columns 10 and 11
of the Statement prescribed in Appendix V-6 of the Exchange
accruing on the balances held in the account will be
converted into and paid in Pak rupees.
of interest income from levy of taxes etc. shall not
opened under this arrangement will be only "proforma
accounts" and balances held in such Accounts will
neither be entitled to credit ceiling nor will they
be reflected in Pakistan books of Authorized Dealers.
payment for import under the back-to-back Letter of Credit,
the Authorized Dealer will prepare a statement in the enclosed
format market ''A' matching
the receipt and payment for each merchanting transaction
individually and will submit the same to the concerned area
Exchange Control Office of the State Bank. The reporting
of inward and outward remittances would be as indicated
in the Annexure market 'B'.
It may be added that withholding tax regime will not apply
on such receipts.
5. For merchanting
trade of commodities other than those specified above, the
State Bank will continue to consider applications under
the existing instructions on case to case basis at sufficient
margin as heretofore.