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of <h1>Merchanting trade rules require goods stay outside domestic tariff area and impose bank-led due diligence, timing, FX and reporting limits</h1> Merchanting trade is defined to require that goods neither enter the Domestic Tariff Area nor undergo any transformation, and only goods permitted under the prevailing Foreign Trade Policy may be used, with export-leg and import-leg export/import formalities (excluding EDF and Bill of Entry respectively) to be complied with; effect: transactions outside DTA subject to export/import compliance. AD Category-I banks must satisfy bonafides, apply KYC/AML, route both legs through the same AD bank and verify transactional documents (non-negotiable copies acceptable if authenticated); effect: banks assume primary due-diligence and documentary verification responsibility. Transactions must complete within nine months and have no foreign-exchange outlay beyond four months; effect: strict timing and FX exposure limits. Short-term supplier/buyer credit, advance handling, LC and EEFC payments are permitted subject to conditions including bank guarantees/LCs for advances > USD 200,000; effect: conditional financing flexibility. AD banks must report and caution-list defaulters when outstanding reaches 5% of annual exports; effect: mandatory reporting and enforcement.
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