288 33 powerpoint slides chapter 9 policy framework international trade

7/30/2019 288 33 Powerpoint Slides Chapter 9 Policy Framework International Trade

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Copyright @ Oxford University PressInternational Business R. M. Joshi Chapter 9: Policy Framework forInternational Trade

International BusinessRakesh Mohan Joshi

Professor & Chairperson, IIFT New Delhi

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POLICY FRAMEWORK

FOR

INTERNATIONAL TRADE

Chapter 9


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Learn ing Object ives To explain the significance of foreign trade

policy in international business To elucidate trade policy options for developing

countries To discuss instruments of trade policy To provide an overview of Indias foreign trade

policy To explicate policy measures for trade

promotion To explain policy initiatives and incentives by

state governments To examine Indias trade promotion measures

in context of the WTO


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Signi f icance o f Foreign Trade

Pol icy

International business operations at firm

level are considerably influenced by various

policy measures employed to regulate

trade, both by home and host countries.

Exportability and importability of a firms

goods are often determined by trade

policies of the countries involved.

Price-competitiveness of traded goods is

affected by import and export tariffs.


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Policy incentives help exporters

increase their profitability through

foreign sales

The host countrys trade and FDI

policies often influence entry decisions

in international markets.


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Strateg ic Options fo r Trade Po l icy

Inward looking strategy (import

substitution):

Laying emphasis is laid on extensive useof trade barriers to protect domestic

industries from import competition.

Domestic production is encouraged so asto achieve self-sufficiency and imports

are discouraged.


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Outward looking strategy (export-led

growth):

Linking the domestic economy to the

world economy and promoting economic

growth through exports. The strategy

involves incentives to promote exports

rather than restrictions to imports.


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Demand vs . Supp ly Side Pol icy

MeasuresDemand side initiatives: Exportpromotion include programs to alert

companies to the opportunities present in

international markets and to strengthen the

commitment and skills of those already

involved.

Supply side initiatives: Initiatives for

creating and expanding export production,developing transportation networks, port

facilities, tax and investment systems.


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Instruments o f Trade Pol icy

Various methods employed to regulate

trade which include tariffs, non-tariff

measures, and financial controls.


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Tariffs

Official constraints on import of certain

goods and services levied in the form of

customs duties or tax on products moving

across borders.


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Class if icat ion of Tari f f Ins truments

On the basis of direction of trade: import vs.exports tariffs

On the basis of purpose: protective vs. revenuetariffs

On the basis of time length : tariff surcharge vs.countervailing duty

On the basis of tariff rates : specific, ad-valorem,and combined

On the basis of production and distribution points: Single stage sales tax:

Value added tax (VAT) Cascade tax

Excise tax

Turnover tax


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Non-Tarif f Measures

Contrary to tariffs, which are straightforward,

non-tariff measures are non-transparent and

obstruct trade on discriminatory basis.


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Copyright @ Oxford University PressInternational Business R. M. Joshi

Chapter 9: Policy Framework forInternational Trade

Major Non -tari f f Pol icy Ins truments

Government participation in trade

Customs and entry procedure

Quotas

Absolute quota

Tariff quotas

Voluntary quotas

Other trade restrictions


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Indias Foreign Trade Policy

Indias foreign trade policy is formulated and

implemented mainly by the Ministry of Commerce and

Industry, but also in consultation with other

concerned ministries, such as Finance, Agriculture,

and Textiles, and the RBI.

DGFT under the Department of Commerce is

responsible for the execution of the Foreign Trade

Policy.


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Indias Foreign Trade Policy

It is published in four volumes:

Foreign Trade Policy

Handbook of Procedures Volume I

Handbook of Procedures Volume II

(Schedule of DEPB Rates)

ITC (HS) Classification of Export and Import

Items


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Export Proh ib i tions and Restr ic t ionsUnder the foreign trade policy, export

prohibitions are maintained for environmental,

food security, marketing, pricing and domestic

supply reasons, and to comply with international

treaties.

Restrictions on exports on account of security

concern through multilateral agreements are

contained in the SCOMET list.


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Schemes fo r Duty-f ree and Concessional

Imports

In order to reduce or remove the anti-export

bias inherent in the system of indirect taxation

and to encourage exports, several schemes

allows importers to benefit from tariff

exemptions, especially on inputs.


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EPCG Scheme

The scheme aims to reduce the incidence of high

capital cost on export prices so as to make

exports competitive in the international markets

by way of reduced import duty on capital goods.

It enables import of capital goods at concessional

rate of duty subject to an appropriate export

obligation accepted by the exporter.


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Duty Exempt ion Schemes

Such schemes enables duty-free import of inputs required

for export production.Advance Authorisation: It allows duty-free importof physical inputs incorporated in exports products after making

normal allowance in wastage. In addition, consumables, such

as fuel, oil, energy, catalysts, etc., are also allowed under the

scheme.

Advance authorization can be issued for:

Physical exports (including exports to SEZs)

Intermediate supplies, and

Deemed exports


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Input Output and Value Addi t ion Norms

The Standard Input Output Norms (SION)

published in volume II of the Handbook of

Procedures are used for determination of

proportion of various inputs which are physically

used and consumed for export production and

the packaging material.


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Duty Free Impo rt Author izat ion (DFIA ) Scheme

Launched on May 1, 2006, it replaced the Duty Free

Replenishment Certificate (DFRC) Scheme which

allows duty free import of inputs, for production of

export products to manufacturer exporters or

merchant exporters tied up with the manufacturer for

the import of inputs used in the manufacture of

exports.

It offers exemptions in respect of customs duty,additional duty, education cess, and anti-dumping or

safeguard duties in force for inputs used in export

production.


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Duty Rem ission Schemes

These schemes enable post-export

replenishment of duty on inputs used for export

production under various schemes, such as duty

entitlement passbook scheme, duty drawback,

incentives for deemed exports, and the gems

and jewellery sector.


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Duty Ent i t lement Passbook (DEPB) Scheme

Under the scheme, merchant or manufacturer

exporters are entitled to duty-free import (basic

customs duty component only) of inputs used in

manufacture of goods, as a specified percentage

of f.o.b. value of exports made in freely

convertible currency.


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Promot ional Measu res fo r Deemed ExportsDeemed Exports:

Transactions in which goods supplied do not leave the country

and payments for such supplies is received either in Indian

rupees or in free foreign exchange as specified in the tradepolicy, which are eligible for a number of benefits such as:

Supply of goods against advance authorization or DFIA

Deemed export drawback

Exemption from terminal excise duty where supplies are

made against International Competitive Bidding (ICB).


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Duty DrawbackThe rebate of duty chargeable on any imported

or excisable material used in the manufacture of

goods exported from India.

Duty Drawback is admissible under Customs

Act, 1962 for re-exports of goods on which

import duty has paid and for imported material

used in the manufacture of exports .


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Schemes for Concess ional Impo rts for

Gems and Jewel leryThe Gems and Jewellery Sector is

characterised by import of goods in rough orraw form of diamonds and semi-preciousstones and gold and silver for value additionand conversion to finished products. Schemes

for concessional imports from gems andjewellery sector include:

Replenishment authorization

Schemes for duty-free procurement of precious

metal etc. Advance authorization for import / procurement for

precious metal, mountings etc.

Diamond imprest authorization

Schemes to Augment Expor t


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Schemes to Augment Expor t

Product ionThe schemes aim at creating and strengtheningof enclaves for export production so as to

immunize the firms engaged in export

production from constraints, such as

infrastructural and administrative, from the rest

of the economy.

These schemes attempt to reduce the burden of

import duty and indirect taxation on capital

goods and consumables and reduce operations

hassles for export production.


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Expo rt Oriented Units (EOUs)

Introduced in 1981, the EOU scheme is

complementary to EPZ scheme. It offers

the same production regime but an EOU canbe located anywhere in India.


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Chapter 9: Policy Framework for

International Trade

Software Techno logy Parks (STPs) /

Electronic Hardware Techno logy Parks (EHTPs)

In order to facilitate export-oriented

production of computer software and

hardware, units can be set up under the

STPs/ EHTPs schemes, respectively.


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International Trade

Bio -Techno logy Parks (BTPs)

In order to promote bio-technology exports,

the DGFT notifies Bio-Technology Parks on

the recommendation of the Department of

Biotechnology.


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Copyright @ Oxford University Press

International Business R. M. Joshi


International Trade

Assistance to States fo r Developing Expo rt

Infrastruc ture and Other Al l ied Act iv i t ies (ASIDE)

The ASIDE scheme launched in April 2000 as a

comprehensive scheme to involve states in export promotion

efforts by providing assistance to state governments for

creating infrastructure for development and growth of

exports.

Under the scheme, assistance is given for setting up new

export promotion parks and zones and complementary

infrastructure, such as road links to ports, container depots,

and power supply.


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International Trade

Free Trade Zones (FTZ) and

Expo rt Processing Zones (EPZs)The FTZs and EPZs, set up as special enclaves,

separated from the Domestic Tariff Areas (DTA)

by fiscal barriers, are intended to provide an

internationally competitive duty-free environmentfor export production, at low costs which enables

their products to be competitive in the

international market.

Since May 1994, the government has permitted

development of EPZs by private, state or the joint

sector.


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International Trade

Special Econom ic Zones (SEZs)

Introduced in April, 2000, the scheme aims to

provide an internationally competitive and hassle-

free trade environment for export production. AnSEZ is designated duty-free enclave to be treated

as foreign territory for trade operations and duties

and tariffs. Units for manufacture of goods and

rendering of services may be set up in SEZs.


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International Trade

Ag ri-export Zones (AEZs)

The concept of the AEZs was floated with aview to promote agricultural exports fromIndia and providing remunerative returns tothe farming community in a sustained

manner. State governments are required toidentify AEZs and also evolve acomprehensive package of services providedby all state government agencies, state

agriculture universities and all institutionsand agencies of the Union Government forintensive delivery in these zones.


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International Trade

Other Expo rt Promot ion Measu res

Marketing assistance for export

promotion: Market Development Assistance

(MDA):In order to facilitate exporters to explorethe overseas markets and to promote their

exports, the MDA Scheme provides assistance toexporters for participation in export promotionseminars, trade fairs, and buyer-seller meets inIndia and abroad.

Market Access Initiative (MAI): TheScheme provide financing assistance to public andprivate sector organizations to finance theirmarketing activities for the thrust products in thepre-identified markets.


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International Trade

Served for I ndia Scheme:

Under the scheme, all service providers are entitled to duty

credit scrip equivalent to 10 per cent of free foreign exchange

earned during the preceding year.


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Vishesh K r ishi and Gram Udyog Yojana


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International Trade

Vishesh K r ishiand Gram UdyogYojana(Special Agriculture and Village Industry

Scheme)The scheme aims to promote the agricultural

produce, minor forest produce, village

industries products, and forest-based

products by way of providing duty credit

scrips so as to compensate high transport

costs.


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International Trade

Focus Produc t Scheme (FPS)In order to promote incentives for export of

select products that have highly employment

potential in rural and urban areas, the scheme

allows duty credit scrips for notified product

categories such as value added leather products

and leather footwear, handicrafts items,

handloom products, value added fish and coir

products and some additional focus products.


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International Trade

High Tech Products Expo rt Promot ion

Scheme

In order to promote exports of High-tech

products from India, the scheme providesDuty Credit scrips.


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International Trade

Export Houses/Trading Houses Scheme

The scheme aims to give recognition to the established exportersand large export houses to build up the marketing infrastructure

and expertise required for export promotion by providing policyincentives. Under the scheme, the export performance criteriasis as follows:

Category Average FOB / FOR value*(in Rupees)

Export House (EH) 200 millionStat Export House (SEH) 1 billionTrading House (TH) 5 billionStar Trading House (STH) 25 billionPremier Trading House (PTM) 100 billion

*during current and preceding three licensing yearsSource: Foreign trade policy (200409), Ministry of Commerce,Government of India, updated as on 1 April, 2008


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International Trade

Pol icy In i t iat ives and Incen t ives by the

State Governments

Providing information on export opportunities

Preference in land allotment for starting anEOU

Exempting from entry-tax, sales tax or

turnover tax on supplies to EOU / EPZ / SEZ

units.

WTO d E P i


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International Trade

WTO and Export Promot ion

MeasuresThe multilateral trading system under the WTO

trade regime provides a rule based framework as

to which subsidies are prohibited, which can face

countervailing measures, and which are allowed.


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Copyright @ Oxford University Press Chapter 9: Policy Framework for

The WTOs Trade Policy Review

Mechan ism (TPRM)

In order to enhance transparency of members

trade policies and facilitate smooth functioningof the multilateral trading system, the WTO

members established the TPRM to review trade

policies of member countries at regular intervals.

288 33 powerpoint slides chapter 9 policy framework international trade

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