288 33 powerpoint-slides_chapter-9-policy-framework-international-trade

Copyright @ Oxford University Press Copyright @ Oxford University Press International Business R. M. JoshiInternational Business R. M. Joshi

Chapter 9: Policy Framework for Chapter 9: Policy Framework for International TradeInternational Trade

International BusinessInternational Business

Rakesh Mohan Joshi Rakesh Mohan Joshi

Professor & Chairperson, IIFT New DelhiProfessor & Chairperson, IIFT New Delhi

1



POLICY FRAMEWORK POLICY FRAMEWORK

FORFOR

INTERNATIONAL TRADE INTERNATIONAL TRADE

Chapter 9



Learning ObjectivesLearning Objectives To explain the significance of foreign trade To explain the significance of foreign trade

policy in international businesspolicy in international business To elucidate trade policy options for developing To elucidate trade policy options for developing

countriescountries To discuss instruments of trade policyTo discuss instruments of trade policy To provide an overview of India’s foreign trade To provide an overview of India’s foreign trade

policypolicy To explicate policy measures for trade To explicate policy measures for trade

promotionpromotion To explain policy initiatives and incentives by To explain policy initiatives and incentives by

state governmentsstate governments To examine India’s trade promotion measures To examine India’s trade promotion measures

in context of the WTO in context of the WTO



Significance of Foreign Trade Significance of Foreign Trade Policy Policy

International business operations at firm International business operations at firm

level are considerably influenced by various level are considerably influenced by various

policy measures employed to regulate policy measures employed to regulate

trade, both by home and host countries. trade, both by home and host countries.

Exportability and importability of a firm’s Exportability and importability of a firm’s

goods are often determined by trade goods are often determined by trade

policies of the countries involved. policies of the countries involved.

Price-competitiveness of traded goods is Price-competitiveness of traded goods is

affected by import and export tariffs. affected by import and export tariffs.



Policy incentives help exporters Policy incentives help exporters

increase their profitability through increase their profitability through

foreign sales foreign sales

The host country’s trade and FDI The host country’s trade and FDI

policies often influence entry decisions policies often influence entry decisions

in international markets. in international markets.



Strategic Options for Trade PolicyStrategic Options for Trade Policy

Inward looking strategy (import Inward looking strategy (import

substitution):substitution):

Laying emphasis is laid on extensive use of Laying emphasis is laid on extensive use of

trade barriers to protect domestic industries trade barriers to protect domestic industries

from import competition. Domestic from import competition. Domestic

production is encouraged so as to achieve production is encouraged so as to achieve

self-sufficiency and imports are discouraged. self-sufficiency and imports are discouraged.



Outward looking strategy (export-led Outward looking strategy (export-led

growth):growth):

Linking the domestic economy to the Linking the domestic economy to the

world economy and promoting economic world economy and promoting economic

growth through exports. The strategy growth through exports. The strategy

involves incentives to promote exports involves incentives to promote exports

rather than restrictions to imports. rather than restrictions to imports.



Demand vs. Supply Side Policy Demand vs. Supply Side Policy

MeasuresMeasures Demand side initiativesDemand side initiatives: Export : Export promotion include programs to alert promotion include programs to alert companies to the opportunities present in companies to the opportunities present in international markets and to strengthen the international markets and to strengthen the commitment and skills of those already commitment and skills of those already involved.involved.

Supply side initiatives:Supply side initiatives: Initiatives for Initiatives for creating and expanding export production, creating and expanding export production, developing transportation networks, port developing transportation networks, port facilities, tax and investment systems.facilities, tax and investment systems.



Instruments of Trade PolicyInstruments of Trade Policy

Various methods employed to regulate Various methods employed to regulate

trade which include tariffs, non-tariff trade which include tariffs, non-tariff

measures, and financial controls.measures, and financial controls.



TariffsTariffs

Official constraints on import of certain Official constraints on import of certain

goods and services levied in the form of goods and services levied in the form of

customs duties or tax on products moving customs duties or tax on products moving

across borders. across borders.



Classification of Tariff InstrumentsClassification of Tariff Instruments On the basis of direction of tradeOn the basis of direction of trade: import vs. : import vs.

exports tariffsexports tariffs On the basis of purpose:On the basis of purpose: protective vs. revenue protective vs. revenue

tariffstariffs On the basis of time lengthOn the basis of time length : tariff surcharge vs. : tariff surcharge vs.

countervailing dutycountervailing duty On the basis of tariff ratesOn the basis of tariff rates : specific, ad-valorem, : specific, ad-valorem,

and combinedand combined On the basis of production and distribution points:On the basis of production and distribution points:

• Single stage sales tax:Single stage sales tax:• Value added tax (VAT)Value added tax (VAT)• Cascade taxCascade tax• Excise taxExcise tax

Turnover taxTurnover tax



Non-Tariff MeasuresNon-Tariff Measures

Contrary to tariffs, which are straightforward, Contrary to tariffs, which are straightforward,

non-tariff measures are non-transparent and non-tariff measures are non-transparent and

obstruct trade on discriminatory basis. obstruct trade on discriminatory basis.



Major Non-tariff Policy InstrumentsMajor Non-tariff Policy Instruments

Government participation in tradeGovernment participation in trade

Customs and entry procedureCustoms and entry procedure

QuotasQuotas Absolute quotaAbsolute quota

Tariff quotasTariff quotas

Voluntary quotasVoluntary quotas

Other trade restrictions Other trade restrictions



India’s Foreign Trade PolicyIndia’s Foreign Trade Policy

India’s foreign trade policy is formulated and India’s foreign trade policy is formulated and

implemented mainly by the Ministry of Commerce and implemented mainly by the Ministry of Commerce and

Industry, but also in consultation with other concerned Industry, but also in consultation with other concerned

ministries, such as Finance, Agriculture, and Textiles, ministries, such as Finance, Agriculture, and Textiles,

and the RBI. and the RBI.

DGFT under the Department of Commerce is DGFT under the Department of Commerce is

responsible for the execution of the Foreign Trade responsible for the execution of the Foreign Trade

Policy.Policy.



India’s Foreign Trade PolicyIndia’s Foreign Trade Policy

It is published in four volumes: It is published in four volumes:

Foreign Trade PolicyForeign Trade Policy

Handbook of Procedures Volume IHandbook of Procedures Volume I

Handbook of Procedures Volume II Handbook of Procedures Volume II

(Schedule of DEPB Rates)(Schedule of DEPB Rates)

ITC (HS) Classification of Export and Import ItemsITC (HS) Classification of Export and Import Items



Export Prohibitions and RestrictionsExport Prohibitions and Restrictions

Under the foreign trade policy, Under the foreign trade policy, export export

prohibitionsprohibitions are maintained for environmental, are maintained for environmental,

food security, marketing, pricing and domestic food security, marketing, pricing and domestic

supply reasons, and to comply with international supply reasons, and to comply with international

treaties. treaties.

Restrictions on exportsRestrictions on exports on account of security on account of security

concern through multilateral agreements are concern through multilateral agreements are

contained in the SCOMET list. contained in the SCOMET list.



Schemes for Duty-free and Concessional Schemes for Duty-free and Concessional ImportsImports

In order to reduce or remove the anti-export bias In order to reduce or remove the anti-export bias

inherent in the system of indirect taxation and to inherent in the system of indirect taxation and to

encourage exports, several schemes allows encourage exports, several schemes allows

importers to benefit from tariff exemptions, importers to benefit from tariff exemptions,

especially on inputs. especially on inputs.



EPCG SchemeEPCG Scheme

The scheme aims to reduce the incidence of high The scheme aims to reduce the incidence of high

capital cost on export prices so as to make capital cost on export prices so as to make

exports competitive in the international markets exports competitive in the international markets

by way of reduced import duty on capital goods. by way of reduced import duty on capital goods.

It enables import of capital goods at concessional It enables import of capital goods at concessional

rate of duty subject to an appropriate export rate of duty subject to an appropriate export

obligation accepted by the exporter. obligation accepted by the exporter.



Duty Exemption SchemesDuty Exemption Schemes

Such schemes enables duty-free import of inputs required Such schemes enables duty-free import of inputs required

for export production.for export production.

Advance Authorisation:Advance Authorisation: It allows duty-free import It allows duty-free import

of physical inputs incorporated in exports products after making of physical inputs incorporated in exports products after making

normal allowance in wastage. In addition, consumables, such as normal allowance in wastage. In addition, consumables, such as

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

scheme.scheme. Advance authorization can be issued for:Advance authorization can be issued for:

• Physical exports (including exports to SEZs) Physical exports (including exports to SEZs)

• Intermediate supplies, andIntermediate supplies, and

• Deemed exportsDeemed exports



Input Output and Value Addition NormsInput Output and Value Addition Norms

The Standard Input Output Norms (SION) The Standard Input Output Norms (SION)

published in volume II of the published in volume II of the Handbook of Handbook of

Procedures Procedures are used for determination of are used for determination of

proportion of various inputs which are physically proportion of various inputs which are physically

used and consumed for export production and used and consumed for export production and

the packaging materialthe packaging material..



Duty Free Import Authorization (DFIA) SchemeDuty Free Import Authorization (DFIA) Scheme

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

Replenishment Certificate (DFRC) Scheme which allows Replenishment Certificate (DFRC) Scheme which allows

duty free import of inputs, for production of export duty free import of inputs, for production of export

products to manufacturer exporters or merchant products to manufacturer exporters or merchant

exporters tied up with the manufacturer for the import exporters tied up with the manufacturer for the import

of inputs used in the manufacture of exports.of inputs used in the manufacture of exports.

It offers exemptions in respect of customs duty, It offers exemptions in respect of customs duty,

additional duty, education cess, and anti-dumping or additional duty, education cess, and anti-dumping or

safeguard duties in force for inputs used in export safeguard duties in force for inputs used in export

production. production.



Duty Remission SchemesDuty Remission Schemes

These schemes enable post-export These schemes enable post-export

replenishment of duty on inputs used for export replenishment of duty on inputs used for export

production under various schemes, such as duty production under various schemes, such as duty

entitlement passbook scheme, duty drawback, entitlement passbook scheme, duty drawback,

incentives for deemed exports, and the gems incentives for deemed exports, and the gems

and jewellery sector. and jewellery sector.



Duty Entitlement Passbook (DEPB) SchemeDuty Entitlement Passbook (DEPB) Scheme

Under the scheme, merchant or manufacturer Under the scheme, merchant or manufacturer

exporters are entitled to duty-free import (basic exporters are entitled to duty-free import (basic

customs duty component only) of inputs used in customs duty component only) of inputs used in

manufacture of goods, as a specified percentage manufacture of goods, as a specified percentage

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

convertible currency. convertible currency.



Promotional Measures for Deemed ExportsPromotional Measures for Deemed Exports

Deemed ExportsDeemed Exports: :

Transactions in which goods supplied do not leave the country Transactions in which goods supplied do not leave the country

and payments for such supplies is received either in Indian and payments for such supplies is received either in Indian

rupees or in free foreign exchange as specified in the trade rupees or in free foreign exchange as specified in the trade

policy, which are eligible for a number of benefits such as:policy, which are eligible for a number of benefits such as:

• Supply of goods against advance authorization or DFIASupply of goods against advance authorization or DFIA

• Deemed export drawbackDeemed export drawback

• Exemption from terminal excise duty where supplies are Exemption from terminal excise duty where supplies are

made against International Competitive Bidding (ICB). made against International Competitive Bidding (ICB).



Duty DrawbackDuty Drawback

The rebate of duty chargeable on any imported or The rebate of duty chargeable on any imported or

excisable material used in the manufacture of goods excisable material used in the manufacture of goods

exported from India. exported from India.

Duty Drawback is admissible under Customs Act, Duty Drawback is admissible under Customs Act,

1962 for re-exports of goods on which import duty 1962 for re-exports of goods on which import duty

has paid and for imported material used in the has paid and for imported material used in the

manufacture of exports . manufacture of exports .



Schemes for Concessional Imports for Schemes for Concessional Imports for Gems and JewelleryGems and Jewellery

The Gems and Jewellery Sector is The Gems and Jewellery Sector is characterised by import of goods in rough or characterised by import of goods in rough or raw form of diamonds and semi-precious raw form of diamonds and semi-precious stones and gold and silver for value addition stones and gold and silver for value addition and conversion to finished products. Schemes and conversion to finished products. Schemes for concessional imports from gems and for concessional imports from gems and jewellery sector include:jewellery sector include:

Replenishment authorizationReplenishment authorization Schemes for duty-free procurement of precious Schemes for duty-free procurement of precious

metal etc.metal etc. Advance authorization for import / procurement for Advance authorization for import / procurement for

precious metal, mountings etc.precious metal, mountings etc. Diamond imprest authorizationDiamond imprest authorization



Schemes to Augment Export Schemes to Augment Export ProductionProduction

The schemes aim at creating and strengthening of The schemes aim at creating and strengthening of

enclaves for export production so as to ‘immunize’ enclaves for export production so as to ‘immunize’

the firms engaged in export production from the firms engaged in export production from

constraints, such as infrastructural and constraints, such as infrastructural and

administrative, from the rest of the economy.administrative, from the rest of the economy.

These schemes attempt to reduce the burden of These schemes attempt to reduce the burden of

import duty and indirect taxation on capital goods import duty and indirect taxation on capital goods

and consumables and reduce operations hassles for and consumables and reduce operations hassles for

export production.export production.



Export Oriented Units (EOUs)Export Oriented Units (EOUs)

Introduced in 1981, the EOU scheme is Introduced in 1981, the EOU scheme is

complementary to EPZ scheme. It offers the complementary to EPZ scheme. It offers the

same production regime but an EOU can be same production regime but an EOU can be

located anywhere in India.located anywhere in India.



Software Technology Parks (STPs) /Software Technology Parks (STPs) /Electronic Hardware Technology Parks (EHTPsElectronic Hardware Technology Parks (EHTPs))

In order to facilitate export-oriented In order to facilitate export-oriented

production of computer software and production of computer software and

hardware, units can be set up under the hardware, units can be set up under the

STPs/ EHTPs schemes, respectively. STPs/ EHTPs schemes, respectively.



Bio-Technology Parks (BTPs)Bio-Technology Parks (BTPs)

In order to promote bio-technology exports, In order to promote bio-technology exports,

the DGFT notifies Bio-Technology Parks on the DGFT notifies Bio-Technology Parks on

the recommendation of the Department of the recommendation of the Department of

BiotechnologyBiotechnology. .



Assistance to States for Developing Export Assistance to States for Developing Export Infrastructure and Other Allied Activities (ASIDE)Infrastructure and Other Allied Activities (ASIDE)

The ASIDE scheme launched in April 2000 as a comprehensive The ASIDE scheme launched in April 2000 as a comprehensive

scheme to involve states in export promotion efforts by scheme to involve states in export promotion efforts by

providing assistance to state governments for creating providing assistance to state governments for creating

infrastructure for development and growth of exports.infrastructure for development and growth of exports.

Under the scheme, assistance is given for setting up new export Under the scheme, assistance is given for setting up new export

promotion parks and zones and complementary infrastructure, promotion parks and zones and complementary infrastructure,

such as road links to ports, container depots, and power supply. such as road links to ports, container depots, and power supply.



Free Trade Zones (FTZ) and Free Trade Zones (FTZ) and Export Processing Zones (EPZsExport Processing Zones (EPZs))

The FTZs and EPZs, set up as special enclaves, The FTZs and EPZs, set up as special enclaves,

separated from the Domestic Tariff Areas (DTA) by separated from the Domestic Tariff Areas (DTA) by

fiscal barriers, are intended to provide an fiscal barriers, are intended to provide an

internationally competitive duty-free environment internationally competitive duty-free environment

for export production, at low costs which enables for export production, at low costs which enables

their products to be competitive in the their products to be competitive in the

international market.international market.

Since May 1994, the government has permitted Since May 1994, the government has permitted

development of EPZs by private, state or the joint development of EPZs by private, state or the joint

sector.sector.



Special Economic Zones (SEZs)Special Economic Zones (SEZs)

Introduced in April, 2000, the scheme aims to Introduced in April, 2000, the scheme aims to

provide an internationally competitive and hassle-provide an internationally competitive and hassle-

free trade environment for export production. An free trade environment for export production. An

SEZ is designated duty-free enclave to be treated SEZ is designated duty-free enclave to be treated

as foreign territory for trade operations and duties as foreign territory for trade operations and duties

and tariffs. Units for manufacture of goods and and tariffs. Units for manufacture of goods and

rendering of services may be set up in SEZs. rendering of services may be set up in SEZs.



Agri-export Zones (AEZs)Agri-export Zones (AEZs)

The concept of the AEZs was floated with a The concept of the AEZs was floated with a view to promote agricultural exports from view to promote agricultural exports from India and providing remunerative returns to India and providing remunerative returns to the farming community in a sustained the farming community in a sustained manner. State governments are required to manner. State governments are required to identify AEZs and also evolve a identify AEZs and also evolve a comprehensive package of services provided comprehensive package of services provided by all state government agencies, state by all state government agencies, state agriculture universities and all institutions and agriculture universities and all institutions and agencies of the Union Government for agencies of the Union Government for intensive delivery in these zones. intensive delivery in these zones.



Other Export Promotion MeasuresOther Export Promotion Measures

Marketing assistance for export Marketing assistance for export promotion:promotion:

Market Development Assistance Market Development Assistance (MDA(MDA):): In order to facilitate exporters to explore In order to facilitate exporters to explore the overseas markets and to promote their the overseas markets and to promote their exports, the MDA Scheme provides assistance to exports, the MDA Scheme provides assistance to exporters for participation in export promotion exporters for participation in export promotion seminars, trade fairs, and buyer-seller meets in seminars, trade fairs, and buyer-seller meets in India and abroad. India and abroad.

Market Access Initiative (MAI):Market Access Initiative (MAI): The The Scheme provide financing assistance to public and Scheme provide financing assistance to public and private sector organizations to finance their private sector organizations to finance their marketing activities for the thrust products in the marketing activities for the thrust products in the pre-identified markets.pre-identified markets.



Served for India 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.



Towns of Export Excellence (TEE)Towns of Export Excellence (TEE)

The scheme aims at recognizing towns that The scheme aims at recognizing towns that

have come up as industrial clusters with have come up as industrial clusters with

considerable exports so as to maximize their considerable exports so as to maximize their

potential and assist them to promote exports. potential and assist them to promote exports.



Vishesh Krishi Vishesh Krishi and and Gram UdyogGram Udyog YojanaYojana (Special Agriculture and Village Industry (Special Agriculture and Village Industry Scheme)Scheme)

The scheme aims to promote the agricultural The scheme aims to promote the agricultural

produce, minor forest produce, village produce, minor forest produce, village

industries’ products, and forest-based industries’ products, and forest-based

products by way of providing duty credit products by way of providing duty credit

scrips so as to compensate high transport scrips so as to compensate high transport

costs. costs.



Focus Market Scheme (FMS)Focus Market Scheme (FMS)

This scheme aims to offset high freight cost This scheme aims to offset high freight cost

and other externalities by allowing duty and other externalities by allowing duty

credit scrips for strategic markets.credit scrips for strategic markets.



Focus Product Scheme (FPS)Focus Product Scheme (FPS)

In order to promote incentives for export of In order to promote incentives for export of

select products that have highly employment select products that have highly employment

potential in rural and urban areas, the scheme potential in rural and urban areas, the scheme

allows duty credit scrips for notified product allows duty credit scrips for notified product

categories such as value added leather products categories such as value added leather products

and leather footwear, handicrafts items, and leather footwear, handicrafts items,

handloom products, value added fish and coir handloom products, value added fish and coir

products and some additional focus products. products and some additional focus products.



High Tech Products Export Promotion High Tech Products Export Promotion SchemeScheme

In order to promote exports of High-tech In order to promote exports of High-tech

products from India, the scheme provides products from India, the scheme provides

Duty Credit scrips. Duty Credit scrips.



Export Houses/Trading Houses SchemeExport Houses/Trading Houses SchemeThe scheme aims to give recognition to the established exporters The scheme aims to give recognition to the established exporters and large export houses to build up the marketing infrastructure and large export houses to build up the marketing infrastructure and expertise required for export promotion by providing policy and expertise required for export promotion by providing policy incentives. Under the scheme, the export performance criteria’s incentives. Under the scheme, the export performance criteria’s is as follows: is as follows:

CategoryCategory Average FOB / FOR value* Average FOB / FOR value* (in (in

Rupees)Rupees)

Export House (EH)Export House (EH) 200 million200 millionStat Export House (SEH)Stat Export House (SEH) 1 billion1 billionTrading House (TH)Trading House (TH) 5 billion5 billionStar Trading House (STH)Star Trading House (STH) 25 billion 25 billion Premier Trading House (PTM)Premier Trading House (PTM) 100 billion100 billion

*during current and preceding three licensing years*during current and preceding three licensing yearsSource: Source: Foreign trade policy (2004–09), Ministry of Commerce, Foreign trade policy (2004–09), Ministry of Commerce, Government of India, updated as on 1 April, 2008Government of India, updated as on 1 April, 2008



Policy Initiatives and Incentives by the Policy Initiatives and Incentives by the State GovernmentsState Governments

Providing information on export opportunitiesProviding information on export opportunities

Preference in land allotment for starting an Preference in land allotment for starting an

EOUEOU

Exempting from entry-tax, sales tax or Exempting from entry-tax, sales tax or

turnover tax on supplies to EOU / EPZ / SEZ turnover tax on supplies to EOU / EPZ / SEZ

units.units.



WTO and Export Promotion WTO and Export Promotion MeasuresMeasures

The multilateral trading system under the WTO The multilateral trading system under the WTO

trade regime provides a rule based framework as trade regime provides a rule based framework as

to which subsidies are prohibited, which can face to which subsidies are prohibited, which can face

countervailing measures, and which are allowed. countervailing measures, and which are allowed.



The WTO’s Trade Policy Review The WTO’s Trade Policy Review Mechanism (TPRM)Mechanism (TPRM)

In order to enhance transparency of member’s In order to enhance transparency of member’s

trade policies and facilitate smooth functioning trade policies and facilitate smooth functioning

of the multilateral trading system, the WTO of the multilateral trading system, the WTO

members established the TPRM to review trade members established the TPRM to review trade

policies of member countries at regular intervals. policies of member countries at regular intervals.

288 33 powerpoint-slides_chapter-9-policy-framework-international-trade

Business

Transcript of 288 33 powerpoint-slides_chapter-9-policy-framework-international-trade