FTP and SEZ Final

All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

Online Master Class on Amendments in Foreign Trade Policy 2009 - 2014

May 30, 2013

Mahesh JaisingPartner

Prashanth BhatDirector

All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

DISCLAIMER

This presentation provides general information existing as at the time of preparation. The presentation is meant for general

guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this

publication will be accepted by BMR & Associates. It is recommended that professional advice be taken based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements

| 2

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

CONTENTS Overview of Incentive Schemes - FTP

Key Policy Announcements 2013-14– Export incentivisation

– Procedural Relaxation

Grievance Redressal mechanism

Measures to revive interest in SEZs

Overview of FTA’s

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

CII - Webinar on FTP/FTA/SEZ Policy Amendments | 4

EXPORT INCENTIVE SCHEMES

FMSEnhance export competitiveness in specified markets

Offset high freight cost and other externalities to select international markets

MLFPSPromote export of products of high export intensity / employment potential sold to linked markets; excludes products/markets covered under FPS / FMS

SFISAccelerate growth in export of services and create a powerful and unique ‘Served From India’ brand

FPSPromote export of products which have high export intensity / employment potential

Offset infrastructural inefficiencies and marketing costs

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 5

EXPORT INCENTIVE SCHEMES

SHIS To promote investment in up-gradation of technology to Status holders

VKGUYPromote exports of agricultural produce, forest produce, Gram Udyog products and other notified products

Compensate high transport costs and other disadvantages

Incremental

Exports

To incentivize incremental exports Short term measure (2013-14)

CII - Webinar on FTP/FTA/SEZ Policy Amendments

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 6

DUTY BENEFIT SCHEMES

AA / DFIA

Allow duty free import of inputsSubject to value addition and other norms

EPCGAllow import of capital goods at concessional rates of duty

Commitment of export obligation in value and years

EOU Promote setting up of manufacturing/service units predominantly export oriented

High requirement of imported inputs/capital goodsDuty Free procurementsExport obligation norms to be fulfilled

STPI To promote software/ITES exports; similar to EOU scheme


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 7

DUTY BENEFIT SCHEMES

Deemed Exports

Incentivize domestic supplies to exporters

Incentivize projects financed by World Bank, Asian Development Bank etc

Projects typically involve International competitive bidding


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

KEY POLICY ANNOUNCEMENTS

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Measures to revive Investor’s interest in SEZs

Zero percent EPCG scheme - extended to all goods and services

Extension of markets/products under the FMS, FPS, MLFPS schemes

Incremental exports Incentivization scheme - Financial year 2013-14

Widening scope of utilization of duty credit scrips

Amnesty scheme for default in Export Obligation

Procedural relaxations and ease of documentation

| 9

KEY POLICY ANNOUNCEMENTS


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

ZERO PERCENT EPCG SCHEME – SCOPE EXPANDED

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 11

Particulars Earlier schemes New Scheme

Available schemes Concessional duty of 3 percent for all exporters

Zero duty scheme for export of specified goods

Zero duty scheme extended to export of all goods and services

Export Obligation (“EO”) 8 times/6 times of duty saved

6 times of duty saved

EO fulfillment period 8 years/6 years 6 years

Validity period of authorisation 9 Months 18 Months

Technological Up-gradation of goods imported under existing EPCG Scheme

Minimum Time limit forapplication – 5 years

Minimum export- 50 percent

Minimum Time limit for application – 4 years

Minimum export- 50 percent

EPCG SCHEME - COMPARISON


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 12

Particulars Earlier schemes New Scheme

Import of Spares under separate authorisation for existing plant and machinery (imported under EPCG or otherwise)

Up to 10 percent of CIF value / book value of imports – at reduced EO of 50 percent

Up to 10 percent of CIF value / book value of imports – at reduced EO of 50 percent; OR

Without any limit subject to fulfillment of 100 percent EO

Where CG are sourced Indigenously but Spares are proposed to be imported

No specific provision Without any limit but subject to fulfillment of normal EO

EPCG SCHEME - COMPARISON


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Ineligible Imports

Import of any Capital Goods (including Captive plants and Power Generator Sets of any kind) for production/transmission of energy(power)

Import of second hand capital goods

Import of capital goods (including captive plants and power generator sets) for supply (export/deemed export) of electrical energy or transmission services

Import of Cars and Motor vehicles - However, hotel and travel industry allowed to import motor cars under SFIS

Ineligible Exports

Export of other products towards fulfillment of EO

Exports made by group company towards fulfillment of EO

Exporters who avail SHIS

| 13

EPCG - INELIGIBLE IMPORTS/EXPORTS


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Reduced Export Obligation

Indigenous sourcing of CG specific - EO to be 10 percent less than normal EO

If 75 percent EO fulfilled in 3 years - balance EO waived (no change)

EO for units in J&K has been reduced to 25 percent of the normal EO, earlier this benefit was available to north eastern region and Sikkim only

Other Key measures

EPCG benefit extended to exporters who have availed benefits under Technology Up-gradation Fund Scheme (TUFS) of the Ministry of Textiles

Any request for extension of EO period to be made within 30 days from the date of expiry of the original EO Period

Time period for completion of export obligation for BIFR units has been extended to 9 years (instead of 6 years in normal cases)

Clubbing of EPCG authorizations issued after April 18, 2013 can be only with other licenses issued after said date

EPCG Authorizations issued prior to April 17, 2013 - governed by earlier Policy

| 14

EPCG - OTHER KEY ANNOUNCEMENTS


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

EXTENSION OF MARKETS / PRODUCTS UNDER FMS, FPS, MLFPS SCHEMES

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Focus Market Scheme

Focus Product Scheme

| 16

EXTENSION OF MARKETS / PRODUCTS

Venezuela added to Special Focus Market list

Norway added to Focus Market list

125 Countries125 Countries

50 Countries50 Countries

Products are from engineering, electronics, chemicals, pharmaceuticals and textiles sectorsProducts are from engineering, electronics, chemicals, pharmaceuticals and textiles sectors

126 products added


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Market Linked Focus Products Scheme

Exports of High Tech products

Incentivization scheme to be separately notified by June 30, 2013

| 17

New markets -Brunei and Yemen

47 new products added

Products across engineering, auto components and textiles sectors

Products across engineering, auto components and textiles sectors

Export to USA and EU

Apparels - Chapter 61 and 62

Export to USA and EU

Apparels - Chapter 61 and 62

Period extended up to 31.03.2014

EXTENSION OF MARKETS / PRODUCTS


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

INCREMENTAL EXPORTS INCENTIVIZATION SCHEME - FINANCIAL YEAR 2013-14

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Benefit available only if the IEC holder has achieved growth in exports in the FY 2013-14 over vis-à-vis FY 2012-13 – to specified regionsBenefit is over and above other benefits claimed under Chapter 3Exports to SEZ, EOU etc, third party exports, service exports not eligibleSpecified products not eligible (cereals, ores, sugar, crude oil, milk, meat etc)Duty Credit Scrip is transferable

| 19

INCREMENTAL EXPORTS INCENTIVIZATION

Existing scheme for incremental exports in quarter ending March 2013 (2 percent of incremental growth)

New scheme for Entire financial year 2013-14(2 percent of incremental growth)

30 Latin AmericanCountries and 23 African countries added

30 Latin AmericanCountries and 23 African countries added

Incremental exports to USA, Europe and Asian countries only (excluding Singapore, UAE and Hong kong)

Incremental exports to USA, Europe and Asian countries only (excluding Singapore, UAE and Hong kong)


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

TRANSFER/CROSS UTILIZATION OF SCRIPS UNDER SFIS, SHIS ETC

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Served From India Scheme

The usage of SFIS scrips is extended to manufacturing business of a service provider - now capital goods (including spares) related to manufacturing business can also be procured under this scheme

Scrip can be utilized to procure motor cars, SUVs, all purpose vehicles by Hotels, travel agents, tour operators or tour transport operators and companies owning/operating golf resorts

Such vehicles need to be registered for “tourist purpose” only

Benefit under SFIS eligible only on the Net Foreign Exchange earnings (as against ‘Foreign exchange earnings’ allowed earlier)

| 21



All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Status Holder Incentive Scrip (“SHIS”)

SHIS benefit is not available for exports made after April 1, 2013

For exports made during FY 2012-13, application for obtaining scrip can be made upto March 31, 2014.

Scrip is now transferable to manufacturer group company irrespective of status

VKGUY Scheme

Exporters eligible to get 5 percent duty scrip even in the following cases (where the reduced rate of 3 percent was prescribed earlier) Where drawback in excess of 1 percent of duty is claimed

Where benefit of specific DEPB rate is claimed

Where benefit under AA or DFIA is claimed for import of inputs for export products for which Duty Credit Scrip under VKGUY is being claimed

Agri Infrastructure Incentive Scrip

Scrip can be transferred to supporting manufacturers irrespective of their status

| 22



All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

FPS / MLFPS / FMS / VKGUY

SFIS IncrementalExports

Agri Infra Incentive

Scrip

SHIS

FreelyTransferable

Only within Group Company and managed hotel

FreelyTransferable

To other status holders for procurement of cold chain equipments

To supporting manufacturers – irrespectiveof status

To manufacturer group companyirrespective of its status

To status holder manufacturers in the eligible sectors

| 23

SNAPSHOT OF TRANSFERABILITY

Transferability of Scrips


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

WIDENING SCOPE OF UTILIZATION OF DUTY CREDIT SCRIPS

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

FPS, FMS and VKGUY Scrips can now be utilized for payment of service taxon procurement of services

Earlier scrips could be utilized only against payment of duties under central excise and customs

Holder of the scrip is also entitled to avail drawback or CENVAT credit of the service tax debited in the scrips

All duty credit scrips issued under Chapter 3 can also be utilized for payment of

Application fee to DGFT for obtaining any authorization under FTP

Composition fee; and

Value shortfall in export obligation under AA / DFIA scheme

| 25

UTILIZATION OF DUTY CREDIT SCRIPS


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 26


Scrip should be registered with customs authorities at the port of registration; The Holder should be located in taxable territory

Service provider’s Invoice, along with details of central excise officer having jurisdiction over service provider should be submitted to customs authority

Customs authority shall debit service tax utilization on the reverse of the scrip

Customs authority shall send written advice to the central excise officer having jurisdiction over service provider


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 27


Service provider shall retain a copy of this scrip debited by customs authority and verified by central excise officer and attested by holder

Date of Debit in the scrip shall be the date of payment of service tax

Holder to produce the scrip along with an undertaking to the central excise officer having jurisdiction over service provider for verification within 30 days of debit on scrip


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Amendment in DFIA

Exemption from Anti-dumping duty and safeguard duty shall not be available in case materials are imported against DFIA made transferable by Regional Authority

In case imported materials are transferred with permission from RA

Importer to pay applicable safeguard duty and anti-dumping duty with interest at 15 percent from the date of clearance

Amendment in AA

AA no more available for import / supply of ‘energy’

| 28

AMENDMENTS in DFIA/AA


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Amendment in Deemed Exports benefits

When upfront exemption is available - benefit of TED refund not to be given

Thus the option of claiming refund of terminal excise duty will not be available for the following supplies

(i) Supplies against ICB;

(ii) Supplies of intermediate goods, against invalidation letter, made by an Advance Authorisation holder to another Advance Authorisation holder; and

(iii) Supplies of goods by DTA unit to EOU / EHTP / STP / BTP unit

| 29

DEEMED EXPORTS


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

AMNESTY SCHEME FOR DEFAULT IN EXPORT OBLIGATION

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Amnesty scheme for default in fulfilling EO

One time relief granted to exporters who have defaulted in fulfillment of EO under EPCG/AA schemes

Customs duty along with applicable interest to be paid within 6 months from date to be notified

Total payment shall not exceed two times the duty saved amount.

Details of the scheme are awaited

| 31

AMNESTY SCHEME


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

PROCEDURAL RELAXATIONS AND EASE OF DOCUMENTATION

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

e-BRC system had been successfully implemented by DGFT and the requirement of physical copy of BRC is done away with - e-BRC was made mandatory from August 17, 2012

Government of Maharashtra and Delhi have started to use e-BRC data for processing VAT refund claims

Application for Export Obligation Discharge Certificate (“EODC”) can now be filed online

Reconciliation of export/import and closure of authorizations would be quicker on account of e-transmission of EODC from DGFT to Customs

Where exports are made through EDI ports - no requirement for submission of hard copy of shipping bills to obtain EODC in case of AA/EPCG authorizations

Submission of physical copies of IEC and RCMC with individual applications is dispensed with

Requirement of execution of BG / LUT in cases where BRC not furnished at the time of application for Duty Credit Scrips - done away with

| 33

PROCEDURAL RELAXATIONS AND EASE OF DOCUMENTATION


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

GRIEVANCE REDRESSAL MECHANISM UNDER POLICY

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

GRIEVANCE COMMITTEE

Grievance Committee are constituted chaired by (i) DGFT at Headquarters and (ii) head(s) of RA(s) in regional offices.

Every exporter/importer shall have a right to seek and have an opportunity to make a representation (in writing) to and be personally heard, if he so desires, by Grievance Committee A representation to Grievance Committee may be made as in Appendix-29

Para 2.49.2 has been specifically amended to provide for an opportunity for personal hearing Personal hearing would be only after exhausting option of ‘review’ before same

authority / committee with whose order / decision importer/exporter was aggrieved and such review has been considered by the committee or authority

The decision made in pursuance to the personal hearing shall be final and binding

Opportunity for personal hearing will not apply to - decision/order made in any proceeding (whether at the original stage or at the appellate stage), under FT (D&R) Act, 1992

| 35

GRIEVANCE REDRESSAL UNDER POLICY


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

SETTLEMENT COMMISSION OF CBEC IS EMPOWERED TO DECIDE ON CASES OF DEFAULT UNDER FTP ALSO

Settlement commission is empowered to decide on cases in order to achieve following

regularization of EO default;

settlement of customs duty and interest;

to facilitate merger, acquisition and rehabilitation of sick units.(Para 2.46 of FTP)

| 36

GRIEVANCE REDRESSAL UNDER POLICY


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

SPECIAL ECONOMIC ZONE POLICY – AMENDMENTS

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

KEY ANNOUNCEMENTS – SEZ POLICY

Land area relaxation for multi product as well as sector specific SEZ’s

Graded scaling for SEZs

Sectoral broad branding

Duty benefits to pre-existing structures on vacant land forming part of SEZ

Transfer of ownership /sale of SEZ units

Relaxation of area requirement for IT SEZ’s

| 38CII - Webinar on FTP/FTA/SEZ Policy Amendments

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 39

Minimum land requirements are proposed to be reduced to 50 percent of existing thresholds for SEZs of the following nature:

The amendment is proposed in wake of acute difficulties being faced in aggregating large tracts of uncultivable land

Developers now permitted for graded scaling for the land tracts between 50-450 hectares – to provide greater flexibility in utilization of such land tracts

Type of SEZ Present Proposed

Multi-product SEZ 1000 hectares 500 hectares

Sector specific SEZ 100 hectares 50 hectares

RELAXATION OF LAND AREA REQUIREMENTS –MULTI/SECTOR SPECIFIC SEZs


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Proposal to replace the minimum land area requirement with 10 hectares with a minimum built up area criteria for IT/ITES SEZs depending on the location - to provide additional impetus and encourage growth of this sector in Tier II and Tier III cities

RELAXATION OF AREA REQUIREMENTS FOR IT/ITeS SEZ

Location of SEZ Present minimum requirement Proposed minimum area requirement

Category A cities -Mumbai, Delhi, Chennai, Hyderabad, Bangalore, Pune, Kolkata

10 hectares of land area and100,000 square meters of built up area

1,00,000 square meters with no requirement of minimum land area

Category B cities -Ahmedabad, Coimbatore, Kochi, Mangalore, Vizag, etc

10 hectares of land area and 50,000 square meters of built up area

50,000 square meters with no requirement of minimum

Category C cities (other than those falling under A and B)

10 hectares of land area and25,000 square meters of built up area

25,000 square meters with no requirement of minimum land area


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Greater flexibility provided to set-up additional units in sector specific SEZs through “Sectoral Broad Banding” – to cover units operating in similar/related areas

This could be based on compatibility of area and infrastructure requirements and could cover the following into one cluster:

Textile, apparel, hosiery, fashion, garments, wool and carpet

Leather, leather handicrafts, leather garments and sports goods

Auto components, light engineering and electronics

Biotechnology, pharmaceuticals and chemicals

IT, ITeS, Electronic component and hardware manufacturing, non-conventional energy, BPO (including legal, medical and similar services) KPO and R&D

With demand for SEZ space arising from different but related sectors, there could be potential reduction in the business cycles of SEZ developers

| 41

SECTORAL BROAD BANDING


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Presently, the SEZ policy only allows for vacant land or parcels of land with pre-existing structure not in commercial use to be considered as vacant land for inclusion as part of the SEZ

It is now proposed to extend duty benefits for any developments or additions to pre-existing structure being undertaken after notification of the SEZ

This may come with a cap that structures should not exceed more than 5%-15% of the SEZ land area

Whether the proposal would also allow pre-existing structures in commercial use to be ceded into the SEZ Area needs to be analysed in the fine prints

42 |

DUTY BENEFITS – PRE EXISTING STRUCTURE


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

Presently provisions allow SEZ units to exit from the SEZ scheme

However there are no clear provisions for continuing as a SEZ unit, in case of sale or transfer of ownership of the company

The Ministry of Commerce has sought to address this issue by making clear rules allowing transfer of ownership / sale of SEZ units

However, no exit policy for SEZ developers contemplated under the proposed policy changes

43 |

TRANSFER OF OWNERSHIP - SEZ UNITS


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

KEY TAKEAWAYS

Existing Developers already having in-principle approval / formal approval from the SEZ BoA and are struggling with various challenges including land aggregation issues, and declining demand for SEZ space

Real estate companies having small but requisite land parcel desirous of entering this space

Reduced area requirements may address contiguity and thoroughfare issues for new SEZs – fine print to be analysed to determine whether these issues get addressed for existing SEZs as well

IT/ITeS Companies especially in the MSME sector – due to increased availability of SEZ space

Demand for SEZ space arising from different but related sectors can benefit from broadbanding – should benefit developers and units


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

ISSUES STILL TO BE ADDRESSED

Aggregation of large continuous land parcels is a challenge and stringent contiguity norms have hindered the development of SEZ – expectation was that the Government would address lack of contiguity/relax strict contiguity requirements

While the SEZ law provides for setting-up of FTWZ, there is still no clarity on operational aspects wrt FTWZ such as:

Calculation of NFE of unit (to exclude client’s transactions)

Recognizing the various modes of FTWZ transactions

Recognizing the activities permitted to be carried out in a FTWZ

Compliance / procedures to be followed

Given that SEZ regime is in itself in a nascent stage, there are numerous operational and procedural issues that surface – provision for setting up of Advance Ruling Authority would have been an effective measure

Hopefully, the fine print of the amendments (when notified) would cover the above issues as well


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

CONCLUSION

The policy is a step in the right direction and it should facilitate significant fresh investments in the SEZ space

The fine print and notifications amending the SEZ law are expected soon - an analysis of the same would enable ascertain the real impact of the relaxations announced

Notwithstanding the MAT and DDT exemptions being withdrawn, SEZ scheme still remains the most tax efficient scheme in India for developers and exporters


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

OVERVIEW – FREE TRADE AGREEMENTS

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

TRADE AGREEMENTS

Trade agreements are relationship based preferential treatment extended to signatory nations

Preferential Trade Agreements facilitate lower duty structures on import from member countries

Trade Agreements may be in various forms

Customs Union – European Customs Union, South Africa Customs Union

Preferential Trade Arrangements

Comprehensive Economic Cooperation Agreement: India - Singapore

Comprehensive Economic Partnership Agreement: India - Japan


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 49

STAGES OF TRADE NEGOTIATION

Framework Agreement

Goods

Services and Investment

Overall co-operation

For economic cooperation and announcement of Early harvest Program (EHP): Outlines areas of Economic Cooperation and a common list of items for exchange of tariff concessions as a confidence building measure

Agreement on Goods - Rule of Origin, Negative list of items & list for phased reduction / elimination of duty (FTA/PTA/CECA)

Agreement on Services and Investment (CEPA)

Agreement on Economic and Technical cooperation


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

TRADE AGREEMENTS - UNDERLYING PRINCIPLE

Theory of Comparative AdvantageCountries can gain from trade in goods and services if they have different relative costs and efficiencies for producing the same goods or services Theory of comparative advantage works with an assumption of limited resources available with countriesGiven the limited resources, each country should focus on producing something which it can produce in an efficient and cost effective mannerIt works if other trade costs and tax costs do not exceed the production advantage

Impact, sensitive of domestic industry Reduces effective rate of basic customs duty on items agreed under FTAInverse duty structure arising out of duty reduction under FTA discourages manufacturing and consequent employment generation possibility arising out of the economic activity in the importing country Adverse impact can be countered by anti-dumping / safeguard measures


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

| 51

EXEMPTION FROM BASIC CUSTOMS DUTY

ANTI DUMPING DUTY(Section 9A)

ADDITIONAL DUTY(Section 3)

BASIC CUSTOMS DUTY(Section 2)

SAFEGUARD DUTY(Section 8B, 8C)

CUSTOMS DUTY BENEFITS UNDER FTA -

SECTION 5


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

TRADE AGREEMENTS - INDIA

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

INDIA - TRADE AGREEMENTS

India- Japan

India- Korea

India- Singapore

India- ASEAN

India- Thailand

India- European Union

India- Canada

India- Australia

India- New Zealand

India- Malaysia

India- South Africa Customs Union

India-Gulf Cooperation Council

Signed To be

| 53CII - Webinar on SEZ Policy Amendments

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

FTA BENEFITS – MECHANICS

Duty benefits require Country of Origin (‘COO’) certificate

COO is issued under the Rules of Origin (‘ROO’) issued under the FTA

FTA is negotiated and sponsored by Ministry of Commerce, while consequent duty benefit notifications are extended by Ministry of Finance (‘MOF’)

ROO is notified through a Customs Non Tariff notification is by MOF

Duty benefit under the FTA is defined under Customs tariff notification

Under the ROO, product should fulfill the Qualifying value content >= 35%, which can be calculated as per the formula

QVC = ( FOB value of export product – V.N.M ) * 100

FOB value

QVC = (VOM + Direct Overhead costs +Direct Labour cost + Profit ) * 100

FOB value


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

FTA BENEFITS – MECHANICS

Significant transformation for non originating goods at six digit level of HSN (Harmonized System of Nomenclature)

For example – For import of cars classified under HSN 8703.10, the non-originating goods used in the manufacture of such cars in the country of export should have been imported in any HSN other than 8703.10

Product specific criteria

For example - under the India Japan CECA qualifying value content is 35% but for cars classified under 8703.10 and for air conditioners classifiable under 8415.10 the product specific criteria requires 50% value addition

Consignment criteria – Goods should be directly transported from the supplier country without any changes


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

TRADE AGREEMENTS

- RISKS AND OPPORTUNITIES

All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

RISKS TO DOMESTIC INDUSTRY Impact of import - Domestic industry

Possibility of low priced imports from FTA countries

Sudden surge in imports may cause injury to the domestic industry

Favors MNC’s with production hub in lower costs countries with huge excess capacities, conducive tax and superior infrastructure (Japanese manufacturers)

Possibility of ‘trade diversion’

Back door entry of products from other nations

Beneficial to partner with lower external tariffs (Singapore, Thailand)

Domestic industry may seek protection under anti-dumping / safeguard measures


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

OPPORTUNITIES FOR DOMESTIC INDUSTRY Opportunities

Expands options of sourcing of raw material/intermediaries at competitive prices

Expands options to locate factories/businesses in competitive locations

Levels playing field vis-à-vis competitors

Opens options for new source of supply, new vendors and job working possibilities

Preferential treatment to products from member countries which pens up new and exclusive areas for export

ImpactImproves cost efficiencies by restructuring sourcing options

Incrementally increases competition in the domestic market due to cheaper imports

Forces innovation to be ahead of the curve

Trade protection measures become important


All

right

s re

serv

edA

ll rig

hts

rese

rved

| P

relim

inar

y &

Ten

tativ

e

BUSINESS PLANNING OPPORUNITY

Sourcing of supply planning

Vendor selection

Local sourcing vs. sourcing from FTA country

FTA country vs. any other country

Manufacturing location

If the vendor has multi-location manufacturing facility, supply of goods can be negotiated from the FTA country

Multi-location manufacturing

If value addition in the finished product is done at various location, option for finishing operation with value addition can be planned in the FTA country

Multi location manufacturing can be planned with several vendors with specific specialization so as to minimize the next cost of goods procured / supplied


All

right

s re

serv

ed |

Pre

limin

ary

& T

enta

tive

C h a l l e n g e U s

FTP and SEZ Final

Documents

Transcript of FTP and SEZ Final