FOREIGN TRADE POLICY 2004-09

Foreign Trade Policy

Section 5 of Foreign Trade (Development and Regulation) Act, 1992 empowers the Central Government to notify the EXIM Policy. Para 2.4 of Foreign Trade Policy empowers DGFT to notify procedures
2

Basic objective Facilitate sustained growth in exports to double our share of global merchandise trade in next five years. To act as effective instrument of economic growth by giving a thrust to employment.
3

Strategy:
1. simplifying procedures and reducing transaction costs 2. neutralizing all levies and duties on inputs used in export products 3. technological and infrastructural upgradation of all sectors 4. Identifying and nurturing special focus areas which would generate additional employment: Agriculture, Gems and jewellery, handlooms, Handicrefts and Leather and footwear.
4

Imports/Exports
All Imports/Exports are free except for the items shown as prohibited/restricted/State trading enterprises. Import/Export permitted from any destination. Export/Import of arms and related material from Iraq is prohibited.
5

Imports/Exports (Contd)
Prohibited goods:- Not allowed except in exceptional cases with approval of Central Govt. Restricted goods: May be allowed under a licence or through a public notice. STE goods:- May be imported/exported by STE(s) or with a licence from DGFT.

Pre-requisite of Import/Export
Importer-Exporter Code (IEC):Mandatory except for exempted categories in paragraph 2.8 of Handbook of Procedure.

 EXPORT PROMOTION CAPITAL GOODS SCHEME. DUTY EXEMPTION SCHEME. EXPORT ORIENTED UNIT SCHEME. SPECIAL ECONOMIC ZONE. AGRI EXPORT ZONE. STATUS HOLDER SCHEME.

EXPORT PROMOTION SCHEMES

 Import of capital goods at a concessional basic customs duty of 5% allowed for export purposes. Spare ,Jigs ,fixture ,dies and moulds also allowed. Components of capital goods permitted. Second hand CG also permitted.

Export Promotion Capital Goods Scheme

 Spares for existing plant & machinery also allowed Export to be effected equivalent to 8 times of the duty saved on capital goods . For SSI and Agro units EO is equivalent to 6 times the duty saved. Exports to be completed in 8 years/12 years time.
10

Conditions of Export

Conditions of Exports (Contd) Custom Bond/ BG / to be given to the

Authorities

Export of goods manufactured by use of capital goods. Facility to exports additional items from the same company/group companies permitted.
11

Conditions of Exports (Contd)

Exports under the scheme in addition to the average exports already achieved. Concurrent benefits under Advance Licence/DFRC/DEPB/DBK.
12

EO fulfilment
Year % of Exports 1st to 6th Year 50% 7th to 8th Year 50% For 12 years EO 1st to 10th Year 50% 11th &12 th Year 50% EO extension for 2/3/5 years.
13

Documentation
Application Form Fee @Rs 2/1000 subject to Minimum and Maximum. Copy of Manufacturing details. CA certificate showing past 3 years export in App-26

14

 Advance License.

Duty Exemption/Remission Scheme

Annual Advance Licence Duty Free Replenishment Scheme. Duty Entitlement Pass Book Scheme.
15

Advance Licence

16

 Duty Free import of inputs allowed for exports. Minimum positive value addition to be achieved. Exports/Imports to be completed in 24 months. Bond / BG / LUT to be given to the Custom Authorities.

Advance License for Physical Exports

17

Advance License
Advance License indicates description of export items, quantity and FOB value , description of import items, quantity and CIF value of imports. Import of inputs exempted from Basic Customs duty, Additional Customs duty, Education cess and Safeguard/Anti-dumping duty.
18

Advance Licence for Intermediate inputs for Allows duty free import ofsupply

supply of the intermediate product to the ultimate exporter. Encourages domestic procurement of intermediate products and value addition within the country. Inputs exempted from Basic Customs duty, Additional Customs duty, Education cess and Safeguard/Anti-dumping duty.

19

recipient entitled for duty free import facility. Categories include supply to Advance Licence/ DFRC/ EOU/ EHTP/ STP/ SEZ, Projects having exemption from Customs duty. Inputs free from Customs duty and refund of Terminal Excise duty.
20

Advance Licence for Deemed Exports For supplies within the country where

Annual Advance Licence

Available only to status holders and regular exporters (having exports in preceding 2 years). Entitlement equivalent to 300% of the FOB value in preceding year or Rs 1 Crore ,which ever is higher. Licence valid for 24months for imports/ exports. Revalidation and E.O extension for 12 months.
21

product group, CIF value and FOB value. Licence holder can export any product falling under the product group including items for which norms do not exist.

Annual Advance Licence Licence (Contd..) only mentions the export

22

Duty Free Replenishment Certificate

Exports to be effected first. Exporter allowed to import inputs free of Basic Customs duty. DFRC indicates names and quantity of the raw-material to be allowed duty free. Minimum value addition of 25% required.
23

Duty Free Replenishment Certificate (Contd.) DFRC and/or material imported

under it transferable. Scheme covers only products for which Standard Input Output Norms exist. Additional Customs duty is refunded through CENVAT or drawback. Validity extended from 18 months to 24 months.
24

DFRC Documentation
Application Form EP Copy of S.B Copy of BRC Application Fee @Rs 2/1000 subject to minimum and maximum.

25

Duty Entitlement Pass Book Scheme Exporter entitled for credit at a prespecified rate of FOB value of exports.

Rates dependent on SION, value addition and Basic Customs duty. Credit issued by way of DEPB Certificate.
26

Duty Entitlement Pass Book Scheme (Contd) Credit can be utilised for import of

items otherwise freely importable except capital goods Basic Customs duty, Additional Customs duty debitible from DEPB . Validity 24 months and upto the last day of the month.

27

DEPB Documentation
Application Form EP Copy of S.B Copy of BRC Application Fee @Rs 5/1000

28

Export Oriented Units

Duty Free import of raw-materials, capital goods and other equipments allowed. Units operate in a bonded area. NFEP to be positive over 5 years. Sale in domestic area on applicable duty. Supplies to these units are deemed exports.
29

Special Economic Zones

Scheme announced in March, 2000. Foreign territory for taxes and duties Goods from DTA to SEZ exports, reverse process imports. Developers of SEZs eligible for tax/duty exemptions
30

Special Economic Zones(Contd)

Exemption from Service Tax. Exemption from Central Sales Tax. No interference from the Custom Authorities inside the zone. Sale in DTA on payment of full duty.
31

Agri Exports Zone

For end to end development of agriculture products from a geographically contiguous area. Facilities include pre/post harvest treatment and operation, plant protection, processing, packaging, storage and related R&D. Exporters including service provider in the zone to be given EPCG facility.
32

Agri Exports Zone (Contd.)

Facility of Advance Licence/DFRC for import of fertilizer, pesticides, packing material etc. Grant of status at level as compared to the similar status for other products. 60AEZs notified so far
33

STATUS SCHEME
Category Total exports during current or 1/2/3 years

One Star Export House Rs 15 Cr Two Star Export House Rs 100Cr Three Star Export House Rs 500 Cr Four Star Export House Five Star Export House Rs 1500Cr Rs 5000 Cr
34

Facilities To Status Holders

Automatic issuance of licence 100% in EEFC 360 days repatriation period Direct negotiation of documents DFEC Scheme for status holders with minimum exports of 25 Cr & 25% incremental growth Target Plus Scheme with Minimum growth of 20% and minimum exports of Rs 10 crores in previous year. Exemption from BG.
35

Target Plus scheme

For star export houses Benefit of duty credit which may be used for import of any input, capital goods, office equipments, furniture etc. Minimum quantum of 10 crores to be achieved in previous year Duty credits: as % of incremental growth 20-25% 5% 25-100% 10% Above 100% 15%(of 100%)
36

Regulating Exports
Export Policy indicates items as prohibited, restricted , STE or free. Most of the items are already free for exports. certain agricultural items, ores, birds, animals textiles using azo dyes etc. are not allowed to be exported.

37

Phasing Out of QRs

Import restrictions removed continuously since 1991. Restrictions on import of 60% of the items removed during 1991-96. Restrictions on 1773 items removed during 1996-99. Restrictions on 714 items removed in 2000 and 715 in 2001. Restrictions on 83 items removed in 2002,70 items in 2003 and 10 items in the present calender year.
38

Available Trade Defence Mechanisms

Increase in applied Customs tariffs within bound levels. Anti-dumping/Antisubsidy/Safeguard measures. Non price measures. Standards.
39

Increase in Tariff Customs duty on almost all items under QRs raised to peak rate of 15% in the budget announced . Amendment in Section 3 of the Customs Act to allow MRP valuation for CVD. .
40

Action taken

Non price measures: Action taken Import of consumer goods made

subject to labelling requirements as per Packaged Commodity Rules, 1977. Import of 135 products made subject to compliance of Indian quality standards. Import of processed food products made subject to compliance of Prevention of Food Adulteration Act.

41

 Import of all primary agricultural products made subject to phytosanitary import permit as per Plants, Foods, Seeds (Importation into India) order, 1989 Strict safety and emission standards on import of second hand cars. Import of meat and poultry subjected to Meat Food Products
42

Action taken

Action taken (Contd)

Import of alcoholic beverages made subject to labelling, registration of brand, movement, storage and other conditions as stipulated by various State Governments. Import of textile products made subject to pre-shipment inspection regarding use of prohibited dyes.
43

OTHER ISSUES
Value Added Tax Subsidy on Exports Transaction Cost Income Tax on Exports Profits
44

VAT
VAT introduced from 1-4-2005 VAT to cover state levies in the initial stage Provides adjustment of the duties paid at the earlier stage Ensures efficient tax administration

45

VAT (Contd)
No VAT on inter state movement of Goods Zero rating of Exports No VAT on the end product Refund/Adjustment of input stage VAT

46

VAT (Contd)
State Govts have no financial resources to give refunds Refund difficult when inputs procured are from different state than the state of manufacturing Problem in jobbing of goods

47

Subsidy on Exports
ASCM provides for exemption or refund of indirect taxes paid on the inputs used in export production Inputs include physically incorporated + Fuel, oil, energy and catalysts

48

Subsidy on Exports (Contd)

Pre shipment/post shipment credit Export Promotion Capital Goods Scheme 80 HHC ,10A and 10 B scheme DEPB Scheme Loan Guarantee Scheme

49

Transaction Costs
Makes exports less competitive in international market Transaction cost has come down recently but still varies from 8-10% as per Exim Bank Study Full automation and less human interface provides solution

50

Transaction Costs (Contd)

EDI connectivity among all users Physical inspection to risk based analysis Pre auditing to post - auditing Service charges commensurate with service rendered Development of infrastructure
51

Tax on Exports Profits

80 HHC introduced in 1983 Phasing out over a period of five years from 2000-01 to 2004-05 10 A to continue at 100% till 2010 and 50% for next five years 10 B to continue till 2010

52

53