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Monday, May 22, 2017

International Business Notes: Unit 4

Unit – 4: Infrastructure Support for Export Promotion

Institutional Support for Export Promotion
Government of India has also set up from time-to-time various institutions in order to facilitate the process of foreign trade in our country. Some of the important institutions are as follows:

1. Department of Commerce: Department of Commerce in the Ministry of Commerce, Government of India is the apex body responsible for the country’s external trade and all matters connected with it. This may be in the form of increasing commercial relations with other countries, state trading, export promotional measures and the development, and regulation of certain export oriented industries and commodities. The Department of Commerce formulates policies in the sphere of foreign trade. It also frames the import and export policy of the country in general.

2. Export Promotion Councils (EPCs): Export Promotion Councils are non profit organisations registered under the Companies Act or the Societies Registration Act, as the case may be. The basic objective of the export promotion councils is to promote and develop the country’s exports of particular products falling under their jurisdiction. At present there are 21 EPC’s dealing with different commodities.

3. Commodity Boards: Commodity Boards are the boards which have been specially established by the Government of India for the development of production of traditional commodities an their exports. These boards are supplementary to the EPCs. The functions of commodity boards are similar to those of EPCs. At present there are seven commodity boards in India: Coffee Board, Rubber Board, Tobacco Board, Spice Board, Central Silk Board, Tea Board, and Coir Board.


4. Export Inspection Council (EIC): Export Inspection Council of India was setup by the Government of India under Section 3 of the Export Quality Control and Inspection Act 1963. The council aims at sound development of export trade through quality control and pre-shipment inspection. The council is an apex body for controlling the activities related to quality control and pre-shipment inspection of commodities meant for export. Barring a few exceptions, all the commodities destined for exports must be passed by EIC.
5. Indian Trade Promotion Organisation (ITPO): Indian Trade Promotion Organisation was setup on 1st January 1992 under the Companies Act 1956 by the Ministry of Commerce, Government of India. Its headquarter is at New Delhi. ITPO was formed by merging the two erstwhile agencies viz., Trade Development Authority and Trade Fair Authority of India. ITPO is a service organisation and maintains regular and close interaction with trade, industry and Government. It serves the industry by organising trade fairs and exhibitions— both within the country and outside, It helps export firms participate in international trade fairs and exhibitions, developing exports of new items, providing support and updated commercial business information. ITPO has five regional offices at Mumbai, Bangalore, Kolkata, Kanpur and Chennai and four international offices at Germany, Japan, UAE and USA.
6. Indian Institute of Foreign Trade (IIFT): Indian Institute of Foreign Trade is an institution that was setup in 1963 by the Government of India as an autonomous body registered under the Societies Registration Act with the prime objective of professionalising the country’s foreign trade management. It has recently been recognised as Deemed University. It provides training in international trade, conduct researches in areas of international business, and analysing and disseminating data relating to international trade and investments.
7. Indian Institute of Packaging (IIP): The Indian Institute of Packaging was set up as a national institute jointly by the Ministry of Commerce, Government of India, and the Indian Packaging industry and allied interests in 1966. Its headquarters and principal laboratory is situated at Mumbai and three regional laboratories are located at Kolkata, Delhi and Chennai. It is a training-cum-research institute pertaining to packaging and testing. It has excellent infrastructural facilities that cater to the various needs of the package manufacturing and package user industries. It caters to the packaging needs with regard to both the domestic and export markets. It also undertakes technical consultancy, testing services on packaging developments, training and educational programmes, promotional award contests, information services and other allied activities.
8. State Trading Organisations: A large number of domestic firms in India found it very difficult to compete in the world market. At the same time, the existing trade channels were unsuitable for promotion of exports and bringing about diversification of trade with countries other than European countries. It was under these circumstances that the State Trading Organisation (STC) was setup in May 1956. The main objective of the STC is to stimulate trade, primarily export trade among different trading partners of the world. Later the government set up many more organisations such as Metals and Minerals Trading Corporation (MMTC), Handloom and Handicrafts Export Corporation (HHEC).
EXPORT PROMOTION COUNCILS
The Export Promotion Councils are established under the Companies Act 1956 to provide direct institutional support to the Indian exporters. The Government of India has created a separate export promotion council for every industry. Export Promotion Councils are the representative bodies of the various exporting industries. They serve as a bridge between the Government and exporters for export promotion and development. The exporters should register themselves with the respective export promotion councils and become the member of the councils. A nominal fee is charged by the export promotion | council to issue membership certificate. This certificate is called Registration-cum-Membership Certificate (RCMC). This certificate is issued in terms of the EXIM policy. Export Promotion council helps the member-exporters on technical matters, export marketing strategies and export promotion. Experts are appointed in various working committees of the export promotion councils in order to help the exporters to solve various issues relating to international trade. The offices of the Indian Export Promotion Councils are established in foreign countries for the benefit of the Indian exporters. The export promotion council perform both advisory and executive functions.
Functions of the Export Promotion Councils: The important functions of the Export Promotion Councils are given below:
a)      Providing a forum between the Government and the members of the export promotion councils for consideration and early implementation of the export promotion schemes Sponsoring and inviting trade delegations and study teams for exploring export markets for the Indian industries
b)      Making arrangements for the distribution of scarce materials for export production
c)       Allocation of export quota for the export products like textiles
d)      Arranging Buyer-Seller Meets and trade fairs/exhibitions in India and abroad
e)      Foreign publicity for Indian products in overseas markets through the scheme like Joint Foreign Publicity
f)       Recommending the Government regarding the formulation and implementation of export incentive schemes like fixation of drawback rates, market development assistance etc.
g)      Creating export consciousness among the exporters
h)      Collecting and disseminating statistical information and market intelligence about the export opportunities through various media including newsletters, bulletins and other periodicals
i)        Coordinating with the export inspection council on quality control and preshipment inspection.
j)        Speedy disposal of export assistance applications and assisting small scale units to export their products
k)      Helping the member exporters in claiming various types of incentives from the Government and
l)        Keeping the member exporters informed with regard to trade enquiries and opportunities
Commodity Boards
Commodity Boards are established by the Government of India in order to help the organisation of industry and trade. The Boards take care of the entire range of problems of production, marketing, promotion, competition, etc in respect of the commodities concerned. The Commodity Boards 'are statutory bodies taking steps for the development of cultivation, increased productivity, processing, marketing and research and development. Offices of the Commodity Boards are established in foreign countries for increasing the exports of the commodities concerned. The Boards for the respective commodities arrange trade fairs and exhibitions, sponsor trade delegations and conduct market surveys for the purpose of promoting exports. All the Commodity Boards except Central Silk Board are the registering authority and pro vide Registration-cum-Membership Certificate (RCMC) to the member exporters in terms of the Export-Import Policy. Commodity Boards are established in India for the commodities such as silk, coffee, coir, rubber, spices, tea and tobacco.
Trade Development Authority (TDA)
The Trade Development Authority was established in the year 1970 under the Societies Registration Act 1860. It is a non-profit service organisation functioning under the Ministry of Commerce, Government of India. The Director is the executive head of the organization and he is guided and assisted by a high powered committee consists of officials of the Government and experts in the field of foreign trade. The Secretary of the Foreign Trade department is the Chairman of the Organisation. The Trade Development Authority has created three important divisions to execute its functions effectively. The three divisions are, (i) Merchandising (ii) Research and Analysis and (iii) Information.
The Merchandising division concentrates on ways and means to increase Indian exports in the overseas market. This division identifies the emerging market to penetrate Indian exports in the foreign countries in the year to come. This division attempts to promote India's foreign trade by assisting the exporters to plan marketing strategy, product development and capacity expansion.
The Research and Analysis division attempts to conduct marketing research to assess the market potentials for the Indian products in the domestic as well as overseas market. This division helps the exporters to raise their export capabilities.
The Information division collects the relevant data regarding the global exports countrywise and commoditywise, trend in Indian exports and opportunities for the Indian products in the overseas market. The collected data are processed and supplied to the exporters to plan their export strategies and to maximise their exports.
State Trading Corporation (STC)
The State Trading Corporation of India Ltd. (STC) is a premier international trading house owned by the Government of India. Having been set up in 1956, the Corporation has developed vast expertise in handling bulk international trade. Though, dealing largely with the East European countries during the early years of its formation, today it trades with almost all the countries of the world.
By virtue of infrastructure and experience possessed by the Corporation, it plays an important role in arranging import of essential items into India and developing exports of a large number of items from India. It exports a large number of items ranging from agricultural commodities to manufactured products from India to all parts of the world. Because of Corporation's in depth knowledge about the Indian market, STC is able to supply quality products at most competitive prices and ensure that the goods reach the foreign buyer within the prescribed delivery schedule. It also imports bulk commodities for Indian consumer as per demand in the domestic market.
The eventful track record of more than 50 years has helped STC to gear itself to face the fierce competitive challenges, seize business initiatives and build on its core competencies.
Services provide by STC: While undertaking import and export operations, the Corporation renders following services:
1. To the Overseas buyer: STC acts as an expert guide for buyers interested in Indian goods. For them, STC finds the best Indian manufacturers, undertakes negotiations, fixes delivery schedules, oversees quality control - all the way to the final shipment to the entire satisfaction of the buyer.
2. To the Indian Industry: The Indian manufacturers, whose products sail the seas via STC, benefit a lot from its expertise. STC helps thousands of Indian manufacturers to find markets abroad for their products. STC assists the manufacturers to use the best raw materials, guides and helps them manufacture products that will attract buyers abroad. Some of the other services offered by STC to the Indian manufacturers include:
a)      Financial assistance to exporters on easy terms.
b)      Taking products of small scale manufacturers to international trade fairs and exhibitions.
c)       Import of machinery and raw material for export production.
d)      Assistance in the areas of marketing, technical know-how, quality control, packaging, documentation, etc.
e)      Supply of imported goods in small quantities as per convenience of buyers.
f)       Market intervention on behalf of the Government.
3. To the Indian Consumer: The Indian consumers also benefit from STC's expertise and infrastructure. STC imports essential commodities for them to cover shortfalls arising in the domestic market. During the last one decade, STC imported sugar, wheat and pulses to meet domestic requirements at a very short notice.
Special Economic Zone- Introduction
Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
SEZ AT INDIA
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000. 
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005.
The main objectives of the SEZ Act are:
(a) Generation of additional economic activity 
(b) Promotion of exports of goods and services; 
(c) Promotion of investment from domestic and foreign sources; 
(d) Creation of employment opportunities; 
(e) Development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
OBJECTIVES OF SEZ AT INDIA
a)         Generation of additional economic activity across all the states 
b)         Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
c)          Promotion of investment from domestic and foreign sources 
d)         Creation of employment opportunities across India 
e)         Development of world class infrastructural facilities in these units 
f)          Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities 
g)         Single window clearance cell for the establishment of Special Economic Zone 
h)         Single window clearance cell within each and every Special Economic Zones 
i)           Single window clearance cell relating to formal requirements of Central as well as all State Governments.
j)           Easy and simplified compliance procedures and documentations with stress on self certification.
THE SALIENT FEATURES OF THE FIRST SEZ POLICY OF INDIA 
a)         Exemption from duties on all imports for project development 
b)         Exemption from excise / VAT on domestic sourcing of capital goods for project development 
c)          Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership 
d)         Income tax holidays on business income 
e)         Exemption from import duty, VAT and other Taxes 
f)          10% FDI allowed through the automatic route for all manufacturing activities 
g)         Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution 
h)         Simplification of procedures and self-certification in the labor acts
i)           Artificial harbor and handling bulk containers made operational throughout the year
j)           Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations 
k)         Well connected with network of public transport, local railways and cabs 
l)           Pollution free environment with proper drainage and sewage system 
m)       In-house Customs clearance facilities 
n)         Abundant supply of technically skilled manpower 
o)         Abundant supply of semi-skilled labor across all industry vertical 
p)         Easy access to airport and local Railway Station 
q)         10-year tax holiday in a block of the first 20 years 
r)          Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis 
Key Advantages of SEZ Units in India
Ø  10-year tax holiday in a block of the first 20 years
Ø  Exemption from duties on all imports for project development
Ø  Exemption from excise / VAT on domestic sourcing of capital goods for project development
Ø  No foreign ownership restrictions in developing zone infrastructure and no restrictions on repatriation
Ø  Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership
Ø  Income tax holidays on business income
Ø  Exemption from import duty, VAT and other Taxes
Ø  10% FDI allowed through the automatic route for all manufacturing activities
Ø  Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
Ø  Simplification of procedures and self-certification in the labor acts
Ø  Artificial harbor and handling bulk containers made operational through out the year
Ø  Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations
Ø  Has host of Public and Private Bank chains to offer financial assistance for business houses
Ø  A vibrant industrial city with abundant supply of skilled manpower, covering the entire spectrum of industrial and business expertise
Ø  Well connected with network of public transport, local railways and cabs
Ø  Pollution free environment with proper drainage and sewage system
Ø  In-house Customs clearance facilities
Disadvantages of SEZ
Ø  Revenue losses because of the various tax exemptions and incentives.
Ø  Many traders are interested in SEZ, so that they can acquire at cheap rates and create a land bank for themselves.
Ø  The number of units applying for setting up EOU's is not commensurate to the number of applications for setting up SEZ's leading to a belief that this project may not match up to expectations.
Export Oriented Units (EOU)
The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. The EOUs can export all products except prohibited items of exports in ITC (HS).
Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.
Benefits under EOU Scheme
Ø  Units are exempted from payment of Income Tax
Ø  All the imports to units are customs duty free.
Ø  Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
Ø  Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
Ø  100% of foreign equity is permissible.
Ø  Reimbursement of Central Sales Tax pad on domestic purchases.
Ø  Full Freedom for sub-contracting.
Ø  Exemption from the payment of Electricity duty.
Ø  EOU unit can be set up at any of over 300 places all over India
Ø  The unit can import capital goods, raw materials, consumables, packing material, spares etc. without payment of customs duty. Similarly, these can be procured indigenously without payment of excise duty. Second hand capital goods can also be imported.
Ø  They have to achieve positive NFE (Net Foreign Exchange Earnings).
Ø  Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production.
Ø  Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU.
Ø  Generally, all final production should be exported, except rejects upto prescribed limit.
Ø  Sale within India should be on payment of excise duty. The duty which will be equal to normal customs duty which would be payable on such goods, if imported. However, in certain cases, excise duty payable will be only 50%/30% of normal customs duty payable on such goods if imported into India.
Ø  Sub-contracting of production outside on job work basis is permissible after obtaining necessary permission on annual basis.
Ø  Job work for exports is permitted.
Ø  Samples can be sold / given free within prescribed limit.
Ø  Unutilized raw material can be disposed of on payment of applicable duties.
Ø  The unit can exit (de-bond) with permission of Development Commissioner, on payment of applicable duties.
Ø  Central Sales Tax (CST) paid on purchases is refundable (but not local tax).
Ø  Prescribed percentage of foreign exchange earnings can be retained in EEFC account in foreign exchange.
Ø  100% foreign equity is permissible, except in a few cases.
Ø  Supplies made to EOU by Indian supplier are ‘deemed exports’ and supplier is entitled to benefits of ‘deemed export’.
Ø  Restrictions under Companies Act on managerial remuneration are not applicable.
Ø  No restrictions on External Commercial Borrowings.
Export Processing Zones (EPZ)
Export Processing Zones in India was set up by the government of India with the aim to initiate infrastructural development and tax holidays in various industrial sectors in the country. EPZ has incessantly accelerated the economic growth of the country by ensuring a flourishing export production. The export processing zones in India came into existence soon after the political independence, when India proclaimed the first Industrial Policy Revolution in the year 1948. It was from then that the actual industrial growth begun in India, which resulted in the constitution of the export processing zones later. Export promotion has always been the chief concern of the government of India and it strictly follows the ISI policy while carrying out all its activities.
The main reasons behind setting up the EPZ in India have been listed as under:
Ø  Ensuring better infrastructural facilities in the industrial units that were set up in the export processing zones in India
Ø  Introducing the privilege of tax holidays
Ø  Establishing 100 percent export-oriented system in the EPZ in India
Ø  EPZ in India are entirely devoid of all kinds of duties, levies, and taxes
Ø  Implementing tax holidays in the importing of goods like capital goods, raw materials, and consumer goods as well.
Ø  The units in export processing zones follow the automatic route set by the government of India which offers 100 percent foreign direct investment in the zone
Ø  The rules set by the government of India are executed and implemented by the development commissioner of the respective export processing zones in India
Ø  Some of the significant features of the Export Processing Zones in India have been enumerated as under:
Ø  The activities that are carried out in the EPZ in India are not liable to be licensed apart from the IT enabled sectors
Ø  The units set up in the export processing zones in India can select their desired locations by following certain parameters as prescribed by the state governments
Ø  The export processing zones in India religiously follows the active export-import policy
Ø  The units in EPZ in India are totally custom bonded
Ø  The proposals for the units in Export processing zones in India are entitled to follow the automatic route for approval as enforced by the state governments
Ø  The proposals which do not fall under the procedure of automatic route system are governed or approved by the FIPB
Ø  The activities in EPZ in India belonging to the Domestic Tariff Area sector are converted into Export oriented units to meet the parameters set for the export production by the government
Ø  100 percent FDI is granted to these zones.
Difference Between EOU and SEZ

SL
EOU
SEZ
1
Supplies from EOU to Domestic Tariff Area are termed as Deemed Exports.
Supplies to SEZ from Domestic Tariff Area is termed as Export
2
EOU unit can be located within the 300 places all over India.
SEZ unit has to be located within the specified zones developed
3
No Physical Control over movement of goods to Individual EOU.
Physical Control exist on movement of goods.
4
Minimum Investment is 1 Crore before commencement of production.
No Such Limit prescribed.
5
Fast Track Clearance Scheme for clearance of import Consignment.
Custom’s Clearance for export and import is obtained in the SEZ itself.
6
When Sold in DTA or in India, Concessional rate is applicable.
Sale within India would be treated as Import, Hence Import duties are levied.
7
The Existing EOU can de-bond with permission of Development Commissioner
In case of SEZ, the Unit has to mandatorily move out of SEZ zone.
8
CST is refundable and not Local tax.
Supplier need not have to pay CST.
9
Service Tax can be refunded.
Service Tax is exempted.
10
100% FDI has some restriction
100% FDI is allowed.
11
Refund of Excise and Duty drawback available.
DEPB and duty drawback are available.
12
Restriction External Commercial Borrowing is more.
Restriction External Commercial Borrowing is comparatively less.
13
Scope to improve Infrastructure exists.
Infrastructure are better
14
No Labor law exemption allowed
Labor law can be exempted by State Government.
15
Freedom of operation is restricted
Freedom of operation is available.