1

International Business
Rakesh Mohan Joshi
Professor & Chairperson, IIFT New Delhi

Copyright @ Oxford University Press
...
Chapter 9

POLICY FRAMEWORK
FOR
INTERNATIONAL TRADE

Copyright @ Oxford University Press
International Business
R. M. Josh...
Learning Objectives













To explain the significance of foreign trade
policy in international business
To e...
Significance of Foreign Trade
Policy
 International business operations at firm
level are considerably influenced by vari...


Policy incentives help exporters increase
their profitability through foreign sales



The

host

country’s

trade

an...
Strategic Options for Trade Policy
Inward

looking

strategy

(import

substitution):
Laying emphasis is laid on extensive...
Outward looking strategy (export-led
growth):
Linking the domestic economy to the
world economy and promoting economic
gro...
Demand vs. Supply Side Policy
Measures

Demand
side
initiatives:
Export
promotion include programs to alert
companies to t...
Instruments of Trade Policy

Various methods employed to regulate
trade

which

include

tariffs,

non-tariff

measures, a...
Tariffs

Official constraints on import of certain
goods and services levied in the form of
customs duties or tax on produ...
Classification of Tariff Instruments










On the basis of direction of trade: import vs.
exports tariffs
On the ...
Non-Tariff Measures

Contrary to tariffs, which are straightforward,
non-tariff measures are non-transparent and
obstruct ...
Major Non-tariff Policy Instruments


Government participation in trade



Customs and entry procedure



Quotas



T...
India’s Foreign Trade Policy
India’s

foreign trade policy is formulated and

implemented mainly by the Ministry of Commer...
India’s Foreign Trade Policy
It is published in four volumes:


Foreign Trade Policy



Handbook of Procedures Volume I
...
Export Prohibitions and Restrictions
Under

the

foreign

trade

policy,

export

prohibitions are maintained for environm...
Schemes for Duty-free and Concessional
Imports
In order to reduce or remove the anti-export
bias inherent in the system of...
EPCG Scheme
The scheme aims to reduce the incidence of high
capital cost on export prices so as to make
exports competitiv...
Duty Exemption Schemes
Such schemes enables duty-free import of inputs required
for export production.

Advance Authorisat...
Input Output and Value Addition Norms

The

Standard

Input

Output

Norms

(SION)

published in volume II of the Handbook...
Duty Free Import Authorization (DFIA) Scheme
Launched on May 1, 2006, it replaced the Duty Free
Replenishment

Certificate...
Duty Remission Schemes

These

schemes

enable

post-export

replenishment of duty on inputs used for export
production un...
Duty Entitlement Passbook (DEPB) Scheme

Under the scheme, merchant or manufacturer
exporters are entitled to duty-free im...
Promotional Measures for Deemed Exports
Deemed Exports:
Transactions in which goods supplied do not leave the country
and ...
Duty Drawback
The rebate of duty chargeable on any imported
or excisable material used in the manufacture of
goods exporte...
Schemes for Concessional Imports for
Gems and Jewellery
The
Gems
and
Jewellery
Sector
is
characterised by import of goods ...
Schemes to Augment Export
Production
The schemes aim at creating and strengthening
of enclaves for export production so as...
Export Oriented Units (EOUs)

Introduced in 1981, the EOU scheme is
complementary to EPZ scheme.

It offers

the same prod...
Software Technology Parks (STPs) /
Electronic Hardware Technology Parks (EHTPs)
In

order

to

facilitate

production

of
...
Bio-Technology Parks (BTPs)

In order to promote bio-technology exports,
the DGFT notifies Bio-Technology Parks on
the rec...
Assistance to States for Developing Export
Infrastructure and Other Allied Activities (ASIDE)
The

ASIDE

scheme

launched...
Free Trade Zones (FTZ) and
Export Processing Zones (EPZs)
The FTZs and EPZs, set up as special enclaves,
separated from th...
Special Economic Zones (SEZs)

Introduced in April, 2000, the scheme aims to
provide an internationally competitive and ha...
Agri-export Zones (AEZs)
The concept of the AEZs was floated with a
view to promote agricultural exports from
India and pr...
Other Export Promotion Measures
Marketing
assistance
promotion:




for

export

Market
Development
Assistance
(MDA): In...
Served for India Scheme:
Under the scheme, all service providers are entitled to duty
credit scrip equivalent to 10 per ce...
Towns of Export Excellence (TEE)

The scheme aims at recognizing towns that
have come up as industrial clusters with
consi...
Vishesh Krishi and Gram Udyog Yojana
(Special Agriculture and Village Industry
Scheme)
The scheme aims to promote the agri...
Focus Market Scheme (FMS)

This scheme aims to offset high freight cost
and other externalities by allowing duty
credit sc...
Focus Product Scheme (FPS)
In order to promote incentives for export of
select products that have highly employment
potent...
High Tech Products Export Promotion
Scheme

In order to promote exports of High-tech
products from India, the scheme provi...
Export Houses/Trading Houses Scheme
The scheme aims to give recognition to the established exporters
and large export hous...
Policy Initiatives and Incentives by the
State Governments


Providing information on export opportunities



Preference...
WTO and Export Promotion
Measures
The multilateral trading system under the WTO
trade regime provides a rule based framewo...
The WTO’s Trade Policy Review
Mechanism (TPRM)
In order to enhance transparency of member’s
trade policies and facilitate ...
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  • Demand vs. Supply Side Policy Measures Demand side initiatives: Export promotion include programs to alert companies to the opportunities present in international markets and to strengthen the commitment and skills of those already involved. Supply side initiatives: Initiatives for creating and expanding export production, developing transportation networks, port facilities, tax and investment systems. If I were to explain this to somebody, what is the best method to do so?
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  • Demand vs. Supply Side Policy Measures Demand side initiatives: Export promotion include programs to alert companies to the opportunities present in international markets and to strengthen the commitment and skills of those already involved. Supply side initiatives: Initiatives for creating and expanding export production, developing transportation networks, port facilities, tax and investment systems,
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288 33 powerpoint-slides_chapter-9-policy-framework-international-trade

  1. 1. 1 International Business Rakesh Mohan Joshi Professor & Chairperson, IIFT New Delhi Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  2. 2. Chapter 9 POLICY FRAMEWORK FOR INTERNATIONAL TRADE Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  3. 3. Learning Objectives        To explain the significance of foreign trade policy in international business To elucidate trade policy options for developing countries To discuss instruments of trade policy To provide an overview of India’s foreign trade policy To explicate policy measures for trade promotion To explain policy initiatives and incentives by state governments To examine India’s trade promotion measures in context of the WTO Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  4. 4. Significance of Foreign Trade Policy  International business operations at firm level are considerably influenced by various policy measures employed to regulate trade, both by home and host countries.  Exportability and importability of a firm’s goods are often determined by trade policies of the countries involved.  Price-competitiveness of traded goods is affected by import and export tariffs. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  5. 5.  Policy incentives help exporters increase their profitability through foreign sales  The host country’s trade and FDI policies often influence entry decisions in international markets. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  6. 6. Strategic Options for Trade Policy Inward looking strategy (import substitution): Laying emphasis is laid on extensive use of trade barriers to protect domestic industries from import competition. Domestic production is encouraged so as to achieve self-sufficiency and imports are discouraged. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  7. 7. Outward looking strategy (export-led growth): Linking the domestic economy to the world economy and promoting economic growth through exports. The strategy involves incentives to promote exports rather than restrictions to imports. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  8. 8. Demand vs. Supply Side Policy Measures Demand side initiatives: Export promotion include programs to alert companies to the opportunities present in international markets and to strengthen the commitment and skills of those already involved. Supply side initiatives: Initiatives for creating and expanding export production, developing transportation networks, port facilities, tax and investment systems. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  9. 9. Instruments of Trade Policy Various methods employed to regulate trade which include tariffs, non-tariff measures, and financial controls. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  10. 10. Tariffs Official constraints on import of certain goods and services levied in the form of customs duties or tax on products moving across borders. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  11. 11. Classification of Tariff Instruments      On the basis of direction of trade: import vs. exports tariffs On the basis of purpose: protective vs. revenue tariffs On the basis of time length : tariff surcharge vs. countervailing duty On the basis of tariff rates : specific, ad-valorem, and combined On the basis of production and distribution points: • • • •  Single stage sales tax: Value added tax (VAT) Cascade tax Excise tax Turnover tax Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  12. 12. Non-Tariff Measures Contrary to tariffs, which are straightforward, non-tariff measures are non-transparent and obstruct trade on discriminatory basis. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  13. 13. Major Non-tariff Policy Instruments  Government participation in trade  Customs and entry procedure  Quotas   Tariff quotas   Absolute quota Voluntary quotas Other trade restrictions Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  14. 14. India’s Foreign Trade Policy India’s foreign trade policy is formulated and implemented mainly by the Ministry of Commerce and Industry, but also in consultation with other concerned ministries, such as Finance, Agriculture, and Textiles, and the RBI. DGFT under the Department of Commerce is responsible for the execution of the Foreign Trade Policy. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  15. 15. India’s Foreign Trade Policy It is published in four volumes:  Foreign Trade Policy  Handbook of Procedures Volume I  Handbook of Procedures Volume II (Schedule of DEPB Rates)  ITC (HS) Classification of Export and Import Items Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  16. 16. Export Prohibitions and Restrictions Under the foreign trade policy, export prohibitions are maintained for environmental, food security, marketing, pricing and domestic supply reasons, and to comply with international treaties. Restrictions on exports on account of security concern through multilateral agreements are contained in the SCOMET list. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  17. 17. Schemes for Duty-free and Concessional Imports In order to reduce or remove the anti-export bias inherent in the system of indirect taxation and to encourage exports, several schemes allows importers to benefit from tariff exemptions, especially on inputs. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  18. 18. EPCG Scheme The scheme aims to reduce the incidence of high capital cost on export prices so as to make exports competitive in the international markets by way of reduced import duty on capital goods. It enables import of capital goods at concessional rate of duty subject to an appropriate export obligation accepted by the exporter. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  19. 19. Duty Exemption Schemes Such schemes enables duty-free import of inputs required for export production. Advance Authorisation: It allows duty-free import of physical inputs incorporated in exports products after making normal allowance in wastage. In addition, consumables, such as fuel, oil, energy, catalysts, etc., are also allowed under the scheme. Advance authorization can be issued for: • Physical exports (including exports to SEZs) • Intermediate supplies, and • Deemed exports Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  20. 20. Input Output and Value Addition Norms The Standard Input Output Norms (SION) published in volume II of the Handbook of Procedures are used for determination of proportion of various inputs which are physically used and consumed for export production and the packaging material. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  21. 21. Duty Free Import Authorization (DFIA) Scheme Launched on May 1, 2006, it replaced the Duty Free Replenishment Certificate (DFRC) Scheme which allows duty free import of inputs, for production of export products to manufacturer exporters or merchant exporters tied up with the manufacturer for the import of inputs used in the manufacture of exports. It offers exemptions in respect of customs duty, additional duty, education cess, and anti-dumping or safeguard duties in force for inputs used in export production. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  22. 22. Duty Remission Schemes These schemes enable post-export replenishment of duty on inputs used for export production under various schemes, such as duty entitlement passbook scheme, duty drawback, incentives for deemed exports, and the gems and jewellery sector. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  23. 23. Duty Entitlement Passbook (DEPB) Scheme Under the scheme, merchant or manufacturer exporters are entitled to duty-free import (basic customs duty component only) of inputs used in manufacture of goods, as a specified percentage of f.o.b. value of exports made in freely convertible currency. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  24. 24. Promotional Measures for Deemed Exports Deemed Exports: Transactions in which goods supplied do not leave the country and payments for such supplies is received either in Indian rupees or in free foreign exchange as specified in the trade policy, which are eligible for a number of benefits such as: • Supply of goods against advance authorization or DFIA • Deemed export drawback • Exemption from terminal excise duty where supplies are made against International Competitive Bidding (ICB). Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  25. 25. Duty Drawback The rebate of duty chargeable on any imported or excisable material used in the manufacture of goods exported from India. Duty Drawback is admissible under Customs Act, 1962 for re-exports of goods on which import duty has paid and for imported material used in the manufacture of exports . Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  26. 26. Schemes for Concessional Imports for Gems and Jewellery The Gems and Jewellery Sector is characterised by import of goods in rough or raw form of diamonds and semi-precious stones and gold and silver for value addition and conversion to finished products. Schemes for concessional imports from gems and jewellery sector include:     Replenishment authorization Schemes for duty-free procurement of precious metal etc. Advance authorization for import / procurement for precious metal, mountings etc. Diamond imprest authorization Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  27. 27. Schemes to Augment Export Production The schemes aim at creating and strengthening of enclaves for export production so as to ‘immunize’ the production from firms engaged constraints, in export such as infrastructural and administrative, from the rest of the economy. These schemes attempt to reduce the burden of import duty and indirect taxation on capital goods and consumables and reduce operations hassles for export production. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  28. 28. Export Oriented Units (EOUs) Introduced in 1981, the EOU scheme is complementary to EPZ scheme. It offers the same production regime but an EOU can be located anywhere in India. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  29. 29. Software Technology Parks (STPs) / Electronic Hardware Technology Parks (EHTPs) In order to facilitate production of computer export-oriented software and hardware, units can be set up under the STPs/ EHTPs schemes, respectively. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  30. 30. Bio-Technology Parks (BTPs) In order to promote bio-technology exports, the DGFT notifies Bio-Technology Parks on the recommendation of the Department of Biotechnology. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  31. 31. Assistance to States for Developing Export Infrastructure and Other Allied Activities (ASIDE) The ASIDE scheme launched in April 2000 as a comprehensive scheme to involve states in export promotion efforts by providing assistance to state governments for creating infrastructure for development and growth of exports. Under the scheme, assistance is given for setting up new export promotion parks and zones and complementary infrastructure, such as road links to ports, container depots, and power supply. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  32. 32. Free Trade Zones (FTZ) and Export Processing Zones (EPZs) The FTZs and EPZs, set up as special enclaves, separated from the Domestic Tariff Areas (DTA) by fiscal barriers, are intended to provide an internationally competitive duty-free environment for export production, at low costs which enables their products to be competitive in the international market. Since May 1994, the government has permitted development of EPZs by private, state or the joint sector. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  33. 33. Special Economic Zones (SEZs) Introduced in April, 2000, the scheme aims to provide an internationally competitive and hasslefree trade environment for export production. An SEZ is designated duty-free enclave to be treated as foreign territory for trade operations and duties and tariffs. Units for manufacture of goods and rendering of services may be set up in SEZs. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  34. 34. Agri-export Zones (AEZs) The concept of the AEZs was floated with a view to promote agricultural exports from India and providing remunerative returns to the farming community in a sustained manner. State governments are required to identify AEZs and also evolve a comprehensive package of services provided by all state government agencies, state agriculture universities and all institutions and agencies of the Union Government for intensive delivery in these zones. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  35. 35. Other Export Promotion Measures Marketing assistance promotion:   for export Market Development Assistance (MDA): In order to facilitate exporters to explore the overseas markets and to promote their exports, the MDA Scheme provides assistance to exporters for participation in export promotion seminars, trade fairs, and buyer-seller meets in India and abroad. Market Access Initiative (MAI): The Scheme provide financing assistance to public and private sector organizations to finance their marketing activities for the thrust products in the pre-identified markets. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  36. 36. 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. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  37. 37. Towns of Export Excellence (TEE) The scheme aims at recognizing towns that have come up as industrial clusters with considerable exports so as to maximize their potential and assist them to promote exports. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  38. 38. Vishesh Krishi and Gram Udyog Yojana (Special Agriculture and Village Industry Scheme) The scheme aims to promote the agricultural produce, minor industries’ forest products, produce, and village forest-based products by way of providing duty credit scrips so as to compensate high transport costs. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  39. 39. Focus Market Scheme (FMS) This scheme aims to offset high freight cost and other externalities by allowing duty credit scrips for strategic markets. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  40. 40. Focus Product Scheme (FPS) In order to promote incentives for export of select products that have highly employment potential in rural and urban areas, the scheme allows duty credit scrips for notified product categories such as value added leather products and leather footwear, handicrafts items, handloom products, value added fish and coir products and some additional focus products. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  41. 41. High Tech Products Export Promotion Scheme In order to promote exports of High-tech products from India, the scheme provides Duty Credit scrips. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  42. 42. Export Houses/Trading Houses Scheme The scheme aims to give recognition to the established exporters and large export houses to build up the marketing infrastructure and expertise required for export promotion by providing policy incentives. Under the scheme, the export performance criteria’s is as follows: Category Export House (EH) Stat Export House (SEH) Trading House (TH) Star Trading House (STH) Premier Trading House (PTM) Average FOB / FOR value* (in Rupees) 200 million 1 billion 5 billion 25 billion 100 billion *during current and preceding three licensing years Source: Foreign trade policy (2004–09), Ministry of Commerce, Government of India, updated as on 1 April, 2008 Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  43. 43. Policy Initiatives and Incentives by the State Governments  Providing information on export opportunities  Preference in land allotment for starting an EOU  Exempting from entry-tax, sales tax or turnover tax on supplies to EOU / EPZ / SEZ units. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  44. 44. WTO and Export Promotion Measures The multilateral trading system under the WTO trade regime provides a rule based framework as to which subsidies are prohibited, which can face countervailing measures, and which are allowed. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade
  45. 45. The WTO’s Trade Policy Review Mechanism (TPRM) In order to enhance transparency of member’s trade policies and facilitate smooth functioning of the multilateral trading system, the WTO members established the TPRM to review trade policies of member countries at regular intervals. Copyright @ Oxford University Press International Business R. M. Joshi Chapter 9: Policy Framework for International Trade

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