Import and Export management from a Global Perspective
This Seminar paper is a Doctrinal and Analytical research paper in which are
going to unearth the perspective of International Trade, backdrop to
International trade, International Trade Integration, Payment Mechanisms in
Global Trade, International Payment Systems, Letter of Credit in International
Trade, International Trade Terms - INCOTERMS, Types of Licenses, Types of
Customs Duties & Taxes, Customs Department - An Introduction, Customs
Brokerage, Imports and Customs Clearance, Documentation in Customs
Clearance, Import Documentation, Customs Clearance Agency &
Process, International Marketing Business Model, Export Marketing
Channels, Increasing Exports through FTZ, Why Do Exports Matter?, The Case
against Export Credit Agencies, import export procedures in India, Anti- Dumping
law and its areas of conflits and overlaps with the Competition laws of India
and also the Anti-Dumping Senario of China.
Aims and Objectives:
Introduction- Perspective on International Trade[1]
International trades between countries and across continents have existed for centuries including previous civilizations. Traditionally international trade consisted of traded goods like textile, food items, spices, precious metals, precious stones, and objects of art and various items across the borders. Everybody has heard of the silk route as well as amber road and other famous routes that existed and the ports and settlements that flourished due to the trade, which was carried on through land route as well as sea routes.
We have come a long way since the earlier times and International trade today has taken on new dimension. It was a fact earlier that impact of trade between two countries was not limited to economics alone, but fuelled political, social ambitions too. Today with the advancement of technology and impact of globalization has made it necessary for all countries to engage necessarily in international trade for their survival.
Various factors including but not limited to industrialization, development of transportation, globalization, technology that enables trade and communication has contributed to change in the format of business organizations as well as trade practices.
Companies and Organizations today are no longer entities with a local identity. Multi national organizations have emerged through the previous century with footprints all over the globe. They have in fact shrunk the earth and changed the way businesses are conducted. Companies no longer limit themselves to local markets. They no longer depend upon local resources. These companies setup manufacturing wherever it is conducive in terms of cheaper resource availability as well as support from local government and in terms of markets, geographical boundaries do not bother them. They are present everywhere.
Technology in terms of communication as well as software technology has changed the way business organizations manage activities be it manufacturing, procurement, finance or sales. Today software applications drive the processes and work at the speed of thought.
In present scenario, no country can afford to remain isolated from and not participate in globalization. While countries do open their economies to global competition, they need to tread very carefully not to upset their domestic economy and protected industries. This balancing act is often managed through individual countries trade and tariff policy, which forms a part of each countries foreign trade policy that governs its approach to international trade and commerce.
Post Second World War, World Trade Organization has been playing major role in facilitating and attempting to streamline the global trade and tariff structures with an aim to move towards free trade. However in reality, free trade may just be a dream as long as there is no parity between developed and developing economies.
Today most of the countries are party to several bi-lateral as well as multi lateral tariff and trade agreements like GATT- General Agreement on Tariffs and Trade though which they regulate imports and exports to and from specific countries.
In the last few decades we have seen the emergence of services export and imports and it is continually growing. Developing countries are harnessing their intellectual capital to provide software services to the developed countries.
Today's international trade has many more new dimensions like intellectual property, a variety of services, trade related investments, Bilateral and Multilateral Trade Agreements, Establishing terms for trade in services, investments as well as creating climate for dispute settlement.
Managing International trade has multi dimensional aspects, which need to be considered, by each country. Any political, economic or other events anywhere in on the earth have an impact on each countries international trade. We have seen the impact of recession in one country affecting across the globe. We have also seen impact of financial markets crash in one country having ripple effects all over the world.
Any Business Manager holding responsibility of a business function in an organization today would have to be equipped with the macro level understanding of the world trade, macroeconomics, macro finance and its impact. He needs to understand at the micro level export and import policies and procedures of various countries to be able to steer his business ahead in accordance with the existing environment. It is his ability to fore see the risks, assess the impact and manage the risk that is going to be detrimental to his organization's success.
History of International Trade[2]
Any time you walk into a super market and pick up any stuff like a knife or a toy and chances are that the item has been manufactured in China or assembled in Mexico. Pick up coffee pods and you will see that they have been imported from Africa. When you shop for clothes, it is quite likely that you will see Made In China label.
We all know that international trade has been in vogue for centuries and all civilizations carried on trade with other parts of the world. The need for trading exists due to the variations in availability of resources and comparative advantage. In the present context where technology and innovation in all fields have thrown open borders to globalization, no country can afford to remain isolated and be self-sufficient.
International trade has a rich history starting with barter system being replaced by Mercantilism in the 16th and 17th Centuries. The 18th Century saw the shift towards liberalism. It was in this period that Adam Smith, the father of Economics wrote the famous book 'The Wealth of Nations' in 1776 where in he defined the importance of specialization in production and brought International trade under the said scope. David Ricardo developed the Comparative advantage principle, which stands true even today.
All these economic thoughts and principles have influenced the international trade policies of each country. Though in the last few centuries, countries have entered into several pacts to move towards free trade where the countries do not impose tariffs in terms of import duties and allow trading of goods and services to go on freely.
The 19th century beginning saw the move towards professionalism, which petered down by end of the century. Around 1913, the countries in the west say extensive move towards economic liberty where in quantitative restrictions were done away with and customs duties were reduced across countries. All currencies were freely convertible into Gold, which was the international monetary currency of exchange. Establishing business anywhere and finding employment was easy and one can say that trade was really free between countries around this period.
The First World War changed the entire course of the world trade and countries built walls around themselves with wartime controls. Post world war, as many as five years went into dismantling of the wartime measures and getting back trade to normalcy. But then the economic recession in 1920 changed the balance of world trade again and many countries saw change of fortunes due to fluctuation of their currencies and depreciation creating economic pressures on various Governments to adopt protective mechanisms by adopting to raise customs duties and tariffs.
The need to reduce the pressures of economic conditions and ease international trade between countries gave rise to the World Economic Conference in May 1927 organized by League of Nations where in the most important industrial countries participated and led to drawing up of Multilateral Trade Agreement. This was later followed with General Agreement of Tariffs and Trade (GATT) in 1947.
However once again depression struck in 1930s disrupting the economies in all countries leading to rise in import duties to be able to maintain favorable balance of payments and import quotas or quantity restrictions including import prohibitions and licensing.
Slowly the countries began to grow familiar to the fact that the old school of thoughts were no longer going to be practical and that they had to keep reviewing their international trade policies on continuous basis and this interns lead to all countries agreeing to be guided by the international organizations and trade agreements in terms of international trade.
Today the understanding of international trade and the factors influencing global trade is much better understood. The context of global markets have been guided by the understanding and theories developed by economists based on Natural resources available with various countries which give them the comparative advantage, Economies of Scale of large scale production, technology in terms of e commerce as well as product life cycle changes in tune with advancement of technology as well as the financial market structures.
For professionals who are occupying management or leadership positions in Organizations, understanding the background to the international trade and economic policies becomes necessary as it forms the backdrop for the business organizations to charter their course for growth.
Backdrop to International Trade[3]
Any student or professional wanting to understand more about Imports and Exports would have to understand the history and economic principles that have chartered the course of international trade to its current regime.
In the backdrop of the countries economic policies and financial conditions such as its balance of payments situation, the governments formulate rules and regulations that govern the countries trade with other countries.
World Trade Organization or WTO as it is called is the International Organization that deals with the global rules of trade between nations. Its primary function and goal is to facilitate smooth and free flow of trade between countries.
WTO came into being on 1st January 1995 and is Head Quartered in Geneva, Switzerland. The Organization was created at the Uruguay Round Negotiations and consists of 153 member countries. A Director General and functions with a Secretariat Staff of 637 heads WTO.
WTO functions primarily as the Forum for trade negotiations between countries. Its main functions include Administering WTO Trade Agreements, Handling Disputes, Monitoring National Trade policies of member countries, Technical assistance to Member Countries. Considered to be one of the youngest of International Organizations, the WTO is regarded as a Successor to the GATT agreement that came into being in the after warmth of Second World War.
Historically treaties have been the agreements that ruled between two countries. Post Second World War and creation of WTO and other organizations have paved way for more and more of international co-operations in the field of politico economic environment, with the result there have come to existence many regional, intra regional and global super nations groups engaging in regional trade agreements.
Creation of The European Union is one of the most important events in the History of our Civilization. EU, known as European Union was formed by Masstricht Treaty in 1991 and laid foundation for an economic and monetary union that included creation of one single currency across member nations. The European Free Trade Association was setup in 1960 with one of the main aims to establish multilateral associations between the member countries to abolish customs barriers and creating a single free market across European Union.
Some of the other associations and agreements that have come into being are The North American Free Trade Agreement (NAFTA) signed by Canada, Mexico and US in 1994. The Association of Southeast Asian Nations (ASEAN)
Complexities arise in International Trade due to the nature of economies of the countries all over the world. Less Developed Countries and Developing Countries economies are agriculture based and seasonal and their reliance on export markets is very high. They in turn import manufactured goods from developed countries where in the cost of imports is fairly stabilized. With the variation in export earnings and high or stabilized imports, the countries stand to face huge fluctuations in terms of international trade which in turn effects their domestic economy.
However amongst the developed countries the international trade has always been beneficial. In fact most of the EU member countries have managed to increase their incomes due to the removal of trade barriers within the EU. But the trade relations between developed and under developed countries have always been the bone of contention and controversies. The business orientations of the Multi National Companies who establish manufacturing as well as selling in countries where labor and resources are cheaper is seen as a form of exploitation. WTO meetings and conferences are used as a platform by various interest groups to bring to the table various issues concerning public health and safety, environmental impact and other evils arising out of international trade.
We are slowly seeing the new shades of moral and ethical values as well as other issues that impact our environment and global concerns featuring in and affecting the international trade.
International Trade Integration[4]
No doubt international trade has existed spanning civilizations, in the current global economic situation no country can keep away without participating in international trade. Countries are moving cautiously away from capitalistic and protectionist outlook and engaging in trade with other countries.
With the creation of WTO, there have been constant efforts made to unite countries to create more markets, to standardize tariffs and trade laws as well as remove trade barriers in trying to create free markets.
We have seen very many bi lateral and multi lateral agreements taken place that have harmonized international trade to a large extent. Together with the agreements, several countries have begun to form unions to harmonize and free trade regulations within themselves in a bid to create free markets. One such example is the Economic Union of European Countries. Initially EU was a Customs Union that further developed into Economic Union.
Countries have also formed several other types of unions as well as zones in a bid to give impetus to international trade. We shall discuss a few of them briefly in this article.
Customs Union
Customs Union refers to a coming together of member countries to form a union where in they allow free trade amongst the member countries without customs duties and tariffs. However they formulate a common external trade policy to determine common import duties that are levied for imports from a third party country other than the member country.
Customs Union is the first step towards harmonizing and removing trade barriers to facilitate smoother and increased trade flow within the member groups. This would result in increased economic efficiency and improve political relationships amongst the members too paving way for further economic integration.
The Customs Union of Zollverein which was formed out of coming together of German States is another example of Customs Union. Customs Union can also be called Free Trade Zones with common Trade Tariffs and Policies.
Free Markets & Economic Integration
Monetary Union, Customs and Monetary Union
Economic Union and Monetary Unions finally lead up to Complete Economic Integration as the final stage. In Economic Integration, the member countries operate with single currency and fiscal policy coupled with single economic policy and function as single economy.
To achieve and stabilize single economy, it necessitates the political integration, which brings into being the concept of United Countries with autonomous states governed by federal government. United States of America is the outstanding example of such integration evolving into one Nation.
Payment Mechanisms in International Trade[5]
Setting up International Trade Mechanisms involves inter disciplinary processes including Finance, Logistics, Taxation and Supply Chain disciplines. Every Business Manager would need to know the nuances of the trade even though he may or may not be involved in the micro management of the processes.
Any Import or Export entails commercial transaction and payment. When an import is made into the US, the foreign supplier would have to be paid in the currency in which he has raised the invoice. Normally international transactions are made using USD as the currency. However in many cases of transactions with Europe, the Euro Dollar is used as the currency too.
When an Export originates out of US to another country, the Exporter would have to receive payment from the End Customer.
In Exports we have several types of trade or export transactions and the nature of the business determines the payment terms.
Advance Payment
When a new customer approaches and places an order on the Exporter, normally might insist on advance payment for executing the order. This method normally continues for a few times until mutual trust is built between the two parties and they get to know each other.
Letters of Credit
An Exporter if dealing with an unknown customer at the other end may not have any prior exposure to the credit worthiness of the Customer and would normally insist on Confirmed Letter of Credit to be opened by the Customer before shipping the goods. In such cases the Exporter may not be extending any credit. Also in case of high value transactions with known customers too; exporters prefer to get paid through Letter of Credit.
While dealing with a customer, the Exporter can check seek a credit worthiness rating from the customer's bank to be able to ascertain the authenticity and credibility of the Customer. Normally Large Multi Nationals demand such credit worthiness reports as a part of their policy.
Bill of Exchange of Documentary Drafts
When there has been sufficient relation between an Exporter and the Customer (Importer) and the customer's credit worthiness is known through previous records, the Exporter might decide to extend credit and accept payment on bill of exchange basis. This system is also called as Documentary Drafts. Documentary drafts are of two types namely Sight Drafts and Date and Time Drafts.
Open or Ongoing Account
When there is a huge volume of continuous business transactions between the Exporter and Importer and exports continue to happen on ongoing basis, the Exporter can simply export on the basis of a purchase order and expect the Importer to pay promptly on due date. This is the usual method adopted by most of the Multi National Companies as well as the large organizations that have sufficient import volumes spread across various countries and are dealing with multiple vendors on ongoing basis. In such cases they just determine the annual volumes to be supplied by each vendor, issue an open purchase order and keep reviewing only the delivery schedule. They offer standard payment commitment on a particular date to all vendors as a global policy. The payment process will be set and determined as a part of their business agreement.
Other Types of Trade and Related Payment Mechanisms
Besides the above types of payment mechanisms based on normal Exports and Imports, there are other types of business models which work on various other modes of payment terms too.
Consignment Sale
An exporter might sign up a contractor with a distributor overseas to import, hold stock and sell the goods on his behalf. In such a situation, the distributor may not own the stocks and the ownership might continue to lie with the exporter. The distributor would only be an intermediary to sell the stocks and repatriate the money realized back to the exporter and get remunerated in terms of service charges or commission. In such cases there may be a business agreement in place but no fixed payment mechanism may be adopted.
Counter Trade / Counter Purchase / Barter Trade
In yet another case of business arrangement called counter trade, exports may be linked with return purchase of some other items from the importer or from another source in the country. The payment may also involve services other than products. This kind of trade becomes a necessity while dealing with countries that do not have sufficient foreign currency. There is also another system of international barter. which is not very commonly practiced in the commercial world.
International Payment Systems[6]
Brief Introduction about International Payments
If you have shopped online on international portals or have received payments from abroad, you would have wondered about how the payments flow across the world and which banks and financial institutions underpin global commerce and trade.
Further, if you work in a corporate that has global supply chains with international suppliers and customers, you would be again dealing with a complex network of institutions and banks that route the payments from one end of the supply chain or the value chain to the other.
In addition, when nations trade with each other and when central banks transact with each other as well as banks in different countries deal with each other, then they are all participating in the international payment system that is the bedrock of global payment flows.
Components and Constituents of the International Payment System
So, who and what are the constituents and components of the international payment system? To start with, banks and financial institutions form the first layer of the international payment wherein they hold accounts of other global banks who in turn hold accounts of the former. This enables the banks to send and receive payments from each other as they can simply debit their accounts and credit the other bank's account with them and this in turn leads to payments flowing to the recipient bank that debit the sending bank and credit their account.
Indeed, it can be said that banks such as Citibank which is part of the international financial conglomerate, Citigroup, Standard Chartered, HSBC, and Barclays form the lifeline of the international payment system by routing the money from the senders to the recipients anywhere in the world, anytime of the year, and any place that they are located in.
The SWIFT Protocol
However, it is not enough for banks and other financial institutions to simply transfer money to each other without having a common protocol and standard by which they can communicate with each other. In other words, they need to talk to each other in a language that is understood by them.
Hence, there is indeed a common protocol that forms the basis for such communication, this is the SWIFT standard wherein the acronym stands for Society for Worldwide International Funds Transfer wherein this payment standard prescribes the rules and regulations that all participants in the international payment network must abide with to ensure that there is a common standard of messaging and communication between the banks and other financial institutions.
For instance, the sender, the recipient, the intermediary, and the address and other details are to be captured in a specific format that is standard across banks so that each participant in the payment value chain knows exactly what is contained in the payment message.
An Example of How International Payments Work
To take an example, if you are located in the United States and want to send a funds transfer to India, you must first setup the beneficiary and then transfer funds from your account to the beneficiary. While this completes your end of the value chain, the next step is when your bank in the United States debits your account and credits its account with the funds. After this, it transfers the money to its partner bank in India or if it does not have any dealings with Indian banks, it contacts a bank in the United States that has such dealings and in both these cases; the funds are then transferred from the banks in the United States to the bank in India.
Once the banks in India receive the funds, they must then send it to the ultimate beneficiary wherein the funds are debited from its account and credited to the recipient. Again, this step might be a single or two step processes depending on the recipient holding an account with the concerned bank that receives the funds.
Automation and Digitalization of the International Payment System
As you can see from the above example, international payments involve a complex chain of transactions and payment routes that entail cooperation and coordination between multiple banks and financial institutions. All these flows are made possible by automated payment systems that use the SWIFT standard which as explained earlier enables and ensures that the payments flow smoothly throughout the value chain.
Further, in recent years, there has been so much automation and digitalization of the payment systems that funds from one country to the other are flowing in an almost real time manner with just minor delays because of the clearing houses in between.
Clearing houses are financial institutions such as the Reserve Bank of India in India and the United States Federal Reserve in the US which function as the node for the payments between domestic banks and international banks. Clearing houses are also places where traditionally there have been like the village markets where at the end of the day, the various merchants gather to settle their accounts and square the debts and the credits.
Conclusion
As can be seen from the points raised so far, international payment flows go smoothly as long as all participants in the value chain do their part in addition to adhering to the SWIFT protocol. Further, the global payment value chain is efficient mainly because globalization has led to liberalization of the banking rules and regulations that have enabled banks anywhere to deal with other banks everywhere and anytime and every time.
Finally, the next time you send or receive an international payment, just think about what it takes to enable your payment and imagine bits and bytes of data and information streaming across the world so that your payment is processed smoothly and successfully.
Letter of Credit - Meaning and Different Types of LC[7]
International trade between an Exporter and Importer would entail multiple transactions in terms of documentation exchange, physical cargo movement as well as settlement of payment which have to be clearly defined and setup in order to ensure smooth business transaction.
Over the years international trade has established various methods and payment mechanisms that are accepted globally by all financial institutions and other related parties.
Normally when the Customer is new to the Exporter, the business transactions are done either based on advance payment or Letter of Credit option. LC is one of the safest mechanisms available for an Exporter to ensure he gets his payment correctly and the importer is also assured of the Exporters adherence to his requirement in terms of quality, quantity, shipping instructions as well as documentation etc.
A letter of Credit is the Buyer's Banker's promise to the Bank of the Seller / Exporter that the bank will honor the Invoice presented by the Exporter on due date and make payment, provided that the Seller/Exporter has complied with all the requirements and conditions set by the Importer in the said letter of credit or the Buyer's Purchase Order and produced documentary evidence to prove compliance, along with the necessary shipment related documentation.
Confirmed Letter of Credit
A Letter of Credit is always sent by the Buyer's bank to the Seller's Bank or any bank that is becomes an advising bank. Normally the Seller's bank becomes an advising bank when a normal LC is received and it delivers or advises the buyer regarding the receipt of LC with no responsibility towards it. In case of a Confirmed LC, the Seller's bank checks out the authentication of the LC from the Buyer's bank and confirms to stand responsible for negotiating, collecting payment from the Buyer's bank and making payment to the seller in line with the terms and conditions stipulated in the LC. By adding confirmation to the LC, the Seller's bank too becomes equally responsible to make payment for the transaction under the LC. Seller's Bank in turn will charge and collect service charges from the Seller for the same.
Revocable and Irrevocable Letter of Credit
Normally the Letter of Credits issued is irrevocable, which means that no single party can unilaterally make any changes to the LC, unless it is mutually agreeable to both the parties involved. However an LC is said to be revocable if the terms allow any one single party to be able to make changes to the LC unilaterally.However it is in the interest of the buyer that he should always insist on irrevocable Letter of Credit.
Sight LC
When the LC is opened, stipulating the condition that, on presentation of the negotiable set of shipping document by the seller as per the terms of the LC are made, the buyer's bank will make payment at sight meaning immediately to the seller's bank subject to fulfillment of terms and conditions of the LC being fulfilled, the LC is called Sight LC.
Future or Credit LC
If the payment schedule under the said LC stipulates payment at certain future dates after presentation of negotiable set of shipping documents by the Seller and fulfilling the LC terms and conditions, such an LC is termed Future LC or Credit LC. It is quite normal for sellers to extend credit of 30 days to 60 days under LCs. However the shipping documents would have to be presented to the bank immediately so that they documents reach the buyer well ahead in time before the consignment reaches the foreign shores and the buyer is able to clear the consignment and take delivery.
International Trade Terms - INCOTERMS[8]
Globalization has given impetus of international trade which is increasing by the day. International trade involves multiple agencies, transportation agents, carriers as well as Customs and Banks etc of the two countries involved in trade. Any Export or Import transaction involves transportation of goods predominantly via sea or air and in some cases over the road transportation too. Export and Import transactions are essentially dependant upon documentation and information to flow across all related agencies smoothly. In fact it is essential for information to flow to the agencies involved in each sector in advance before the physical goods arrive or move. The advancement of technology in terms of internet and EDI has helped smoothen the transactions internationally across all countries. Similarly in the case of international terms of trade too, things have been smoothened and standardized across all countries with the introduction of INCOTERMS published by ICC or International Chamber of Commerce in 1936.
INCOTERMS are the standard terms of trade that define the rights and obligations of the parties involved in trade. It specifies the responsibility of the buyer and the seller by defining the transaction and the cost aspects concerning the transaction and especially related to carriage, custom duties as well as Insurance, etc. However it limits itself to the scope of the liability of costs and definition thereof and does not deal with the ownership or transfer of title of goods.
INCOTERMS are divided into 4 groups namely E,F,C & D.
GROUP � E
This group contains only one Incoterm namely EXW - Ex. Works.
This term represents minimum liability on the part of the Seller. Seller&s responsibility ends with delivering goods at his factory doc. The rest of the risk and expenses involved are borne by the Buyer and would have to be carried out through his agent at Origin.
GROUP � F
Consists of FCA, FAS & FOB terms. Under this category the Seller pays for the pre carriage expenses at the Origin and the main carriage as well as Destination charges are borne by the Buyer.
FCA - Free Carrier - Seller delivers goods to the Buyer&s nominated vehicle and his responsibility ceases with delivery. Unloading, transportation as well as Insurance from this point will be borne by the Buyer.
FAS - Free Alongside Ship - Seller completes Export formalities and delivers cargo alongside ship. From this point onwards the risk and costs including transportation and Insurance pass on to the Buyer.
FOB - Free On Board - Seller responsible for inland transportation, Export clearance as well as delivery cargo onboard the Ship. Once Onboard the Ship the risk and responsibility shifts to the Buyer who pays the transportation, Insurance and Destination Charges.
GROUP � C
Under this group the Seller arranges for and pays for transportation but does not take on the risk.
CFR - Cost and Freight - Seller pays transportation cost up to Destination Port. Insurance and Risk are with the Buyer from the time the Seller delivers cargo on board.
CIF - Cost, Insurance & Freight - Seller pays for transportation and Insurance but the Risk passes to the buyer as soon as the cargo is delivered on board the ship.
CPT - Seller pays transportation cost. The risk and insurance lies with the buyer from the point of delivery of cargo to the carrier by the Seller.
CIP - Carriage & Insurance Paid to - Seller pays transportation and Insurance. The risk passes to the buyer when Seller delivers cargo to carrier.
GROUP � D
Under this group the Seller assumes all or most of the risk and takes responsibility of delivery at Destination upto the agreed point of delivery.
DAF - Delivered at Frontier - Seller responsible to deliver cargo upto the point of entry at Destination. Risk and responsibility further passes on to the Buyer.
DES - Delivered Ex Ship - Seller assumes risk until the ship with the cargo reaches the port of Destination. Then the risk shifts to Buyer from the point of discharge of vessel onwards.
DEQ - Delivered Ex. Quay Duty Paid - Seller takes responsibility until the cargo is delivered after import clearance at destination and customs duty paid and delivered to the point on buyers dock.
DDU - Delivered Duty Unpaid - Seller takes responsibility to deliver cargo at the destination port where the Buyer takes on the responsibility for import clearance, Import duties and onward delivery.
DDP - Delivered Duty Paid - Seller takes responsibility until the cargo reaches destination, clears the customs, pays the duty and delivers cargo at Buyer&s dock.
Types of Licenses in International Trade[9]
International Trade has become the order of the day in the current environment of Globalization. The nature of economies namely under developed, developing and developed countries as well as the availability of natural resources, labor, technology and capital required for production etc play a important role in countries economy as well as its reliance on international trade. While countries which are rich in resources look for exporting to other countries and earning foreign exchange, countries mostly the developed countries rely on imports from developing countries for their use.
Countries like Europe and Us are heavily dependant upon Imports, developing countries like China and other Asian countries tend to rely on exports to these countries.
Though the countries and WTO have been advocating free trade and several Bi Lateral Treaties and Multi Lateral treaties have come into being to remove trade barriers from one member county to another, all of the countries still find the need to practice and have protectionist attitude towards international trade. There are political as well as economic considerations that govern the import and export duties levied by Governments. Primarily import and export duties aim to encourage or restrict the consumption as well as production in the domestic economy and market.
Countries levy Import and Export Duties on specific items and also based on countries of origin. The management of duties and tariffs is managed through Trade Laws and Policies. Besides imposing duties, countries also restrict and manage the import and export of items with the help of Licenses to Import and Export.
Types of Licenses
Open General Licensed Items
While normal items and traded goods like textiles, consumer durables, Handicrafts, electronics items, Food articles, Drugs etc are generally allowed to be imported and exported by all countries freely without restrictions.
Imports against Specific Import Licenses
Many items like second hand capital equipment, plant and machinery, engines etc are traded, transferred and imported normally by developing and under developed economies.Such second hand machinery and goods are allowed to be imported into the receiving countries only through specific license obtained for the said purpose. Such license would set forth conditions required to be met by the importer to prove the residual life of the machinery etc. Import of Fire Arms and Ammunitions are always covered under specific licenses in most of the countries.
Import - Quantity Restrictions or Quota
Some countries like USA do allocate quantity restrictions for import of items like textile on certain countries and exporters would have to adhere to the quota norms, which are periodically reviewed and amended as required.
Export Licenses
While the domestic industries are engaged in export of some important natural resources and raw materials like iron and steel, certain kinds of herbs etc, Governments control and restrict the export through issuing Export Licenses.
Negative List
Most countries maintain a negative list of items which prohibit import and export of certain items like animal hides and other wildlife, precious wild life, live stock, narcotics and many more sensitive items.
When people import or export items into the country without applicable licenses, do not bring in consignments avoiding customs clearance and thus avoid paying duties as well as those items that are prohibited are brought into the country illegally, such trade is labeled as smuggling.
International Trade and Taxes - Types of Customs Duties[10]
The International Trade is rapidly changing and evolving as a result of Globalization and advancement of electronic and communication science. These have brought the entire world under global economy. Benefits of global economy ensure that despite different states of economic development in various countries, technology and products become accessible across countries. It enables all countries to specialize in particular trade and participate and benefit from global markets, thereby they are able to benefit from utilizing their resources, labor or whatever advantages of production they are endowed with.
Globalization has also given rise to the Multi National Companies that operate globally and are able to leverage on setting up production wherever it is cheaper and market their goods in countries where markets exist.
When countries have domestic markets and domestic industries, they cannot be left open to compete in global market without regulatory controls. Domestic industries need to be protected and supported to face up to competition and markets need to be regulated to ensure no dumping takes place. Moreover countries need to watch over depletion of their natural resources too and control the pricing and financial aspects of international trade related to their country.
All countries exercise controls over international trade through Trade Laws, Tariffs and Taxes which are called Import Duty and Export Duty. These are aimed at making trade practices safer, fair and ethical too. Tariffs are influenced by political as well as economic and financial outlook of the Governments as well as the bilateral relationship of the country with the other partnering country.
In a bid to made global markets accessible to all freely, the WTO has been trying to negotiate with all member countries. Uruguay Round did manage to bring about commitments from countries to cut down tariffs and bring them to base levels which remain standard across member countries, while the recent DOHA round of discussions have been centered around agriculture market access and resultant tariffs.
Types of Customs Duties
All countries maintain and publish schedule of tariffs annually and these are filed with WTO and generally in line with the international community tariffs. The rate of duty under the published tariff is called Bound Rates or basic customs duty.
Applied Rates or Basic Customs Duty
Applied Rates are the effective rate of duties charged by the Customs at the specific period or time of import. The affective rate can vary from the Schedule. Generally the trend is to keep the applied rates same as schedule or at lower than schedule tariff. Countries do not generally tend to charge more than the schedule.
Application of Duty
Normally the customs duty is set as a set percentage against the value of the consignment. This percentage value ensures that with the fluctuation of prices in the international market, the duty component gets automatically adjusted.
However besides basic customs duty, additional duty in terms of fixed value per ton or per unit quantity as specific or special duty are also applied for various purposes, to control and balance the import or export, or at times to augment revenue collection and various other purposes related to international as well as national situations.
Governments also levy special and temporary duties as percentage over the portion of customer duty on specific purpose and for specified time. It can also be applicable only on specific categories.
The tariffs can be based on revenue generation, prohibitive or protective outlook of the regulatory policy and authorities. It can also be on retaliatory mode as well as based on bi lateral or specific trade pact with other countries.
All duties incase of both imports as well as exports are valued and collected by Customs Authorities through their branches set up at every port of entry in the Country.
Customs Department - An Introduction[11]
International Trade is facilitated and controlled by Countries with the help of Foreign Policy, Export Import Regulations, Schedule and Tariff of Import and Export Duties as well as Trade Laws and Regulations.
Customs Department is the Federal Government Agency that is invested with Authority to conduct Customs Valuation and collect Import as well as Export Duties on behalf of the Government.
Customs are present in all points of entry into and out of the country. These include airports, sea ports, on road border check posts and any other point of exit and entry into the country.
Customers Departments are invested with quasi powers similar to the police and work in close co-ordination with the border security, police and other security intelligence departments.
Imports and Exports cover two channels of transport of goods. Business related trade is carried on through cargo imports. Caro Import as well as export can be consigned through road network, via shipping as well as airfreight. All the said modes will be covered by Customs Department.
The second mode of export and import relates to personal baggage. Though this mode does not have much of revenue implications but still the baggage has to go through customs inspection to ensure illegal items and prohibited items are not being imported or exported. Items like Narcotics, illegal weapons and cash etc are always smuggled into the country through various routes. Customs department has revenue intelligence teams that are trained to prevent such acts and arrest the accused.
In the Airports and Ports, Customs have designated area and offices where the exporters deposit the export consignments. After customs clearance the cargo is directly handed over to the Airline or the Shipping line from Customs department for onward shipment.
Similarly, imports cargo is offloaded from the aircraft or ship into the Customs designated area and store until it is custom cleared and released to the importer.
The customs designated area is always a bonded area where in only customs is permitted entry. The cargo that is kept within the bonded area cannot be moved or taken out without Customs permission.
Customs Department officials inspect the inbound cargo and based on the descriptions of the items in Invoice and other documents, assign the correct tariff to arrive at the valuation of the consignment based on the Invoice value. The duty amount is calculated and once the duty payment is made by the importer, the cargo is released. The process of submitting the cargo for customs clearance as well as facilitating the documentation and clearance process is handled by Third Party Service Providers called Customs Brokers.
Similar process is followed for customs exports too. Customs Brokers file documents on behalf of the clients to Customs department, facilitate cargo inspection and approval to enable exports to be completed.
Customs Departments also work closely with border security forces and revenue intelligence agencies to work on information related to smuggling and illegal entrants into the country.
Revenue intelligence wing of Customs deals with matters pertaining to valuation of imports and try to check transfer pricing under valuation, under invoicing etc done by importers to evade import duty payments. They also build database of international prices of specific commodities and the trends in the markets to be able to spot under valuation attempts by importers.
A Brief on Customs Brokerage[12]
International trade is regulated through tariffs and trade laws established by the Country's Federal Governments to control the imports and exports of the country. The Government invests executive powers to the Customs Departments, headed by Custom's Commissioners to administer the policies and tariffs on all imports and exports into and out of the country.
Customs Clearance Departments are setup in all ports of entry and exit at the Country's borders including Airports, Sea Ports and Check Posts at Road.
Customs Clearance involves valuation of the goods for their authenticity in terms of both physical inspection as well as value assessment. The Customs inspect the documents submitted to ascertain that the valuation on the Commercial Invoice is on par with the international markets and approve the assessment based on appropriate classification. Once the consignment is assessed, valuation determined the demand for duty is made on the Importer. On receipt of duty payment, the consignment is released out of the Customs bond.
The entire process of imports is governed not only by the Customs Laws, but all imports are required to be compliant with the other relevant Boards and Bodies like Food and Drug Administration, Department of Agriculture approval, Fisheries and Wildlife Department approval etc. While the import consignment is in the custody of Customs, the rest of the tests and approvals would have to be acquired before the customs can release the consignment.
The above process of customs clearance can take from anywhere from one day to seven days depending upon each case. There are several commercial documents that are to be submitted by the Importer and few Custom related documents have to be prepared and submitted to enable customs clearance of the imports.
The customs clearance process and co-ordination with the Customs and other agencies necessitates the services of engaging a Customs Clearance Broker or Brokerage Agency.
Customs Clearance Brokerage Agency is a Third Party Service Agency that is licensed by Customs Department to operate and represent the Importer. Customs Clearance License Holder is required to have passed Customs Test and Examination and is required to be fully conversant with Customs Laws, Rules, and Processes and ensure adherence to the same.
There are several Customs Clearance Service Providers who are specializing in the field. There are many freight forwarder companies including Multi National Companies that own and operate Customs Clearance services for their clients.
The Customs Clearance process requires several documents including commercial documents from the Buyer, Seller as well as bill of Transport from the Transporting Company, Certificate of Origin from the Seller country etc. Besides the Customs Bill of Entry is one of the key documents required to be submitted along with the rest of the documents. These documents are filed electronically from the Customs Broker's office before the consignment land. From the time the consignment lands and is warehoused at the Custom's Bonded Warehouse, there is a free period of three days to seven days (varies from country to country) within which the customs clearance process would have to be completed and the consignment released. If not the consignment then starts accruing demurrage on daily basis and would have to be paid up by the Importer before clearance of the Consignment.
Customs Clearance Agent plays a very crucial role in representing the Importer with Customs and takes the responsibility for compliance of all Rules and Regulations on behalf of the Importer.
Imports and Customs Clearance - Overview[13]
When any Organization Imports any item into the country, the cargo would need to be Custom Cleared. The consignment transported by Air, Ship or by Trailer on the Road, would have to be deposited at the Customs Notified and Bonded Area.
Customs Clearance or brokering is done by third party service providers who are licensed by Customs for the said purpose. They represent the Importer and co-ordinate with Customs Department as well as other specific departments to Custom Clear the cargo.
There are list of several items that cannot be imported into the countries freely and would require specific License. Alcoholic Beverages, Animals and Animal products, Fire Arms and Ammunitions, Meat and Meat products, Milk, Diary and Cheese products, Plants and Plant products, Poultry and Poultry Products, Petroleum and Petroleum products etc would have to be imported under the License issued by various agencies and such imports would have to be in compliance with the rules and conditions laid down by respective agencies.
There are several other items such as art materials, artifacts and antiques, cultural property, hazardous and toxic materials, internationally banned products like ivory etc are usually prohibited for imports into the Country.
Bureau of Alcohol, Tobacco, and Firearms, Animal and Plant Inspection Service, Fish and Wildlife Service, Food and Drug Administration are few of the agencies that exist in most of the countries which regulate and oversee imports of the specific items covered under their schedule.
When the Cargo lands at the Customs Bonded W/house, along with Customs Clearance, the licensed items would need to be inspected and approved for clearance by these specific agencies too. Customs brokers carry out the necessary process of submitting documentation, facilitate sampling and inspection and follow up to obtain approvals.
All cargo being imported as well as export from a country would have to be deposited at Customs Bonded warehouse to complete export and import formalities and receive Customs approval to hand over the cargo to the freight forwarder in case of Export and to the Importer incase of Imports. The customs bonded warehouse is a customs notified area and the cargo while in bonded warehouse is under the Customs Charge. Normally bonded warehouses are available and operated by Customs Departments at the Airports and Seaports. In case of larger airports and Shipping yards, the Government set up a separate corporation or agency to setup and operates such bonded warehouse.
In many cases Governments do give licenses to the Customs Clearing Agents to setup bonded warehouses for exports wherein the cargo can be offloaded by the exporter, customs formalities completed and after customs approval the cargo can be stuffed into the Shipping container. Generally if the export cargo is of smaller lots, the clearing agents move the cargo to these bonded warehouses. If the export is of one full container volume, then the cargo is stuffed into the container at the exporter's premise itself and the container is deposited at the shipping yard in the customs bonded warehouse or designated area waiting for export clearance.
An imported consignment can be imported and warehoused in Customs bonded warehouse for certain period of time in bond. This gives the flexibility to the importer to custom clear the consignment in parts when required for consumption and pay customs duty only for the consignment that is being de bonded. They can further sell the materials to third party while in bond and it would be considered as high sea sale. Un till the importer files bill of entry for home consumption and pays customs duty to take delivery of the consignment, the import consignment technically is not considered to be imported and owned by the importer.
Customs bonded warehouses charge normal warehousing rental and other transaction charges for the goods warehoused. Additionally beyond a certain free period ascertained by Customs in advance, the importer may be charge a certain interest on the customs duty payable on the said import, depending upon case to case basis.
Documentation in Customs Clearance[14]
Any Importer wishing to bring in cargo into the country may do so through air, ship, and road or multi modal transport. Every import consignment is required to be deposited by the transportation agency or the freight forwarder into the Customs Designated Bonded warehouse for Customs Clearance.
Customs Clearance is facilitated by Customs Clearance Agent or Broker who is Authorized, Licensed agency or operator to file the necessary documents on behalf of the importer and co-ordinate the clearance activity.
Customs Clearance Process entails filing of Bill of Entry in electronic form by Clearing Agent on behalf of the Importer with Customs, along with other Commercial Documents including Declarations from Importer, Commercial Invoice, Packing List, P. Order Copy as well as Certificate of Origin and Licenses to Import if any.
Bill of Entry is the main key document on which the Customs approves clearance of the cargo and the document is crucial for availing duty credits if any by the Importer post clearance. The Bill of Entry document is also required as an important record for audit purposes and any further inspection from any agencies.
Types of Bill of Entry
Depending upon the nature of transaction the Bill of Entry form varies.
Few important types of BOE are discussed herein:
BOE for Home Consumption
When an import consignment is required to be custom cleared and the importer wishes to take delivery and use the cargo for internal consumption in his business organization, the Bill of Entry for Home Consumption is filed. The Bill of Entry for Home Consumption is in white color.
BOE for Bonding
If the Importer does not wish to custom clear the imported consignment right away and wishes it to be warehoused at the Customs Bonded Warehouse, then the Bill of Entry for Bonding is submitted, so that the customs can permit the transfer of import shipment to be warehoused at the customs bonded warehouse without payment of duty but on execution of a bond by the importer and postpone the clearance to a future point of time. The importer by filing the Yellow colored BOE for bonding is able to defer the payment of duty until such time that he requires clearing the consignment.
When this BOE for bonding is filed, the customs assess the consignment and determine the duty payable and the importer executed a bond for the required value but is not required to pay the actual customs duty.
Ex-Bond Bill of Entry
When import consignments are not custom cleared immediately on arrival and are warehoused at the customs bonded warehouse, the importer can choose to custom clear the entire consignment or in parts whenever he requires by filing Ex-Bond Bill of Entry to clear the consignment from the warehouse on payment of duty.
The valuation under the Ex-Bond Bill of Entry will take into account the prevailing rates of duty at the time of actual removal of imported consignment from the warehouse and not the duty assessed through Bonding BOE. In case there has been a revision in the tariff, the prevalent tariff at the time of removal from the bonded warehouse will prevail.
Ex-Bond Bill of Entry is green in color and is also called 'Green Bill'.
Import Documentation Requirement for Customs Clearance[15]
In effecting Imports as well as Exports, documentation plays a very important role. Especially in case of imports, the availability of right documents, the correctness of the information available in the documents as well as the timeliness in submitting the documents and filing the necessary applications for the Customs Clearance determines the efficiency of the Customs Clearance process. Any delay in filing or non availability of documents can delay the process and thereby importer stands not only to incur demurrage on the imported cargo but also stand to loose business opportunities.
Customs Clearance process requires set of documents to be submitted by the Importer, By the airline, shipping line or concerned Freight Forwarder as well as the Customs documentation prepared and submitted by Clearing Agent on behalf of the Importer.
Some of the documents required from Importer from his end are:
Commercial Invoice:
This is the most important document that certifies the sale as well as gives the description of the items as well as reflects the pricing or the value of the cargo.
Customs valuation is based on the value reflected on the Commercial Invoice. Customs also verifies the rates charged in the commercial invoice and can question the rates applied incase it has sufficient cause to believe that the rates charged as not as per international market rates or the invoice is under valued to avoid duties.
Packing List
It is mandatory to put the shipping marks on all the cargo covering each and every individual piece or parcel. The details of the number of parcels in the consignment, their dimension, the shipping marks, the gross and net weights of each of the parcels along with the number of units contained in each parcel is catalogued in the form of packing list.
Packing List is used to identify the parcels as belonging to the particular consignment under the said Invoice.
Certificate of Origin
Certain bilateral agreements and multi lateral agreements would enjoy favorable tariffs for import duties. In such cases when the consignments are exported from such member countries, the designated Export Agency issues Certificate of Origin to the importer for submission to Customs. Based on this certificate the Customs Department of the Importing Country classifies the cargo under specific schedule.
Certificate of Origin also helps to avoid third party countries from routing imports through member countries and effecting third party exports to avoid duty, quantity or license restrictions.
Bill of Lading or Airway Bill
Bill of Lading is a negotiable multi modal transport document issued by the Shipping Line certifying carriage of the said cargo under the specific invoice on behalf of the exporter or importer depending upon the terms of sale. An 'On Board Bill of Lading' is usually considered to be the apt Bill of Lading that signifies that the cargo has been loaded 'On Board' the vessel or the ship. This is one of the documents required for negotiations of payment from importer to the exporter.
Air way Bill is the negotiable transport document issued by an Airline or a Freight Forwarder who consolidates the airfreight cargo.
In case of Road Carriage, the Transporter issues a negotiate Way Bill covering the shipment.
Depending upon the mode of transport, one of these documents would be required to be submitted along with the commercial invoice and packing list to the Customs for clearance.
Customs Clearance Agency and Process[16]
Any Organization that is engaged in Imports or Exports would require the services of third party Customs Clearance Agent as well as a Freight Forwarder. While freight forward manages the transportation part of the exports and imports, customs clearance and the approval and co-ordination with the rest of the regulatory authorities to affect the imports and exports is done by the Customs Clearance Broker.
Every Exporter and Importer would need to know the basics of the Import and Export policies as well as conditions applicable to their specific products of import and exports. In addition they should also be aware of the processes involved in imports and exports broadly. However it is the Customs Clearance agent who would know the working of all the Customs Rules and Laws and ensure compliance of the same in a speed manner so as to ensure that the import consignment is cleared within the allotted free period and does not incur demurrage.
Pre Customs Clearance
Customs valuation process demands a list of documents that are required to be submitted by the Importer. Gathering the various documents from the Importer, from the forwarding agent and creating customs documents required to be filed for clearance process is undertaken by the Clearance Agent. It is he who prepares the Bill of Entry the main document on which the Customs approves the valuation and clearance.
With the standardization of INCO Terms and Documentation, the documents are prepared in advance as soon as the consignment is dispatched from the Country of Origin and the Bill of Entry along with the commercial documentation and the transportation documents are filed electronically from the Clearance Agency's office and registered at the Customs Department.
Clearance Process at Customs
On arrival of the consignment at the Customs Bond, the Customs carries out physical inspection as well as valuation of the import. Valuation of the import consists of ascertaining the correct description of the items, classification of the items under relevant Customs Chapter and Tariff, Ascertaining that there is no case of under invoicing and certifying the valuation of the consignment and arriving at the Customs Duty required to be paid. The clearance agency proceeds to advice and co-ordinate with the importer to make necessary Customs Duty Payments and takes physical delivery of the Consignment and delivers it to the Importer at the designated place along with the set of Original documents.
Customs Rules permit a free bonding or warehousing period of three to seven days (depends from country to country and location). Normally the air shipments are given only three days for clearance while the sea shipments are given up to seven days of free warehousing in Customs Bonded Warehouse. The importer through the Customs Clearance agent has to clear the consignment within the free period, failing which a daily demurrage would be charged on the consignments for all days up to the time of actual delivery. The demurrage could prove to be very expensive and hence it is important to ensure that the Customs Clearance Agency is efficient and knows its job well enough.
Importer cannot be expected to spend his time on getting the consignments cleared after ensuring that he is compliant with all the processes. Hence the role of the Customs Clearance Agency comes into the picture for he undertakes to represent the Importer with the Customs Department and follow through the process.
Approach to Exports and International Marketing Business Model[17]
Today every individual entrepreneur owned businesses as well as Corporates have changed the way they look at their vision and business planning. Companies how ever big or small are no longer operating in domestic markets alone, for they have at their disposal the entire global market which is just waiting to be captured. The globalization has increased the international trade which has been enabled and propelled due to the electronic and internet revolution. Every company draws up ambitious business plans for its domestic markets as well as targeting the most attractive foreign markets for its products with a long term view makes up for most of the business plans.
Today most of the Organizations are thinking global, setting up networks globally and this is leading to an increase in international trade.
Multi National Product Company's view of global markets and trade is totally different from the other smaller organizations. They generally tend to identify their markets first. To be able to cater to the growing markets they identify suitable manufacturing locations that give them the best cost advantage in terms of labor as well as other resources.
Using various Supply chain network models, as well as commissioning various Market Research reports, they choose to setup manufacturing or assembly plants based on analysis and detailed network designs. Accordingly we see manufacturing plants being set up or transferred from one region to another region. Many US and European companies have setup manufacturing locations in Malaysia, India, Hong Kong, Singapore, Indonesia, Philippines for these are known to offer skilled labor at cheaper costs and are ideally located to the growing markets too etc.
Then there are other companies in the US as well as Europe and other parts of the world who believe in outsourcing or contract manufacturing. There are several Large scale ECM / EMS companies like Sanmina, Solectron, Foxcon, Flextronics etc who have setup manufacturing facilities for electronics field and cater to leading brands all over the world. In the field of Electronics and Computers, contract manufacturing seems to be very much in vogue since 1980s.
Even in the field of pharmaceuticals, last two to three decades have seen several changes in terms of manufacturing. Multi national Companies have increasingly outsourced manufacturing of bulk drugs to countries that are cheaper especially to countries like China, India and Philippines etc.
The increased international trade and sales and marketing efforts in new markets have given impetus to international trade. While planning to capture a new market different Organizations have different approaches. While very big Multi National Companies like Procter & Gamble, Unilever, IBM, Microsoft etc, have approached new markets directly by establishing their own networks and offices in foreign countries, there are other companies that have sought to go in for a Joint venture with local business partners and bring in Foreign Direct Investments into the country. This approach varies from country to country and is especially dependent upon the foreign countries policy towards foreign direct investment and their support for global players to set shop in the country.
However there are host of medium and small size organizations those that explore new markets with a very clear approach of manufacturing locally, products for export markets and exporting to the new markets. Such organizations focus more on setting up marketing network in the new markets. There are different options that are followed by different organizations depending upon their business plans.
There are several different options available to exporters to market their products and manage the exports to the foreign country. Many companies appoint Sales Representatives or Agents that market the products, book orders and work on commission basis. The second type of model followed by many organizations is to appoint Country Distributor who will buy the stocks and sell in the local market. Yet another type of export marketing involves consignment sale to agents in which the consignment is exported to the agent who does not own the stock but holds it in inventory and sells in the market and repatriates the earning directly back to the company.
Export Marketing Channels[18]
For any Business Organization which is eyeing a foreign market as a part of its Exports strategy, getting its Marketing and Supply chain in place forms a critical part of the initial process which will determine his initial foray into the markets.
While doing business in foreign markets is very lucrative, the initial cost of marketing can be very high until business volumes pick up sufficiently to justify the kind of expenses being incurred. However the expenses are justified keeping view the long term potential of the country and the export market.
Every market in each country is unique and is characterized or influenced by the local ethos, culture and traditional practices. In most cases the exporters would find it more expensive to station themselves or open offices in the foreign countries initially until them are able to add sufficient volumes. They do go through a period of learning curve where in they get to understand the markets, the customer requirement and this helps them fine tune their offerings in the times to come. However it become imperative for exporters to be able to find the right representatives or marketing agencies in the foreign country who will be able to market their products, book customer orders and help finalize negotiations. Such trade representatives or marketing agencies can be sourced through various resources. In most of the cases the Trade Fairs and Exhibitions are the best places to meet with the relevant professionals in said area of expertise. Besides the trade directory and listings too provide details of the players in the market.
However exporters would have to take time to travel to the foreign market, be in the market, understand the potentials and be able to choose the right partners.Once the marketing plan has been finalized and marketing agents identified the next task on hand for the Exporter would be to set up a supply chain model to be able to service the foreign markets. It is essential to have this arrangement in place before the marketing initiatives are kick started, for one cannot have customers waiting for products, especially in case of exports that involve longer lead times. Businesses for long have practiced appointing distributorship as a model of supply chain that has been working well all over the world.
So essentially here we are talking about signing up with two different Export Sales Agreements. In the first instance the Exporters would need to identify and sign up a Sales Agent or Sales Representative Agency and a Country Distributor.
In some of the markets you might find a Marketing Agency cum Distributor who is a dominant market player in which case you stand to benefit from having to deal with one agency.There exists a lot of difference between the two agreements required in the above cases for the roles and responsibilities as well as liabilities are totally different in both cases.
Apart from the above two channels, Exporters sometimes use Consignment Sales Agents too. When the Exporter is initially getting a feel of the markets and is looking to tap the customers he would need to hold the stocks at hand so that he is able to offer immediate delivery to the new customer and help bag orders. In such cases the exporter will use a Consignment Agent who will import and hold the consignment on behalf of the exporter.
Once the orders are received and the consignment is delivered, the Consignment Agent will receive payment from the customer and in turn repatriate the amount received back to the Exporter after keeping the agreed amount of margin as per his agreement. In such cases the stocks are owned by the Exporter until it is invoiced by the Consignment Agent to the Customer.
The Consignment agent acts as a custodian of goods only and does not carry any other ownership. He provides a legal entity for the Exporter to send goods to in the foreign country and manages the supply chain services as per instructions of the Exporter. The entire responsibility, risk including marketing, pricing, collections and liquidation of stocks lies with the Exporter.
Increasing Exports through Free Trade Zones (FTZ)[19]
Countries have long since realized the importance of furthering their interest by supporting the International Trade and Exports from in house and actively supporting the industries to become globally competitive. Besides this objective, many governments also aim to promote Foreign Direct Investment into the country and encourage Multi National Companies to set shop and manufacture goods for home consumption as well as Exports. In order to support such initiatives most countries set up Special Economic Zones in their country.
Governments develop certain underdeveloped or rural regions as industrial parks, provide international standard amenities and designate such zones as Special Economic Zones. These areas are normally exempt from most of the normal trade barriers, tariffs and national laws and seek to promote free market export oriented manufacturing activities. There are several sub categories of Special Economic Zones (SEZ) namely Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Parks, Free Ports etc.
The Governments give preference to large scale manufacturing or assembly units to be set up by Multi National Companies of repute and provide tax holidays as well as waiver of many of the formalities required to be followed by the Companies in the said Zone. Typically the Companies import Raw Materials and manufacture goods locally thus using local cheaper labor and Export the goods outside the Country. Both the Imports and Exports are exempt from Customs Duties and other levies. Only the goods that enter the local market as domestic sale product are taxed. Such manufacturing intensive zones help generate a lot of employment in the rural sector and lead to the overall development of the area and in turn stimulate economic growth in the area. Besides local growth of the area, it helps country earn huge foreign exchange as well.
Ireland was the first country to set up Shannon Free Zone which was followed up quickly by most of the developing countries like Philippines, Malaysia, China, India, Mexico, Costa Rica, Honduras, and Guatemala etc. The list of countries now having adopted EPZ has cross over 100 numbers.
While Jabil Ali FTZ made a huge impact on Dubai and its growth, China has benefited from its most successful SEZ - Shenzhen which helped employ over 10 million people. India has become one of the Asia's largest outsourcing hubs thanks to establishment of SEZs through out the Country.
Though in many countries the SEZs are implemented by the Governments, quite a few SEZs have been implemented by private parties too as private operator, private developers. Quite a few countries have adopted a mid path of setting up public sector quasi-government agencies with a pseudo corporate institutional structure and autonomy in operations. In some other cases SEZs have also developed on the basis of public-private partnership arrangements.
SEZs can be said to be the precursor for establising liberal market economy and free trade. Today world over more than 3000 FTZs in over 116 countries are employing appx. 43 million people engaged in manufacturing of various consumer items such as clothes, shoes, electronic gadgets, computers and toys etc.
Why Do Exports Matter?[20]
Countries all over the world try to promote exports. Almost every country offers financial incentives to exporters. Countries like China have Special Economic Zones wherein exporters are not charged any tax. Similarly, other countries have special banks and insurance agencies promoted by the government to facilitate export growth.
This brings us to the importance of exports. If the government is spending so many resources and providing so many incentives to exporters, then they must be important for a country. In this article, we will understand the economic benefits that are derived from exports.
Utilization of Comparative Advantage
The fundamental principle driving international trade is that of comparative advantage. Some countries are blessed with some natural resources whereas others have different resources at their disposal. Consider the case of a country like Saudi Arabia. It has much more oil than it could possibly use. However, there are very few other resources that can be used internally. It is exports which allow Saudi Arabia to lead a prosperous life. They export the excess oil and import all the other goods. Similarly, countries like India and China which have the highest working populations export their labor services. Hence, it is important for any country to recognize their core competency and start focusing on exporting them.
Contribution to GDP
Net exports are the difference between imports and exports. If the net exports number is positive it adds to the GDP of the nation. On the other hand, if the net exports number is negative, it subtracts from the GDP of the nation. This is because goods which are sent abroad are also manufactured locally. Since GDP counts only local production, exports definitely lead to an increased GDP.
Of late, countries have started using GDP as a proxy measure to determine the rate of economic growth. Hence exports have become even more important because they appear to be directly linked to economic growth.
Increase in Employment
Exports lead to domestic production. Domestic production requires domestic labor. Hence, exports lead to an increase in employment in the nation. Apart from direct employment provided by exports, there is also a spillover effect. This means that once export workers get paid, they also spend their money to consume goods and services. This leads to even more job creation. As a result, the entire economy develops. Economists often cite the example of China while explaining this point. The unemployment rate in China has been drastically cut down after the export-oriented policies were brought into place.
Also, economists often cite the United States example to prove their point. After World War-2, the United States was a dominant exporter of goods to the world. This period saw a massive rise in employment in the United States. However, soon America became dependent on cheap imports from nations such as China, Japan, and Korea. Now, the unemployment rate has skyrocketed in America. Since the production of goods is not happening in America, the American worker is unemployed!
It is for this reason that countries are now wary of decreasing exports. A fall in exports is treated as an early indicator of impending economic recession.
Recovery from Recession
Exports are a very important tool to spur economic growth in a country. This means that exports can also be used to recover from recessions. The logic behind this is simple. During the recession, there is a negative sentiment in the entire economy. Factories and offices stop giving wage increments. As a result, consumers start deferring their purchases. The result is that a vicious cycle ensues and production comes to a halt.
During the same time, other countries around the world are not suffering from a recession. Hence the consumers in these countries are willing to spend. It is here that exports come into play. Exporters from recession prone countries can send their goods to nations with favorable economic climate. This will increase the local GDP and reduce unemployment. This puts the economy
Increasing exports is one of the most effective ways to beat the recession.
Earning Foreign Exchange
The dollar is the most important currency in the world today. It is a reserve currency. This means that international trades happen either in dollar or gold. Essential commodities like oil and gold are priced only in terms of dollar or gold. Hence all countries need dollars for their survival.
Exports are the only way to earn dollars. It is for this reason that exports are considered to be vital to the solvency of a nation. A thriving economy can suddenly implode in the absence of dollars. This is because they will not be able to import essential commodities. Hence, exports are considered to be the lifeline of ant economy. This is why governments all over the world create special schemes to spur exports.
It must also be noted that exports need to be done at a profit. Some countries are subsidizing their products so that they become cheaper on the international market and spur exports. This will not benefit the economy. This is because at the end, this amounts to giving away stuff for free! Subsidies do not spur exports. They simply give away money that was earned by other industries in the nation. Subsidies are more political in nature. They are meant to benefit some people at the expense of the majority.
The Case against Export Credit Agencies[21]
Export credit agencies are quasi-government agencies. These agencies are usually backed by government institutions. This means that they are under the purview of government authorities and also have access to taxpayer funds. All developed countries in the world have created their own export credit agencies. Collectively these agencies wield a tremendous amount of influence on world trade. It is estimated that the ECA backed exports amount to more than $200 billion each year.
Economic textbooks often portray export credit rating agencies as a positive force which helps improve international trade. However, there are also many criticisms which are leveled against these agencies. In this article, we will have a closer look at the reasons which make ECA's dangerous and harmful for the economy.
Government Debt
The credit provided by Export Credit Agencies (ECA's) can be thought off as a store credit card. Just like a store credit card provides loans to consumers at high-interest rates, export credit agencies also provide finance to importers from poor countries at high-interest rates.
Export credit agencies sometimes offer direct finance to foreign governments. In other cases, they provide indirect finance. This means that finance is actually provided by a private party. However, it is guaranteed by export credit agencies meaning that the loan becomes risk-free for the borrowers. Many times transactions between private parties end up becoming transactions between public institutions. For instance, if exporter A and importer A use export credit finance, then their transactions may be insured by the ECAs of both countries!
The problem is that importers only take credit from export credit agencies after they have exhausted all other options. This means that the projects funded by ECA's are inherently risky. A lot of times this means that the project fails and the importer is unable to pay back the loans. It is surprising to find out that ECA's are amongst the leading creditors for many third world countries. For instance, export credits amount to about 64% of all the external debt which is owed by Nigeria! Similarly, this number stands at 42% for the Republic of Congo.
This is the reason why export credit agencies are often called debt traps by analysts in these third world countries. They are the Trojan horse which seems friendly at first but end up being more harmful than the bigwigs like World Bank and International Monetary Fund.
Taxpayers Exposed to Bad Loans
As mentioned above, export credit is generally opted for by buyers who are unable to obtain any other source of finance. As a result, they lead to a higher percentage of bad loans than normal. The ECA's charge a higher interest rate to make up for the loss. However, a significant percentage of the loans lent out by the ECAs are never repaid.
This is a big problem since it is a hidden transfer of wealth from the taxpayers to the exporters. The exporters end up being the beneficiary of these loans. On the other hand, taxpayers who have no idea about the underlying situation end up paying for these loans.
Priority Sectors
It is a known fact that export credit agencies have hidden interests. Although, the ECA's themselves are supposed to be non-profit institutions, the employees at these institutions are often patronized by corporations. As a result, a lot of the policies created by ECAs are biased and have hidden agendas.
A lot of times these policies take the shape of priority sectors. Under the guise of providing financing to important sectors, the taxpayer money is redirected to a particular industry or even a particular company. Many analysts have also noted that sometimes the ECAs are keener on guaranteeing the loans and liabilities of some particular financial institutions.
ECA's Lead to Trade Wars
In the more recent past, ECA's have been blamed for the trade wars that have now become a part of global economics. This is because, in some cases, the ECAs often provide subsidized finance to importers. As such, the ECA's make an exported product more attractive for the importer as compared to goods produced locally.
In many cases, this does not go down well with governments. As such, they end up increasing the import duty to offset the financing advantage. This increased duty is seen as a sign of aggression and the other country also ends up levying countervailing duties on the other country. Therefore, ECAs are a way of covertly capturing market share in another country. Many countries have now become aware of this strategy and hence these agencies are at the root of several trade wars.
Lack of Transparency
Lastly, critics argue that for the amount of power and influence these credit rating agencies have, they have very little accountability. In many countries, they are not even audited! Even if they are audited, their records are not made public. Hence, there is an opaqueness to these transactions which makes them appear inherently shady. Leaving apart the financial aspects, there is no control over the social and environmental effects of the projects which are funded by these agencies.
The bottom line is that the export credit agencies are also a government agency. Just like other government agencies, they are also prone to bureaucracy, red tape and corruption.
Import and Export Procedures in India[22]
The Foreign Trade (Development & Regulation) Act, 1992 ('FTDR Act') provides for the development and regulation of India's international trade. The FTDR Act has been enacted with an intention to provide a framework for the development and standardization of India's foreign trade by the way of facilitating imports into enhancing exports from India and all the other matters related to the same. The FTDR Act empowers the Government of India to enact the FTP.
The FTP is a detailed policy statement on India's international trade and facilitates the exports from and imports into India. The FTP also contains within its ambit the Handbook of Procedures ('HBP') along with the item-wise export and import policy called the ITC(HS) which is notified by the Directorate General of Foreign Trade ('DGFT').
Under the FTP, import into and export from India is 'free,' unless specifically 'restricted', i.e., subject to a license, permit or authorization or, 'prohibited.' The policy restrictions under the FTP are contained in the Schedules appended to the ITC(HS). Schedule 1 of the ITC(HS) pertains to the Import Policy, whereas, Schedule 2 of the ITC(HS) pertains to the Export Policy. Further, the DGFT is the authority responsible for the effective implementation of the FTDR Act as well as the FTP as amended from time to time.
In India, the imports and exports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which empowers the federal government to make provisions for development and regulation of foreign trade. The current provisions relating to exports and imports in India are available under the Foreign Trade Policy, 2015-20.
Import procedures[23]
Typically, the procedure for import and export activities involves ensuring licensing and compliance before the shipping of goods, arranging for transport and warehousing after the unloading of goods, and getting customs clearance as well as paying taxes before the release of goods.
Below, we outline the steps involved in importing of goods.
Obtain IEC
Prior to importing from India, every business must first obtain an Import Export Code (IEC) number from the regional joint DGFT. The IEC is a pan-based registration of traders with lifetime validity and is required for clearing customs, sending shipments, as well as for sending or receiving money in foreign currency.
The process to obtain the IEC registration takes about 10-15 days.
Ensure legal compliance under different trade laws
Once an IEC is allotted, businesses may import goods that are compliant with Section 11 of the Customs Act (1962), Foreign Trade (Development & Regulation) Act (1992), and the Foreign Trade Policy, 2015-20.
However, certain items � restricted, canalized, or prohibited, as declared and notified by the government � require additional permission and licenses from the DGFT and the federal government.
Procure import licenses
To determine whether a license is needed to import a particular commercial product or service, an importer must first classify the item by identifying its Indian Trading Clarification based on a Harmonized System of Coding or ITC (HS) classification.
ITC (HS) is India's chief method of classifying items for trade and import-export operations. The ITC-HS code, issued by the DGFT, is an 8-digit alphanumeric code representing a certain class or category of goods, which allows the importer to follow regulations concerned with those goods.
An import license may be either a general license or specific license. Under a general license, goods can be imported from any country, whereas a specific or individual license authorizes import only from specific countries.
Import licenses are used in import clearance, renewable, and typically valid for 24 months for capital goods or 18 months for raw materials components, consumables, and spare parts.
File Bill of Entry and other documents to complete customs clearing formalities[24]
After obtaining import licenses, importers are required to furnish import declaration in the prescribed Bill of Entry along with permanent account number (PAN) based Business Identification Number (BIN), as per Section 46 of the Customs Act (1962).
A Bill of Entry gives information on the exact nature, precise quantity, and value of goods that have landed or entered inwards in the country.
If the goods are cleared through the Electronic Data Interchange (EDI) system, no formal Bill of Entry is filed as it is generated in the computer system. However, the importer must file a cargo declaration after prescribing particulars required for processing of the entry for customs clearance.
If the Bill of Entry is filed without using the EDI system, the importer is required to submit supporting documents that include certificate of origin, certificate of inspection, bill of exchange, commercial invoice cum packing list, among others.
Once the goods are shipped, the customs officials examine and assess the information furnished in the bill of entry and match it with the imported items. If there are no irregularities, the officials issue a 'pass out order' that allows the imported goods to be replaced from the customs.
Determine import duty rate for clearance of goods[25]
India levies basic customs duty on imported goods, as specified in the first schedule of the Customs tariff Act, 1975, along with goods-specific duties such as anti-dumping duty, safeguard duty, and social welfare surcharge.
In addition to these, the government levies an integrated goods and services tax (IGST) under the new GST system. The IGST rates depend on the classification of imported goods as specified in Schedules notified under Section 5 of the IGST Act (2017).
Export procedures[26]
Just as for imports, a company planning to engage in export activities is required to obtain an IEC number from the regional joint DGFT. After obtaining the IEC, the exporter needs to ensure that all the legal compliances are met under different trade laws.
Further, the exporter must check if an export license is required, and accordingly apply for the license to the DGFT.
An exporter is also required to register with the Indian Chamber of Commerce (ICC), which issues the Non-Preferential Certificates of Origin certifying that the exported goods are originated in India.
Import and export documents[27]
Businesses are required to submit a set of documents for carrying out export and import activities in India.
These include commercial documents � the ones exchanged between the buyer and seller, and regulatory documents that deal with various regulatory authorities such as the customs, excise, licensing authorities, as well as the export promotion bodies that help avail export import benefits.
The Foreign Trade Policy, 2015-2020 mandates the following commercial documents for carrying out importing and exporting activities:
The important regulatory documents include:
Anti-Dumping[28]
Introduction
Antidumping is a process of preventing dumping in Indian market. It is the process of creating a barrier of selling products in low price from its actual price in other countries. The antidumping is a process of stopping illegally trading of products at low cost from its actual price in market. The section 9A, 9AA, 9B of Custom Tariff Act, 1975 deals with the provision of antidumping and dumping in India. This article deals with the dumping and antidumping scenario in India, where Indian market is also dealing with the dumping problem such as, Chinese selling their goods in India with lesser price from its actual price of the products. These kinds of dumping practice are going on in India. The dumping is kind of an unseen crime. Dumping generate many problems for domestic industries of India . The latest amendment of 2020 in the custom tariff act, 1975 has recently substituted of new section for section 8B which stated as power of central government to apply safeguards measures. The government of India is taking some safety measures for domestic industries of India against dumping problems going on from last decades.
What is the meaning of Dumping?
Definition from Oxford Law Dictionary :-The sale of goods abroad at prices below their normal value. Within the EU dumping regulations prohibit the sale of goods at below normal value. Countervailing (or antidumping) duties may be ordered on certain imported goods to prevent dumping.
Definition from Mitra's Legal and Commercial Dictionary:
Placing goods on the market in large quantities at unprofitable prices or prices lower than those charged elsewhere. (Anti-Dumping duties are imposed to limit or discourage the importation and sale of goods in unfair competition with home-produced goods.[5]
Dumping according to GATT (General Agreement on Tariffs and Trade) / WTO (World Trade Organisation):
Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. Thus, in the simplest of cases, one identifies dumping simply by comparing prices in two markets. However, the situation is rarely, if ever, that simple, and in most cases it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country (known as the normal value) and the appropriate price in the market of the importing country (known as the export price) so as to be able to undertake an appropriate comparison.
What are provisions in India governing Anti-Dumping?
Anti-dumping Duty (Section.9A of Custom Tariff Act, 1975):
Where any article is exported from any country or territory (hereafter in this section referred to as the exporting country or territory) to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose:
1. Subs. by Act 52 of 1982, s. 2 (w. e. f. 2- 9- 1985 ).
2. Ins. by s. 3 ibid., (w. e. f. 2- 9- 1985 ).
3. Ins. by Act 18 of 1992, s. 110.
(b) in sub- section (2),--
(i) for the words" no amount of any such bounty or grant", the words" amount of any such bounty or subsidy" shall be substituted;
(ii) for the words" additional duty", the words" duty or additional duty, as the case may be," shall be substituted. Provided that the, Central Government may, pending the determination in accordance with the provisions of this section and the rules made thereunder of the normal value and the margin of dumping in relation to any article, impose on the importation of such article into India a duty or additional duty under this sub- section on the basis of a provisional estimate of such value and margin and if such duty or additional duty exceeds the margin as so determined,
(a) the Central Government shall, having regard to such determination and as soon as may be after such determination, reduce such duty or additional duty; and
(b) refund shall be made of so much of such duty or additional duty which has been collected as is in excess of such duty or additional duty as so reduced. Explanation. - For the purposes of this section,
(a) " margin of dumping", in relation to an article, means the difference between the price at which such article is exported and its normal value;
(b) " normal value", in relation to an article, means-
(i) the comparable price in the ordinary course of trade for the said article or like article when meant for consumption in the exporting country or territory- as determined under sub- section (2); or
(ii) where such comparable price cannot be ascertained because of the particular market situation or for any other reason, such value shall be either-
(A) the highest comparable price for the said article or like article from the exporting country or territory to any third country in the ordinary course of trade as determined under subsection (2); or
(B) the cost of production of the said article or like article in the country of origin along with reasonable addition for selling and any other cost, and for profits, as determined under subsection (2).
(2) Subject to any rules made under sub- section (3), the Central Government shall, after making due allowance in each case for differences in conditions and terms of sale, for differences in taxation and for other differences affecting price comparability, and, after such inquiry as it may consider necessary, determine, for the purposes of sub- section (1), the export price and the normal value of, and the margin of dumping in relation to, any article.
(3) The Central Government may, by notification in the Official Gazette, make rules for the purposes of this section, and without prejudice to the generality of the foregoing, such rules may provide for the manner in which articles liable for any duty or additional duty under sub- section (1) may be identified, and for the manner in which the export price and the normal value of, and the margin of dumping in relation to, such articles may be determined and for the assessment and collection of such duty or additional duty.
(4) Every notification issued under sub- section (1) shall, as soon as may be after it is issued, be laid before each House of Parliament.
Refund of Anti-dumping Duty in Certain Cases (Section.9AA of Custom Tariff Act, 1975
No levy on Section 9 or Section 9A in Certain Cases (Section.9B of Custom Tariff Act, 1975):
(1) Notwithstanding anything contained in section 9 or section 9A, -
(a) no article shall be subjected to both countervailing duty and anti-dumping duty to compensate for the same situation of dumping or export subsidization;
(b) the Central Government shall not levy any countervailing duty or anti-dumping duty:
(i) under section 9 or section 9A by reasons of exemption of such articles from duties or taxes borne by the like article when meant for consumption in the country of origin or exportation or by reasons of refund of such duties or taxes;
(ii) under sub-section (1) of each of these sections, on the import into India of any article from a member country of the World Trade Organization or from a country with whom Government of India has a most favored nation agreement (hereinafter referred as a specified country), unless in accordance with the rules made under sub-section (2) of this section, a determination has been made that import of such article into India causes or threatens material injury to any established industry in India or materially retards the establishment of any industry in India; and
(iii) under sub-section (2) of each of these sections, on import into India of any article from the specified countries unless in accordance with the rules made under subsection (2) of this section, a preliminary finding has been made of subsidy or dumping and consequent injury to domestic industry; and a further determination has also been made that a duty is necessary to prevent injury being caused during the investigation:
Provided that nothing contained in sub-clauses (ii) and (iii) of clause (b) shall apply if a countervailing duty or an anti-dumping duty has been imposed on any article to prevent injury or threat of an injury to the domestic industry of a third country exporting the like articles to India;
(c) the Central Government may not levy:
(i) any countervailing duty under section 9, at any time, upon receipt of satisfactory voluntary undertakings from the Government of the exporting country or territory agreeing to eliminate or limit the subsidy or take other measures concerning its effect, or the exporter agreeing to revise the price of the article and if the Central Government is satisfied that the injurious effect of the subsidy is eliminated thereby;
(ii) any anti-dumping duty under section 9A, at any time, upon receipt of satisfactory voluntary undertaking from any exporter to revise its prices or to cease exports to the area in question at dumped price and if the Central Government is satisfied that the injurious effect of dumping is eliminated by such action.
(2) The Central Government may, by notification in the Official Gazette, make rules for the purposes of this section, and without prejudice to the generality of the foregoing, such rules may provide for the manner in which any investigation may be made for the purposes of this section, the factors to which regard shall be at in any such investigation and for all matters connected with such investigation.
Determination of Dumping:
What is the process of Anti- Dumping in India?
Like Article:
The article produced in India must either be identical to the dumped goods in all respects or in the absence of such an article, another article that has characteristics closely resembling those goods.
Injury to the Domestic Industry:
The Indian industry must be able to show that dumped imports are causing or are threatening to cause material injury to the Indian 'domestic industry'.
Injury analysis can broadly be divided in two major areas:
Who can file an application?
The affected domestic industry can hire a corporate lawyer experienced in anti-dumping matters who can file the anti-dumping application for it.
Investigation Process:
Relief to the Domestic Industry:
Anti-Dumping Duties:
Non-cooperative exporters are required to pay the residuary duty (highest of the co- operative exporters) Lesser Duty Rule: Government is obliged to restrict the anti- dumping duty to the lower of the two i.e. dumping margin and the injury margin Injury Margin: Difference between the fair selling price due to the domestic industry and the landed cost of the product under consideration De Minimis Margins: Any exporter, whose margin of dumping is less than 2% of the export price and the volume of the dumped imports are below 3% of the total imports, shall be excluded from duties.
Price Undertakings:
Exporter concerned must furnish an undertaking to revise his price.
Advantages of Dumping
Disadvantages of Dumping
Competition Law And Anti-Dumping Law � Areas Of Overlaps And Conflicts[30]
COMPETITION ACT, 2002 An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.
The Act provides a very wide mandate for the Competition Commission of India to enforce. The Act contains provisions which have rather become standard in the competition jurisdictions all across the globe.
The agreements, abuse of dominant position and regulation of combinations. provisions relate to anti-competitive
Dominance is not frowned upon by the Competition Act, 2002 but the abuse of dominance is frowned upon by the legislation. O Anti-competitive agreements and dominance are to be prohibited by the orders of the Commission whereas the mergers are to be regulated by the orders of the Commission abuse of.
Competition Commission of India (CCI):[31]
It is a statutory body of the Government of India responsible for enforcing the Competition Act, 2002, it was duly constituted in March 2009.
Competition Act, 2002
Composition of CCI
Functions and Role of CCI
Judgements of CCI
A Complaint was filed before the CCI that Google Inc. has abused its dominant position in the internet advertising space by promoting its vertical search services like Youtube, Google News, Google Maps, etc. In other words, these services would appear predominantly during a search result on Google, irespective of their popularity or relevance. The main issue was whether an administrative body like CCI had inherent powers to review or recall its order passed under section 26(1) in the absence of any specific provisions in the Competition Act, 2002? The Delhi Court held that Competition Commission of India can recall or review its order subject to certain restrictions and the same should be done sparingly and not in every case where an investigation has been ordered without proper hearing.
COMPAT in M/s. Excel Crop Care Limited v. Competition Commission of India & Ors.[33]
In the case of Sandhya Organic Chemicals, for which the tablets are the sole product, COMPAT reduced the penalty to a tenth of the original sum ordered by the CCI, on account of its relatively small production capacity. The challenge was made to this as an issue. In the present case it has been nightly held that it was important to articulate the reasons as to why a particular percentage of penalties were being imposed and secondly, what would be the relevant turnover for such imposition.
Jet � Etihad Case.[34]
An appeal under Section 53B was made to COMPAT challenging the Jet - Etihad Orde was dismissed on the point of locus standi without examining the merits of the Jet � Ethad Order. Though Section 53A provides that any person, aggrieved may challenge an order of CCI, COMPAT interpreted 'any person' to mean, a person aggneved by the CCI order and that it could not mean 'any and 'every person.
Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors.[35]
It was alleged by the Informant that these e-commerce websites have been indulging in anti-competitive practices in the nature of "exclusive agreements" with seller of goods/services. The Informant stated that owing to such practices, the consumer was left with no option in regards to terms of purchase and price of the goods and services and was bound to either purchase the product as per the terms of the website or opt not to purchase the product in totality. Whether the practice of entering into exclusive agreement for sale and purchase of goods by way of e-commerce is violating the provisions? It was held that an exclusive arrangement between manufacturers and e-portals is not against Section 3. It is rather to help the consumer make an informed choice.
Need of CCI
Conflict between Anti-Dumping Law and Competition Law
Overlaps:
Competition laws are primarily aimed at protecting and promoting competition in markets. Antidumping laws are aimed at remedying the injury to the domestic industry which may arise due to dumping.
Price Discrimination:
Under competition law, only the price discrimination, which adversely affects competition in markets and thus has negative consumer welfare impact, is prohibited. o Under anti dumping law, every instance of price discrimination is prohibited.
Predatory Pricing:
Under competition law 'predatory pricing' is understood as a deliberate strategy, adopted by a dominant firm, with an intent to drive competitors out of the market by setting very low prices. o Conditions to be met before imposing a sanction The firm should be in a position of dominance The sale of goods should be at a price below a relevant measure of cost � The firm should do so with the intent to reduce competition or eliminate competitors.
Antidumping law does not specifically address the issue of predatory pricing. Antidumping law is concerned only about the price at which the product alleged to be dumped is sold in the two markets and not directly about the cost of production of the product or intent behind the discrimination.
Criticism of Anti-Dumping Law and its effect on competition [36]
From the economics point of view, there is no reason to support any anti-dumping law, since price differentiation across markets is a perfectly rational and legitimate profit-maximization action.
Domestic price discrimination normally is not penalized.
They do not afford effective assistance to the domestic industry they are intended to protect. o They protect producers at the expense of consumers, which results in higher prices, lower quality products, less consumer choice and a general lowering of the standard of living for the vast majority of people.
Domestic producers can enlist the help of government to prevent foreign competition even when there has been no dumping.
They provide good for the minority i.e. producers at the expense of the greatest number i.e. consumers.
They reduce rather than enhance social cooperation and harmony. o They redistribute income in the wrong direction i.e. from the poor and middle classes to the rich. O Domestic producers can raise their prices with little fear of being underpriced by foreign suppliers.
Thus existence of antidumping law hurts competition both ways, � by forcing exporters to sell at higher prices and by providing the domestic producers the freedom to charge higher prices than what would be otherwise possible.
Shortcomings related to the enforcement of Anti-Dumping Laws
Under current anti-dumping rules, national authorities are allowed to exercise enormous discretion. Since the criteria for determining the export price and the normal value are neither stringent nor specific, the importing country can determine incidents of dumping at will. It can lead to the protection of inefficient domestic industry. A firm is likely to be subject to an anti-dumping investigation if it exports a product at a price lower than the normal value in the home market, regardless of whether there is a predatory intent or not.
Anti-dumping rules allow exporters to avoid antidumping actions if exporters agree to raise their prices. o Such agreements are a means of suspending ongoing anti-dumping cases and can be used to promote anticompetitive behaviour.
Effects on Trade Flow due to imposition of Anti-Dumping duties
A decline in the aggregate annual import of about 7% in the year 1993 from a growth of 17.4% in imports arising due to trade liberalization in 1992. In general, trade from the subject country is restricted when the anti-dumping duties are levied. Right after the case is filed and during the duration of investigation, imports drop by a large amount (91%) from pre-petition level. By the next year after the case has been filed, imports start going up again (rise by 53%). However, they never again regain their pre-petition high.
Anti-dumping investigations have restrictive impact on imports from the subject Countries, other countries benefit by increasing their sales. This diversion of trade from subject to non-subject countries can offset the restrictive effects of anti- dumping. o the necessarily imply that anti-dumping duties have no effect at all on overall import trade. existence of trade diversion does not overall imports fall in response to anti-dumping duties, by a small but considerable amount.
Anti-Dumping Scenario Of China
Anti-dumping export ratio (ADER), defined as economy's share of anti-dumping cases in the world divided by economy's share in world exports,
If ADER>1, then that economy is targeted more than its share in the exports.
China's ADER = 4.
Also the ADERS of Korea, India and South Africa are more than 1.
WHY DOES CHINA TOP THE LIST?
Conclusion
India's import and export system is governed by the Foreign Trade (Development & Regulation) Act of 1992 and India's Export Import (EXIM) Policy. Imports and exports of all goods are free, except for the items regulated by the EXIM policy or any other law currently in force. Registration with regional licensing authority is a prerequisite for the import and export of goods. The customs will not allow for clearance of goods unless the importer has obtained an Import Export Code (IEC) from the regional authority.
The area in which the imports are almost essential are defence requirements, crude oil, fertilizers, capital goods, industrial inputs like raw materials, components, consumables, spares, etc., import of samples, import of technology, import of drawing and designs, import of services etc.
It is necessary for any developing country to expand exports continuously because export growth ultimately results in creation of jobs, building up of infrastructure, economies of scale and added foreign exchange earnings. Today's world is economic in nature and increased exports give credibility to the standing of the country in overseas market. Exports, therefore, are of importance and are considered a national priority by the Government of India.
References
Webliography
Aims and Objectives:
- To understand how International Trade is managed.
- To undertand the Payment Mechanism in Global Trade.
- To understand Types of Custom Duties & Taxes.
- To understand what is Custom clearance Agency & it's Process.
- To understand Import & Export procedures in India
Introduction- Perspective on International Trade[1]
International trades between countries and across continents have existed for centuries including previous civilizations. Traditionally international trade consisted of traded goods like textile, food items, spices, precious metals, precious stones, and objects of art and various items across the borders. Everybody has heard of the silk route as well as amber road and other famous routes that existed and the ports and settlements that flourished due to the trade, which was carried on through land route as well as sea routes.
We have come a long way since the earlier times and International trade today has taken on new dimension. It was a fact earlier that impact of trade between two countries was not limited to economics alone, but fuelled political, social ambitions too. Today with the advancement of technology and impact of globalization has made it necessary for all countries to engage necessarily in international trade for their survival.
Various factors including but not limited to industrialization, development of transportation, globalization, technology that enables trade and communication has contributed to change in the format of business organizations as well as trade practices.
Companies and Organizations today are no longer entities with a local identity. Multi national organizations have emerged through the previous century with footprints all over the globe. They have in fact shrunk the earth and changed the way businesses are conducted. Companies no longer limit themselves to local markets. They no longer depend upon local resources. These companies setup manufacturing wherever it is conducive in terms of cheaper resource availability as well as support from local government and in terms of markets, geographical boundaries do not bother them. They are present everywhere.
Technology in terms of communication as well as software technology has changed the way business organizations manage activities be it manufacturing, procurement, finance or sales. Today software applications drive the processes and work at the speed of thought.
In present scenario, no country can afford to remain isolated from and not participate in globalization. While countries do open their economies to global competition, they need to tread very carefully not to upset their domestic economy and protected industries. This balancing act is often managed through individual countries trade and tariff policy, which forms a part of each countries foreign trade policy that governs its approach to international trade and commerce.
Post Second World War, World Trade Organization has been playing major role in facilitating and attempting to streamline the global trade and tariff structures with an aim to move towards free trade. However in reality, free trade may just be a dream as long as there is no parity between developed and developing economies.
Today most of the countries are party to several bi-lateral as well as multi lateral tariff and trade agreements like GATT- General Agreement on Tariffs and Trade though which they regulate imports and exports to and from specific countries.
In the last few decades we have seen the emergence of services export and imports and it is continually growing. Developing countries are harnessing their intellectual capital to provide software services to the developed countries.
Today's international trade has many more new dimensions like intellectual property, a variety of services, trade related investments, Bilateral and Multilateral Trade Agreements, Establishing terms for trade in services, investments as well as creating climate for dispute settlement.
Managing International trade has multi dimensional aspects, which need to be considered, by each country. Any political, economic or other events anywhere in on the earth have an impact on each countries international trade. We have seen the impact of recession in one country affecting across the globe. We have also seen impact of financial markets crash in one country having ripple effects all over the world.
Any Business Manager holding responsibility of a business function in an organization today would have to be equipped with the macro level understanding of the world trade, macroeconomics, macro finance and its impact. He needs to understand at the micro level export and import policies and procedures of various countries to be able to steer his business ahead in accordance with the existing environment. It is his ability to fore see the risks, assess the impact and manage the risk that is going to be detrimental to his organization's success.
History of International Trade[2]
Any time you walk into a super market and pick up any stuff like a knife or a toy and chances are that the item has been manufactured in China or assembled in Mexico. Pick up coffee pods and you will see that they have been imported from Africa. When you shop for clothes, it is quite likely that you will see Made In China label.
We all know that international trade has been in vogue for centuries and all civilizations carried on trade with other parts of the world. The need for trading exists due to the variations in availability of resources and comparative advantage. In the present context where technology and innovation in all fields have thrown open borders to globalization, no country can afford to remain isolated and be self-sufficient.
International trade has a rich history starting with barter system being replaced by Mercantilism in the 16th and 17th Centuries. The 18th Century saw the shift towards liberalism. It was in this period that Adam Smith, the father of Economics wrote the famous book 'The Wealth of Nations' in 1776 where in he defined the importance of specialization in production and brought International trade under the said scope. David Ricardo developed the Comparative advantage principle, which stands true even today.
All these economic thoughts and principles have influenced the international trade policies of each country. Though in the last few centuries, countries have entered into several pacts to move towards free trade where the countries do not impose tariffs in terms of import duties and allow trading of goods and services to go on freely.
The 19th century beginning saw the move towards professionalism, which petered down by end of the century. Around 1913, the countries in the west say extensive move towards economic liberty where in quantitative restrictions were done away with and customs duties were reduced across countries. All currencies were freely convertible into Gold, which was the international monetary currency of exchange. Establishing business anywhere and finding employment was easy and one can say that trade was really free between countries around this period.
The First World War changed the entire course of the world trade and countries built walls around themselves with wartime controls. Post world war, as many as five years went into dismantling of the wartime measures and getting back trade to normalcy. But then the economic recession in 1920 changed the balance of world trade again and many countries saw change of fortunes due to fluctuation of their currencies and depreciation creating economic pressures on various Governments to adopt protective mechanisms by adopting to raise customs duties and tariffs.
The need to reduce the pressures of economic conditions and ease international trade between countries gave rise to the World Economic Conference in May 1927 organized by League of Nations where in the most important industrial countries participated and led to drawing up of Multilateral Trade Agreement. This was later followed with General Agreement of Tariffs and Trade (GATT) in 1947.
However once again depression struck in 1930s disrupting the economies in all countries leading to rise in import duties to be able to maintain favorable balance of payments and import quotas or quantity restrictions including import prohibitions and licensing.
Slowly the countries began to grow familiar to the fact that the old school of thoughts were no longer going to be practical and that they had to keep reviewing their international trade policies on continuous basis and this interns lead to all countries agreeing to be guided by the international organizations and trade agreements in terms of international trade.
Today the understanding of international trade and the factors influencing global trade is much better understood. The context of global markets have been guided by the understanding and theories developed by economists based on Natural resources available with various countries which give them the comparative advantage, Economies of Scale of large scale production, technology in terms of e commerce as well as product life cycle changes in tune with advancement of technology as well as the financial market structures.
For professionals who are occupying management or leadership positions in Organizations, understanding the background to the international trade and economic policies becomes necessary as it forms the backdrop for the business organizations to charter their course for growth.
Backdrop to International Trade[3]
Any student or professional wanting to understand more about Imports and Exports would have to understand the history and economic principles that have chartered the course of international trade to its current regime.
In the backdrop of the countries economic policies and financial conditions such as its balance of payments situation, the governments formulate rules and regulations that govern the countries trade with other countries.
World Trade Organization or WTO as it is called is the International Organization that deals with the global rules of trade between nations. Its primary function and goal is to facilitate smooth and free flow of trade between countries.
WTO came into being on 1st January 1995 and is Head Quartered in Geneva, Switzerland. The Organization was created at the Uruguay Round Negotiations and consists of 153 member countries. A Director General and functions with a Secretariat Staff of 637 heads WTO.
WTO functions primarily as the Forum for trade negotiations between countries. Its main functions include Administering WTO Trade Agreements, Handling Disputes, Monitoring National Trade policies of member countries, Technical assistance to Member Countries. Considered to be one of the youngest of International Organizations, the WTO is regarded as a Successor to the GATT agreement that came into being in the after warmth of Second World War.
Historically treaties have been the agreements that ruled between two countries. Post Second World War and creation of WTO and other organizations have paved way for more and more of international co-operations in the field of politico economic environment, with the result there have come to existence many regional, intra regional and global super nations groups engaging in regional trade agreements.
Creation of The European Union is one of the most important events in the History of our Civilization. EU, known as European Union was formed by Masstricht Treaty in 1991 and laid foundation for an economic and monetary union that included creation of one single currency across member nations. The European Free Trade Association was setup in 1960 with one of the main aims to establish multilateral associations between the member countries to abolish customs barriers and creating a single free market across European Union.
Some of the other associations and agreements that have come into being are The North American Free Trade Agreement (NAFTA) signed by Canada, Mexico and US in 1994. The Association of Southeast Asian Nations (ASEAN)
Complexities arise in International Trade due to the nature of economies of the countries all over the world. Less Developed Countries and Developing Countries economies are agriculture based and seasonal and their reliance on export markets is very high. They in turn import manufactured goods from developed countries where in the cost of imports is fairly stabilized. With the variation in export earnings and high or stabilized imports, the countries stand to face huge fluctuations in terms of international trade which in turn effects their domestic economy.
However amongst the developed countries the international trade has always been beneficial. In fact most of the EU member countries have managed to increase their incomes due to the removal of trade barriers within the EU. But the trade relations between developed and under developed countries have always been the bone of contention and controversies. The business orientations of the Multi National Companies who establish manufacturing as well as selling in countries where labor and resources are cheaper is seen as a form of exploitation. WTO meetings and conferences are used as a platform by various interest groups to bring to the table various issues concerning public health and safety, environmental impact and other evils arising out of international trade.
We are slowly seeing the new shades of moral and ethical values as well as other issues that impact our environment and global concerns featuring in and affecting the international trade.
International Trade Integration[4]
No doubt international trade has existed spanning civilizations, in the current global economic situation no country can keep away without participating in international trade. Countries are moving cautiously away from capitalistic and protectionist outlook and engaging in trade with other countries.
With the creation of WTO, there have been constant efforts made to unite countries to create more markets, to standardize tariffs and trade laws as well as remove trade barriers in trying to create free markets.
We have seen very many bi lateral and multi lateral agreements taken place that have harmonized international trade to a large extent. Together with the agreements, several countries have begun to form unions to harmonize and free trade regulations within themselves in a bid to create free markets. One such example is the Economic Union of European Countries. Initially EU was a Customs Union that further developed into Economic Union.
Countries have also formed several other types of unions as well as zones in a bid to give impetus to international trade. We shall discuss a few of them briefly in this article.
Customs Union
Customs Union refers to a coming together of member countries to form a union where in they allow free trade amongst the member countries without customs duties and tariffs. However they formulate a common external trade policy to determine common import duties that are levied for imports from a third party country other than the member country.
Customs Union is the first step towards harmonizing and removing trade barriers to facilitate smoother and increased trade flow within the member groups. This would result in increased economic efficiency and improve political relationships amongst the members too paving way for further economic integration.
The Customs Union of Zollverein which was formed out of coming together of German States is another example of Customs Union. Customs Union can also be called Free Trade Zones with common Trade Tariffs and Policies.
Free Markets & Economic Integration
- Customs Union can also be called Free Trade Zones with common Trade Tariffs and Policies
- Customs Union is the first step towards building Economic integration that leads to formation of common markets and economic unions and federation.
- Common markets allow free movement of all resources including labor, capital as well as other resources without tariffs and formalities.
- Economic Union is a trade bloc, which consists of both free markets and Customs Union within the member community
- Economic Unions involve close co-ordination and integration of economic and fiscal policies of the member countries
- Examples: European Union, CARICOM - Single Market and Economy of Caribbean Community.
Monetary Union, Customs and Monetary Union
- Creation of Economic Union paves way for creating a Monetary Union and further evolves into a Customs and Monetary Union.
- Under this Union, member countries enjoy common economic union with free markets with no restriction on movement of goods, labor, capital and resources across member countries, common tariffs for external trade, besides combining it with a common monetary currency system.
- Examples: Common Monetary and Economic Community of Central Africa.
Economic Union and Monetary Unions finally lead up to Complete Economic Integration as the final stage. In Economic Integration, the member countries operate with single currency and fiscal policy coupled with single economic policy and function as single economy.
To achieve and stabilize single economy, it necessitates the political integration, which brings into being the concept of United Countries with autonomous states governed by federal government. United States of America is the outstanding example of such integration evolving into one Nation.
Payment Mechanisms in International Trade[5]
Setting up International Trade Mechanisms involves inter disciplinary processes including Finance, Logistics, Taxation and Supply Chain disciplines. Every Business Manager would need to know the nuances of the trade even though he may or may not be involved in the micro management of the processes.
Any Import or Export entails commercial transaction and payment. When an import is made into the US, the foreign supplier would have to be paid in the currency in which he has raised the invoice. Normally international transactions are made using USD as the currency. However in many cases of transactions with Europe, the Euro Dollar is used as the currency too.
When an Export originates out of US to another country, the Exporter would have to receive payment from the End Customer.
In Exports we have several types of trade or export transactions and the nature of the business determines the payment terms.
Advance Payment
When a new customer approaches and places an order on the Exporter, normally might insist on advance payment for executing the order. This method normally continues for a few times until mutual trust is built between the two parties and they get to know each other.
Letters of Credit
An Exporter if dealing with an unknown customer at the other end may not have any prior exposure to the credit worthiness of the Customer and would normally insist on Confirmed Letter of Credit to be opened by the Customer before shipping the goods. In such cases the Exporter may not be extending any credit. Also in case of high value transactions with known customers too; exporters prefer to get paid through Letter of Credit.
While dealing with a customer, the Exporter can check seek a credit worthiness rating from the customer's bank to be able to ascertain the authenticity and credibility of the Customer. Normally Large Multi Nationals demand such credit worthiness reports as a part of their policy.
Bill of Exchange of Documentary Drafts
When there has been sufficient relation between an Exporter and the Customer (Importer) and the customer's credit worthiness is known through previous records, the Exporter might decide to extend credit and accept payment on bill of exchange basis. This system is also called as Documentary Drafts. Documentary drafts are of two types namely Sight Drafts and Date and Time Drafts.
Open or Ongoing Account
When there is a huge volume of continuous business transactions between the Exporter and Importer and exports continue to happen on ongoing basis, the Exporter can simply export on the basis of a purchase order and expect the Importer to pay promptly on due date. This is the usual method adopted by most of the Multi National Companies as well as the large organizations that have sufficient import volumes spread across various countries and are dealing with multiple vendors on ongoing basis. In such cases they just determine the annual volumes to be supplied by each vendor, issue an open purchase order and keep reviewing only the delivery schedule. They offer standard payment commitment on a particular date to all vendors as a global policy. The payment process will be set and determined as a part of their business agreement.
Other Types of Trade and Related Payment Mechanisms
Besides the above types of payment mechanisms based on normal Exports and Imports, there are other types of business models which work on various other modes of payment terms too.
Consignment Sale
An exporter might sign up a contractor with a distributor overseas to import, hold stock and sell the goods on his behalf. In such a situation, the distributor may not own the stocks and the ownership might continue to lie with the exporter. The distributor would only be an intermediary to sell the stocks and repatriate the money realized back to the exporter and get remunerated in terms of service charges or commission. In such cases there may be a business agreement in place but no fixed payment mechanism may be adopted.
Counter Trade / Counter Purchase / Barter Trade
In yet another case of business arrangement called counter trade, exports may be linked with return purchase of some other items from the importer or from another source in the country. The payment may also involve services other than products. This kind of trade becomes a necessity while dealing with countries that do not have sufficient foreign currency. There is also another system of international barter. which is not very commonly practiced in the commercial world.
International Payment Systems[6]
Brief Introduction about International Payments
If you have shopped online on international portals or have received payments from abroad, you would have wondered about how the payments flow across the world and which banks and financial institutions underpin global commerce and trade.
Further, if you work in a corporate that has global supply chains with international suppliers and customers, you would be again dealing with a complex network of institutions and banks that route the payments from one end of the supply chain or the value chain to the other.
In addition, when nations trade with each other and when central banks transact with each other as well as banks in different countries deal with each other, then they are all participating in the international payment system that is the bedrock of global payment flows.
Components and Constituents of the International Payment System
So, who and what are the constituents and components of the international payment system? To start with, banks and financial institutions form the first layer of the international payment wherein they hold accounts of other global banks who in turn hold accounts of the former. This enables the banks to send and receive payments from each other as they can simply debit their accounts and credit the other bank's account with them and this in turn leads to payments flowing to the recipient bank that debit the sending bank and credit their account.
Indeed, it can be said that banks such as Citibank which is part of the international financial conglomerate, Citigroup, Standard Chartered, HSBC, and Barclays form the lifeline of the international payment system by routing the money from the senders to the recipients anywhere in the world, anytime of the year, and any place that they are located in.
The SWIFT Protocol
However, it is not enough for banks and other financial institutions to simply transfer money to each other without having a common protocol and standard by which they can communicate with each other. In other words, they need to talk to each other in a language that is understood by them.
Hence, there is indeed a common protocol that forms the basis for such communication, this is the SWIFT standard wherein the acronym stands for Society for Worldwide International Funds Transfer wherein this payment standard prescribes the rules and regulations that all participants in the international payment network must abide with to ensure that there is a common standard of messaging and communication between the banks and other financial institutions.
For instance, the sender, the recipient, the intermediary, and the address and other details are to be captured in a specific format that is standard across banks so that each participant in the payment value chain knows exactly what is contained in the payment message.
An Example of How International Payments Work
To take an example, if you are located in the United States and want to send a funds transfer to India, you must first setup the beneficiary and then transfer funds from your account to the beneficiary. While this completes your end of the value chain, the next step is when your bank in the United States debits your account and credits its account with the funds. After this, it transfers the money to its partner bank in India or if it does not have any dealings with Indian banks, it contacts a bank in the United States that has such dealings and in both these cases; the funds are then transferred from the banks in the United States to the bank in India.
Once the banks in India receive the funds, they must then send it to the ultimate beneficiary wherein the funds are debited from its account and credited to the recipient. Again, this step might be a single or two step processes depending on the recipient holding an account with the concerned bank that receives the funds.
Automation and Digitalization of the International Payment System
As you can see from the above example, international payments involve a complex chain of transactions and payment routes that entail cooperation and coordination between multiple banks and financial institutions. All these flows are made possible by automated payment systems that use the SWIFT standard which as explained earlier enables and ensures that the payments flow smoothly throughout the value chain.
Further, in recent years, there has been so much automation and digitalization of the payment systems that funds from one country to the other are flowing in an almost real time manner with just minor delays because of the clearing houses in between.
Clearing houses are financial institutions such as the Reserve Bank of India in India and the United States Federal Reserve in the US which function as the node for the payments between domestic banks and international banks. Clearing houses are also places where traditionally there have been like the village markets where at the end of the day, the various merchants gather to settle their accounts and square the debts and the credits.
Conclusion
As can be seen from the points raised so far, international payment flows go smoothly as long as all participants in the value chain do their part in addition to adhering to the SWIFT protocol. Further, the global payment value chain is efficient mainly because globalization has led to liberalization of the banking rules and regulations that have enabled banks anywhere to deal with other banks everywhere and anytime and every time.
Finally, the next time you send or receive an international payment, just think about what it takes to enable your payment and imagine bits and bytes of data and information streaming across the world so that your payment is processed smoothly and successfully.
Letter of Credit - Meaning and Different Types of LC[7]
International trade between an Exporter and Importer would entail multiple transactions in terms of documentation exchange, physical cargo movement as well as settlement of payment which have to be clearly defined and setup in order to ensure smooth business transaction.
Over the years international trade has established various methods and payment mechanisms that are accepted globally by all financial institutions and other related parties.
Normally when the Customer is new to the Exporter, the business transactions are done either based on advance payment or Letter of Credit option. LC is one of the safest mechanisms available for an Exporter to ensure he gets his payment correctly and the importer is also assured of the Exporters adherence to his requirement in terms of quality, quantity, shipping instructions as well as documentation etc.
A letter of Credit is the Buyer's Banker's promise to the Bank of the Seller / Exporter that the bank will honor the Invoice presented by the Exporter on due date and make payment, provided that the Seller/Exporter has complied with all the requirements and conditions set by the Importer in the said letter of credit or the Buyer's Purchase Order and produced documentary evidence to prove compliance, along with the necessary shipment related documentation.
Confirmed Letter of Credit
A Letter of Credit is always sent by the Buyer's bank to the Seller's Bank or any bank that is becomes an advising bank. Normally the Seller's bank becomes an advising bank when a normal LC is received and it delivers or advises the buyer regarding the receipt of LC with no responsibility towards it. In case of a Confirmed LC, the Seller's bank checks out the authentication of the LC from the Buyer's bank and confirms to stand responsible for negotiating, collecting payment from the Buyer's bank and making payment to the seller in line with the terms and conditions stipulated in the LC. By adding confirmation to the LC, the Seller's bank too becomes equally responsible to make payment for the transaction under the LC. Seller's Bank in turn will charge and collect service charges from the Seller for the same.
Revocable and Irrevocable Letter of Credit
Normally the Letter of Credits issued is irrevocable, which means that no single party can unilaterally make any changes to the LC, unless it is mutually agreeable to both the parties involved. However an LC is said to be revocable if the terms allow any one single party to be able to make changes to the LC unilaterally.However it is in the interest of the buyer that he should always insist on irrevocable Letter of Credit.
Sight LC
When the LC is opened, stipulating the condition that, on presentation of the negotiable set of shipping document by the seller as per the terms of the LC are made, the buyer's bank will make payment at sight meaning immediately to the seller's bank subject to fulfillment of terms and conditions of the LC being fulfilled, the LC is called Sight LC.
Future or Credit LC
If the payment schedule under the said LC stipulates payment at certain future dates after presentation of negotiable set of shipping documents by the Seller and fulfilling the LC terms and conditions, such an LC is termed Future LC or Credit LC. It is quite normal for sellers to extend credit of 30 days to 60 days under LCs. However the shipping documents would have to be presented to the bank immediately so that they documents reach the buyer well ahead in time before the consignment reaches the foreign shores and the buyer is able to clear the consignment and take delivery.
International Trade Terms - INCOTERMS[8]
Globalization has given impetus of international trade which is increasing by the day. International trade involves multiple agencies, transportation agents, carriers as well as Customs and Banks etc of the two countries involved in trade. Any Export or Import transaction involves transportation of goods predominantly via sea or air and in some cases over the road transportation too. Export and Import transactions are essentially dependant upon documentation and information to flow across all related agencies smoothly. In fact it is essential for information to flow to the agencies involved in each sector in advance before the physical goods arrive or move. The advancement of technology in terms of internet and EDI has helped smoothen the transactions internationally across all countries. Similarly in the case of international terms of trade too, things have been smoothened and standardized across all countries with the introduction of INCOTERMS published by ICC or International Chamber of Commerce in 1936.
INCOTERMS are the standard terms of trade that define the rights and obligations of the parties involved in trade. It specifies the responsibility of the buyer and the seller by defining the transaction and the cost aspects concerning the transaction and especially related to carriage, custom duties as well as Insurance, etc. However it limits itself to the scope of the liability of costs and definition thereof and does not deal with the ownership or transfer of title of goods.
INCOTERMS are divided into 4 groups namely E,F,C & D.
GROUP � E
This group contains only one Incoterm namely EXW - Ex. Works.
This term represents minimum liability on the part of the Seller. Seller&s responsibility ends with delivering goods at his factory doc. The rest of the risk and expenses involved are borne by the Buyer and would have to be carried out through his agent at Origin.
GROUP � F
Consists of FCA, FAS & FOB terms. Under this category the Seller pays for the pre carriage expenses at the Origin and the main carriage as well as Destination charges are borne by the Buyer.
FCA - Free Carrier - Seller delivers goods to the Buyer&s nominated vehicle and his responsibility ceases with delivery. Unloading, transportation as well as Insurance from this point will be borne by the Buyer.
FAS - Free Alongside Ship - Seller completes Export formalities and delivers cargo alongside ship. From this point onwards the risk and costs including transportation and Insurance pass on to the Buyer.
FOB - Free On Board - Seller responsible for inland transportation, Export clearance as well as delivery cargo onboard the Ship. Once Onboard the Ship the risk and responsibility shifts to the Buyer who pays the transportation, Insurance and Destination Charges.
GROUP � C
Under this group the Seller arranges for and pays for transportation but does not take on the risk.
CFR - Cost and Freight - Seller pays transportation cost up to Destination Port. Insurance and Risk are with the Buyer from the time the Seller delivers cargo on board.
CIF - Cost, Insurance & Freight - Seller pays for transportation and Insurance but the Risk passes to the buyer as soon as the cargo is delivered on board the ship.
CPT - Seller pays transportation cost. The risk and insurance lies with the buyer from the point of delivery of cargo to the carrier by the Seller.
CIP - Carriage & Insurance Paid to - Seller pays transportation and Insurance. The risk passes to the buyer when Seller delivers cargo to carrier.
GROUP � D
Under this group the Seller assumes all or most of the risk and takes responsibility of delivery at Destination upto the agreed point of delivery.
DAF - Delivered at Frontier - Seller responsible to deliver cargo upto the point of entry at Destination. Risk and responsibility further passes on to the Buyer.
DES - Delivered Ex Ship - Seller assumes risk until the ship with the cargo reaches the port of Destination. Then the risk shifts to Buyer from the point of discharge of vessel onwards.
DEQ - Delivered Ex. Quay Duty Paid - Seller takes responsibility until the cargo is delivered after import clearance at destination and customs duty paid and delivered to the point on buyers dock.
DDU - Delivered Duty Unpaid - Seller takes responsibility to deliver cargo at the destination port where the Buyer takes on the responsibility for import clearance, Import duties and onward delivery.
DDP - Delivered Duty Paid - Seller takes responsibility until the cargo reaches destination, clears the customs, pays the duty and delivers cargo at Buyer&s dock.
Types of Licenses in International Trade[9]
International Trade has become the order of the day in the current environment of Globalization. The nature of economies namely under developed, developing and developed countries as well as the availability of natural resources, labor, technology and capital required for production etc play a important role in countries economy as well as its reliance on international trade. While countries which are rich in resources look for exporting to other countries and earning foreign exchange, countries mostly the developed countries rely on imports from developing countries for their use.
Countries like Europe and Us are heavily dependant upon Imports, developing countries like China and other Asian countries tend to rely on exports to these countries.
Though the countries and WTO have been advocating free trade and several Bi Lateral Treaties and Multi Lateral treaties have come into being to remove trade barriers from one member county to another, all of the countries still find the need to practice and have protectionist attitude towards international trade. There are political as well as economic considerations that govern the import and export duties levied by Governments. Primarily import and export duties aim to encourage or restrict the consumption as well as production in the domestic economy and market.
Countries levy Import and Export Duties on specific items and also based on countries of origin. The management of duties and tariffs is managed through Trade Laws and Policies. Besides imposing duties, countries also restrict and manage the import and export of items with the help of Licenses to Import and Export.
Types of Licenses
Open General Licensed Items
While normal items and traded goods like textiles, consumer durables, Handicrafts, electronics items, Food articles, Drugs etc are generally allowed to be imported and exported by all countries freely without restrictions.
Imports against Specific Import Licenses
Many items like second hand capital equipment, plant and machinery, engines etc are traded, transferred and imported normally by developing and under developed economies.Such second hand machinery and goods are allowed to be imported into the receiving countries only through specific license obtained for the said purpose. Such license would set forth conditions required to be met by the importer to prove the residual life of the machinery etc. Import of Fire Arms and Ammunitions are always covered under specific licenses in most of the countries.
Import - Quantity Restrictions or Quota
Some countries like USA do allocate quantity restrictions for import of items like textile on certain countries and exporters would have to adhere to the quota norms, which are periodically reviewed and amended as required.
Export Licenses
While the domestic industries are engaged in export of some important natural resources and raw materials like iron and steel, certain kinds of herbs etc, Governments control and restrict the export through issuing Export Licenses.
Negative List
Most countries maintain a negative list of items which prohibit import and export of certain items like animal hides and other wildlife, precious wild life, live stock, narcotics and many more sensitive items.
When people import or export items into the country without applicable licenses, do not bring in consignments avoiding customs clearance and thus avoid paying duties as well as those items that are prohibited are brought into the country illegally, such trade is labeled as smuggling.
International Trade and Taxes - Types of Customs Duties[10]
The International Trade is rapidly changing and evolving as a result of Globalization and advancement of electronic and communication science. These have brought the entire world under global economy. Benefits of global economy ensure that despite different states of economic development in various countries, technology and products become accessible across countries. It enables all countries to specialize in particular trade and participate and benefit from global markets, thereby they are able to benefit from utilizing their resources, labor or whatever advantages of production they are endowed with.
Globalization has also given rise to the Multi National Companies that operate globally and are able to leverage on setting up production wherever it is cheaper and market their goods in countries where markets exist.
When countries have domestic markets and domestic industries, they cannot be left open to compete in global market without regulatory controls. Domestic industries need to be protected and supported to face up to competition and markets need to be regulated to ensure no dumping takes place. Moreover countries need to watch over depletion of their natural resources too and control the pricing and financial aspects of international trade related to their country.
All countries exercise controls over international trade through Trade Laws, Tariffs and Taxes which are called Import Duty and Export Duty. These are aimed at making trade practices safer, fair and ethical too. Tariffs are influenced by political as well as economic and financial outlook of the Governments as well as the bilateral relationship of the country with the other partnering country.
In a bid to made global markets accessible to all freely, the WTO has been trying to negotiate with all member countries. Uruguay Round did manage to bring about commitments from countries to cut down tariffs and bring them to base levels which remain standard across member countries, while the recent DOHA round of discussions have been centered around agriculture market access and resultant tariffs.
Types of Customs Duties
All countries maintain and publish schedule of tariffs annually and these are filed with WTO and generally in line with the international community tariffs. The rate of duty under the published tariff is called Bound Rates or basic customs duty.
Applied Rates or Basic Customs Duty
Applied Rates are the effective rate of duties charged by the Customs at the specific period or time of import. The affective rate can vary from the Schedule. Generally the trend is to keep the applied rates same as schedule or at lower than schedule tariff. Countries do not generally tend to charge more than the schedule.
Application of Duty
Normally the customs duty is set as a set percentage against the value of the consignment. This percentage value ensures that with the fluctuation of prices in the international market, the duty component gets automatically adjusted.
However besides basic customs duty, additional duty in terms of fixed value per ton or per unit quantity as specific or special duty are also applied for various purposes, to control and balance the import or export, or at times to augment revenue collection and various other purposes related to international as well as national situations.
Governments also levy special and temporary duties as percentage over the portion of customer duty on specific purpose and for specified time. It can also be applicable only on specific categories.
The tariffs can be based on revenue generation, prohibitive or protective outlook of the regulatory policy and authorities. It can also be on retaliatory mode as well as based on bi lateral or specific trade pact with other countries.
All duties incase of both imports as well as exports are valued and collected by Customs Authorities through their branches set up at every port of entry in the Country.
Customs Department - An Introduction[11]
International Trade is facilitated and controlled by Countries with the help of Foreign Policy, Export Import Regulations, Schedule and Tariff of Import and Export Duties as well as Trade Laws and Regulations.
Customs Department is the Federal Government Agency that is invested with Authority to conduct Customs Valuation and collect Import as well as Export Duties on behalf of the Government.
Customs are present in all points of entry into and out of the country. These include airports, sea ports, on road border check posts and any other point of exit and entry into the country.
Customers Departments are invested with quasi powers similar to the police and work in close co-ordination with the border security, police and other security intelligence departments.
Imports and Exports cover two channels of transport of goods. Business related trade is carried on through cargo imports. Caro Import as well as export can be consigned through road network, via shipping as well as airfreight. All the said modes will be covered by Customs Department.
The second mode of export and import relates to personal baggage. Though this mode does not have much of revenue implications but still the baggage has to go through customs inspection to ensure illegal items and prohibited items are not being imported or exported. Items like Narcotics, illegal weapons and cash etc are always smuggled into the country through various routes. Customs department has revenue intelligence teams that are trained to prevent such acts and arrest the accused.
In the Airports and Ports, Customs have designated area and offices where the exporters deposit the export consignments. After customs clearance the cargo is directly handed over to the Airline or the Shipping line from Customs department for onward shipment.
Similarly, imports cargo is offloaded from the aircraft or ship into the Customs designated area and store until it is custom cleared and released to the importer.
The customs designated area is always a bonded area where in only customs is permitted entry. The cargo that is kept within the bonded area cannot be moved or taken out without Customs permission.
Customs Department officials inspect the inbound cargo and based on the descriptions of the items in Invoice and other documents, assign the correct tariff to arrive at the valuation of the consignment based on the Invoice value. The duty amount is calculated and once the duty payment is made by the importer, the cargo is released. The process of submitting the cargo for customs clearance as well as facilitating the documentation and clearance process is handled by Third Party Service Providers called Customs Brokers.
Similar process is followed for customs exports too. Customs Brokers file documents on behalf of the clients to Customs department, facilitate cargo inspection and approval to enable exports to be completed.
Customs Departments also work closely with border security forces and revenue intelligence agencies to work on information related to smuggling and illegal entrants into the country.
Revenue intelligence wing of Customs deals with matters pertaining to valuation of imports and try to check transfer pricing under valuation, under invoicing etc done by importers to evade import duty payments. They also build database of international prices of specific commodities and the trends in the markets to be able to spot under valuation attempts by importers.
A Brief on Customs Brokerage[12]
International trade is regulated through tariffs and trade laws established by the Country's Federal Governments to control the imports and exports of the country. The Government invests executive powers to the Customs Departments, headed by Custom's Commissioners to administer the policies and tariffs on all imports and exports into and out of the country.
Customs Clearance Departments are setup in all ports of entry and exit at the Country's borders including Airports, Sea Ports and Check Posts at Road.
Customs Clearance involves valuation of the goods for their authenticity in terms of both physical inspection as well as value assessment. The Customs inspect the documents submitted to ascertain that the valuation on the Commercial Invoice is on par with the international markets and approve the assessment based on appropriate classification. Once the consignment is assessed, valuation determined the demand for duty is made on the Importer. On receipt of duty payment, the consignment is released out of the Customs bond.
The entire process of imports is governed not only by the Customs Laws, but all imports are required to be compliant with the other relevant Boards and Bodies like Food and Drug Administration, Department of Agriculture approval, Fisheries and Wildlife Department approval etc. While the import consignment is in the custody of Customs, the rest of the tests and approvals would have to be acquired before the customs can release the consignment.
The above process of customs clearance can take from anywhere from one day to seven days depending upon each case. There are several commercial documents that are to be submitted by the Importer and few Custom related documents have to be prepared and submitted to enable customs clearance of the imports.
The customs clearance process and co-ordination with the Customs and other agencies necessitates the services of engaging a Customs Clearance Broker or Brokerage Agency.
Customs Clearance Brokerage Agency is a Third Party Service Agency that is licensed by Customs Department to operate and represent the Importer. Customs Clearance License Holder is required to have passed Customs Test and Examination and is required to be fully conversant with Customs Laws, Rules, and Processes and ensure adherence to the same.
There are several Customs Clearance Service Providers who are specializing in the field. There are many freight forwarder companies including Multi National Companies that own and operate Customs Clearance services for their clients.
The Customs Clearance process requires several documents including commercial documents from the Buyer, Seller as well as bill of Transport from the Transporting Company, Certificate of Origin from the Seller country etc. Besides the Customs Bill of Entry is one of the key documents required to be submitted along with the rest of the documents. These documents are filed electronically from the Customs Broker's office before the consignment land. From the time the consignment lands and is warehoused at the Custom's Bonded Warehouse, there is a free period of three days to seven days (varies from country to country) within which the customs clearance process would have to be completed and the consignment released. If not the consignment then starts accruing demurrage on daily basis and would have to be paid up by the Importer before clearance of the Consignment.
Customs Clearance Agent plays a very crucial role in representing the Importer with Customs and takes the responsibility for compliance of all Rules and Regulations on behalf of the Importer.
Imports and Customs Clearance - Overview[13]
When any Organization Imports any item into the country, the cargo would need to be Custom Cleared. The consignment transported by Air, Ship or by Trailer on the Road, would have to be deposited at the Customs Notified and Bonded Area.
Customs Clearance or brokering is done by third party service providers who are licensed by Customs for the said purpose. They represent the Importer and co-ordinate with Customs Department as well as other specific departments to Custom Clear the cargo.
There are list of several items that cannot be imported into the countries freely and would require specific License. Alcoholic Beverages, Animals and Animal products, Fire Arms and Ammunitions, Meat and Meat products, Milk, Diary and Cheese products, Plants and Plant products, Poultry and Poultry Products, Petroleum and Petroleum products etc would have to be imported under the License issued by various agencies and such imports would have to be in compliance with the rules and conditions laid down by respective agencies.
There are several other items such as art materials, artifacts and antiques, cultural property, hazardous and toxic materials, internationally banned products like ivory etc are usually prohibited for imports into the Country.
Bureau of Alcohol, Tobacco, and Firearms, Animal and Plant Inspection Service, Fish and Wildlife Service, Food and Drug Administration are few of the agencies that exist in most of the countries which regulate and oversee imports of the specific items covered under their schedule.
When the Cargo lands at the Customs Bonded W/house, along with Customs Clearance, the licensed items would need to be inspected and approved for clearance by these specific agencies too. Customs brokers carry out the necessary process of submitting documentation, facilitate sampling and inspection and follow up to obtain approvals.
All cargo being imported as well as export from a country would have to be deposited at Customs Bonded warehouse to complete export and import formalities and receive Customs approval to hand over the cargo to the freight forwarder in case of Export and to the Importer incase of Imports. The customs bonded warehouse is a customs notified area and the cargo while in bonded warehouse is under the Customs Charge. Normally bonded warehouses are available and operated by Customs Departments at the Airports and Seaports. In case of larger airports and Shipping yards, the Government set up a separate corporation or agency to setup and operates such bonded warehouse.
In many cases Governments do give licenses to the Customs Clearing Agents to setup bonded warehouses for exports wherein the cargo can be offloaded by the exporter, customs formalities completed and after customs approval the cargo can be stuffed into the Shipping container. Generally if the export cargo is of smaller lots, the clearing agents move the cargo to these bonded warehouses. If the export is of one full container volume, then the cargo is stuffed into the container at the exporter's premise itself and the container is deposited at the shipping yard in the customs bonded warehouse or designated area waiting for export clearance.
An imported consignment can be imported and warehoused in Customs bonded warehouse for certain period of time in bond. This gives the flexibility to the importer to custom clear the consignment in parts when required for consumption and pay customs duty only for the consignment that is being de bonded. They can further sell the materials to third party while in bond and it would be considered as high sea sale. Un till the importer files bill of entry for home consumption and pays customs duty to take delivery of the consignment, the import consignment technically is not considered to be imported and owned by the importer.
Customs bonded warehouses charge normal warehousing rental and other transaction charges for the goods warehoused. Additionally beyond a certain free period ascertained by Customs in advance, the importer may be charge a certain interest on the customs duty payable on the said import, depending upon case to case basis.
Documentation in Customs Clearance[14]
Any Importer wishing to bring in cargo into the country may do so through air, ship, and road or multi modal transport. Every import consignment is required to be deposited by the transportation agency or the freight forwarder into the Customs Designated Bonded warehouse for Customs Clearance.
Customs Clearance is facilitated by Customs Clearance Agent or Broker who is Authorized, Licensed agency or operator to file the necessary documents on behalf of the importer and co-ordinate the clearance activity.
Customs Clearance Process entails filing of Bill of Entry in electronic form by Clearing Agent on behalf of the Importer with Customs, along with other Commercial Documents including Declarations from Importer, Commercial Invoice, Packing List, P. Order Copy as well as Certificate of Origin and Licenses to Import if any.
Bill of Entry is the main key document on which the Customs approves clearance of the cargo and the document is crucial for availing duty credits if any by the Importer post clearance. The Bill of Entry document is also required as an important record for audit purposes and any further inspection from any agencies.
Types of Bill of Entry
Depending upon the nature of transaction the Bill of Entry form varies.
Few important types of BOE are discussed herein:
BOE for Home Consumption
When an import consignment is required to be custom cleared and the importer wishes to take delivery and use the cargo for internal consumption in his business organization, the Bill of Entry for Home Consumption is filed. The Bill of Entry for Home Consumption is in white color.
BOE for Bonding
If the Importer does not wish to custom clear the imported consignment right away and wishes it to be warehoused at the Customs Bonded Warehouse, then the Bill of Entry for Bonding is submitted, so that the customs can permit the transfer of import shipment to be warehoused at the customs bonded warehouse without payment of duty but on execution of a bond by the importer and postpone the clearance to a future point of time. The importer by filing the Yellow colored BOE for bonding is able to defer the payment of duty until such time that he requires clearing the consignment.
When this BOE for bonding is filed, the customs assess the consignment and determine the duty payable and the importer executed a bond for the required value but is not required to pay the actual customs duty.
Ex-Bond Bill of Entry
When import consignments are not custom cleared immediately on arrival and are warehoused at the customs bonded warehouse, the importer can choose to custom clear the entire consignment or in parts whenever he requires by filing Ex-Bond Bill of Entry to clear the consignment from the warehouse on payment of duty.
The valuation under the Ex-Bond Bill of Entry will take into account the prevailing rates of duty at the time of actual removal of imported consignment from the warehouse and not the duty assessed through Bonding BOE. In case there has been a revision in the tariff, the prevalent tariff at the time of removal from the bonded warehouse will prevail.
Ex-Bond Bill of Entry is green in color and is also called 'Green Bill'.
Import Documentation Requirement for Customs Clearance[15]
In effecting Imports as well as Exports, documentation plays a very important role. Especially in case of imports, the availability of right documents, the correctness of the information available in the documents as well as the timeliness in submitting the documents and filing the necessary applications for the Customs Clearance determines the efficiency of the Customs Clearance process. Any delay in filing or non availability of documents can delay the process and thereby importer stands not only to incur demurrage on the imported cargo but also stand to loose business opportunities.
Customs Clearance process requires set of documents to be submitted by the Importer, By the airline, shipping line or concerned Freight Forwarder as well as the Customs documentation prepared and submitted by Clearing Agent on behalf of the Importer.
Some of the documents required from Importer from his end are:
Commercial Invoice:
This is the most important document that certifies the sale as well as gives the description of the items as well as reflects the pricing or the value of the cargo.
Customs valuation is based on the value reflected on the Commercial Invoice. Customs also verifies the rates charged in the commercial invoice and can question the rates applied incase it has sufficient cause to believe that the rates charged as not as per international market rates or the invoice is under valued to avoid duties.
Packing List
It is mandatory to put the shipping marks on all the cargo covering each and every individual piece or parcel. The details of the number of parcels in the consignment, their dimension, the shipping marks, the gross and net weights of each of the parcels along with the number of units contained in each parcel is catalogued in the form of packing list.
Packing List is used to identify the parcels as belonging to the particular consignment under the said Invoice.
Certificate of Origin
Certain bilateral agreements and multi lateral agreements would enjoy favorable tariffs for import duties. In such cases when the consignments are exported from such member countries, the designated Export Agency issues Certificate of Origin to the importer for submission to Customs. Based on this certificate the Customs Department of the Importing Country classifies the cargo under specific schedule.
Certificate of Origin also helps to avoid third party countries from routing imports through member countries and effecting third party exports to avoid duty, quantity or license restrictions.
Bill of Lading or Airway Bill
Bill of Lading is a negotiable multi modal transport document issued by the Shipping Line certifying carriage of the said cargo under the specific invoice on behalf of the exporter or importer depending upon the terms of sale. An 'On Board Bill of Lading' is usually considered to be the apt Bill of Lading that signifies that the cargo has been loaded 'On Board' the vessel or the ship. This is one of the documents required for negotiations of payment from importer to the exporter.
Air way Bill is the negotiable transport document issued by an Airline or a Freight Forwarder who consolidates the airfreight cargo.
In case of Road Carriage, the Transporter issues a negotiate Way Bill covering the shipment.
Depending upon the mode of transport, one of these documents would be required to be submitted along with the commercial invoice and packing list to the Customs for clearance.
Customs Clearance Agency and Process[16]
Any Organization that is engaged in Imports or Exports would require the services of third party Customs Clearance Agent as well as a Freight Forwarder. While freight forward manages the transportation part of the exports and imports, customs clearance and the approval and co-ordination with the rest of the regulatory authorities to affect the imports and exports is done by the Customs Clearance Broker.
Every Exporter and Importer would need to know the basics of the Import and Export policies as well as conditions applicable to their specific products of import and exports. In addition they should also be aware of the processes involved in imports and exports broadly. However it is the Customs Clearance agent who would know the working of all the Customs Rules and Laws and ensure compliance of the same in a speed manner so as to ensure that the import consignment is cleared within the allotted free period and does not incur demurrage.
Pre Customs Clearance
Customs valuation process demands a list of documents that are required to be submitted by the Importer. Gathering the various documents from the Importer, from the forwarding agent and creating customs documents required to be filed for clearance process is undertaken by the Clearance Agent. It is he who prepares the Bill of Entry the main document on which the Customs approves the valuation and clearance.
With the standardization of INCO Terms and Documentation, the documents are prepared in advance as soon as the consignment is dispatched from the Country of Origin and the Bill of Entry along with the commercial documentation and the transportation documents are filed electronically from the Clearance Agency's office and registered at the Customs Department.
Clearance Process at Customs
On arrival of the consignment at the Customs Bond, the Customs carries out physical inspection as well as valuation of the import. Valuation of the import consists of ascertaining the correct description of the items, classification of the items under relevant Customs Chapter and Tariff, Ascertaining that there is no case of under invoicing and certifying the valuation of the consignment and arriving at the Customs Duty required to be paid. The clearance agency proceeds to advice and co-ordinate with the importer to make necessary Customs Duty Payments and takes physical delivery of the Consignment and delivers it to the Importer at the designated place along with the set of Original documents.
Customs Rules permit a free bonding or warehousing period of three to seven days (depends from country to country and location). Normally the air shipments are given only three days for clearance while the sea shipments are given up to seven days of free warehousing in Customs Bonded Warehouse. The importer through the Customs Clearance agent has to clear the consignment within the free period, failing which a daily demurrage would be charged on the consignments for all days up to the time of actual delivery. The demurrage could prove to be very expensive and hence it is important to ensure that the Customs Clearance Agency is efficient and knows its job well enough.
Importer cannot be expected to spend his time on getting the consignments cleared after ensuring that he is compliant with all the processes. Hence the role of the Customs Clearance Agency comes into the picture for he undertakes to represent the Importer with the Customs Department and follow through the process.
Approach to Exports and International Marketing Business Model[17]
Today every individual entrepreneur owned businesses as well as Corporates have changed the way they look at their vision and business planning. Companies how ever big or small are no longer operating in domestic markets alone, for they have at their disposal the entire global market which is just waiting to be captured. The globalization has increased the international trade which has been enabled and propelled due to the electronic and internet revolution. Every company draws up ambitious business plans for its domestic markets as well as targeting the most attractive foreign markets for its products with a long term view makes up for most of the business plans.
Today most of the Organizations are thinking global, setting up networks globally and this is leading to an increase in international trade.
Multi National Product Company's view of global markets and trade is totally different from the other smaller organizations. They generally tend to identify their markets first. To be able to cater to the growing markets they identify suitable manufacturing locations that give them the best cost advantage in terms of labor as well as other resources.
Using various Supply chain network models, as well as commissioning various Market Research reports, they choose to setup manufacturing or assembly plants based on analysis and detailed network designs. Accordingly we see manufacturing plants being set up or transferred from one region to another region. Many US and European companies have setup manufacturing locations in Malaysia, India, Hong Kong, Singapore, Indonesia, Philippines for these are known to offer skilled labor at cheaper costs and are ideally located to the growing markets too etc.
Then there are other companies in the US as well as Europe and other parts of the world who believe in outsourcing or contract manufacturing. There are several Large scale ECM / EMS companies like Sanmina, Solectron, Foxcon, Flextronics etc who have setup manufacturing facilities for electronics field and cater to leading brands all over the world. In the field of Electronics and Computers, contract manufacturing seems to be very much in vogue since 1980s.
Even in the field of pharmaceuticals, last two to three decades have seen several changes in terms of manufacturing. Multi national Companies have increasingly outsourced manufacturing of bulk drugs to countries that are cheaper especially to countries like China, India and Philippines etc.
The increased international trade and sales and marketing efforts in new markets have given impetus to international trade. While planning to capture a new market different Organizations have different approaches. While very big Multi National Companies like Procter & Gamble, Unilever, IBM, Microsoft etc, have approached new markets directly by establishing their own networks and offices in foreign countries, there are other companies that have sought to go in for a Joint venture with local business partners and bring in Foreign Direct Investments into the country. This approach varies from country to country and is especially dependent upon the foreign countries policy towards foreign direct investment and their support for global players to set shop in the country.
However there are host of medium and small size organizations those that explore new markets with a very clear approach of manufacturing locally, products for export markets and exporting to the new markets. Such organizations focus more on setting up marketing network in the new markets. There are different options that are followed by different organizations depending upon their business plans.
There are several different options available to exporters to market their products and manage the exports to the foreign country. Many companies appoint Sales Representatives or Agents that market the products, book orders and work on commission basis. The second type of model followed by many organizations is to appoint Country Distributor who will buy the stocks and sell in the local market. Yet another type of export marketing involves consignment sale to agents in which the consignment is exported to the agent who does not own the stock but holds it in inventory and sells in the market and repatriates the earning directly back to the company.
Export Marketing Channels[18]
For any Business Organization which is eyeing a foreign market as a part of its Exports strategy, getting its Marketing and Supply chain in place forms a critical part of the initial process which will determine his initial foray into the markets.
While doing business in foreign markets is very lucrative, the initial cost of marketing can be very high until business volumes pick up sufficiently to justify the kind of expenses being incurred. However the expenses are justified keeping view the long term potential of the country and the export market.
Every market in each country is unique and is characterized or influenced by the local ethos, culture and traditional practices. In most cases the exporters would find it more expensive to station themselves or open offices in the foreign countries initially until them are able to add sufficient volumes. They do go through a period of learning curve where in they get to understand the markets, the customer requirement and this helps them fine tune their offerings in the times to come. However it become imperative for exporters to be able to find the right representatives or marketing agencies in the foreign country who will be able to market their products, book customer orders and help finalize negotiations. Such trade representatives or marketing agencies can be sourced through various resources. In most of the cases the Trade Fairs and Exhibitions are the best places to meet with the relevant professionals in said area of expertise. Besides the trade directory and listings too provide details of the players in the market.
However exporters would have to take time to travel to the foreign market, be in the market, understand the potentials and be able to choose the right partners.Once the marketing plan has been finalized and marketing agents identified the next task on hand for the Exporter would be to set up a supply chain model to be able to service the foreign markets. It is essential to have this arrangement in place before the marketing initiatives are kick started, for one cannot have customers waiting for products, especially in case of exports that involve longer lead times. Businesses for long have practiced appointing distributorship as a model of supply chain that has been working well all over the world.
So essentially here we are talking about signing up with two different Export Sales Agreements. In the first instance the Exporters would need to identify and sign up a Sales Agent or Sales Representative Agency and a Country Distributor.
In some of the markets you might find a Marketing Agency cum Distributor who is a dominant market player in which case you stand to benefit from having to deal with one agency.There exists a lot of difference between the two agreements required in the above cases for the roles and responsibilities as well as liabilities are totally different in both cases.
| Business Area | Sales & Marketing Agency | Country Distributor |
| Business Objective | Marketing, Locating Customers, Building & Developing Sales Leads, Negotiate & Close Sales Order. | Buys product Stocks, Manage inventory, Service Customer Order, Execute and affect deliveries, Collect Payment. |
| Stocks Ownership | Does not Own Stocks. Only Co-ordinates for Customer Delivery directly from Source or through Distributor. | Owns and Maintains STOCKS |
| Compensation Model | Commission based | Profit Mark up on Product Cost |
| Pricing Control | Influences pricing with Exporter, but the last call is left to Exporter to close the deal. | Can Take independent call on pricing as the ownership of stocks lies with self. |
| Credit Risk | With the Seller/Exporter | With Self |
Apart from the above two channels, Exporters sometimes use Consignment Sales Agents too. When the Exporter is initially getting a feel of the markets and is looking to tap the customers he would need to hold the stocks at hand so that he is able to offer immediate delivery to the new customer and help bag orders. In such cases the exporter will use a Consignment Agent who will import and hold the consignment on behalf of the exporter.
Once the orders are received and the consignment is delivered, the Consignment Agent will receive payment from the customer and in turn repatriate the amount received back to the Exporter after keeping the agreed amount of margin as per his agreement. In such cases the stocks are owned by the Exporter until it is invoiced by the Consignment Agent to the Customer.
The Consignment agent acts as a custodian of goods only and does not carry any other ownership. He provides a legal entity for the Exporter to send goods to in the foreign country and manages the supply chain services as per instructions of the Exporter. The entire responsibility, risk including marketing, pricing, collections and liquidation of stocks lies with the Exporter.
Increasing Exports through Free Trade Zones (FTZ)[19]
Countries have long since realized the importance of furthering their interest by supporting the International Trade and Exports from in house and actively supporting the industries to become globally competitive. Besides this objective, many governments also aim to promote Foreign Direct Investment into the country and encourage Multi National Companies to set shop and manufacture goods for home consumption as well as Exports. In order to support such initiatives most countries set up Special Economic Zones in their country.
Governments develop certain underdeveloped or rural regions as industrial parks, provide international standard amenities and designate such zones as Special Economic Zones. These areas are normally exempt from most of the normal trade barriers, tariffs and national laws and seek to promote free market export oriented manufacturing activities. There are several sub categories of Special Economic Zones (SEZ) namely Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Parks, Free Ports etc.
The Governments give preference to large scale manufacturing or assembly units to be set up by Multi National Companies of repute and provide tax holidays as well as waiver of many of the formalities required to be followed by the Companies in the said Zone. Typically the Companies import Raw Materials and manufacture goods locally thus using local cheaper labor and Export the goods outside the Country. Both the Imports and Exports are exempt from Customs Duties and other levies. Only the goods that enter the local market as domestic sale product are taxed. Such manufacturing intensive zones help generate a lot of employment in the rural sector and lead to the overall development of the area and in turn stimulate economic growth in the area. Besides local growth of the area, it helps country earn huge foreign exchange as well.
Ireland was the first country to set up Shannon Free Zone which was followed up quickly by most of the developing countries like Philippines, Malaysia, China, India, Mexico, Costa Rica, Honduras, and Guatemala etc. The list of countries now having adopted EPZ has cross over 100 numbers.
While Jabil Ali FTZ made a huge impact on Dubai and its growth, China has benefited from its most successful SEZ - Shenzhen which helped employ over 10 million people. India has become one of the Asia's largest outsourcing hubs thanks to establishment of SEZs through out the Country.
Though in many countries the SEZs are implemented by the Governments, quite a few SEZs have been implemented by private parties too as private operator, private developers. Quite a few countries have adopted a mid path of setting up public sector quasi-government agencies with a pseudo corporate institutional structure and autonomy in operations. In some other cases SEZs have also developed on the basis of public-private partnership arrangements.
SEZs can be said to be the precursor for establising liberal market economy and free trade. Today world over more than 3000 FTZs in over 116 countries are employing appx. 43 million people engaged in manufacturing of various consumer items such as clothes, shoes, electronic gadgets, computers and toys etc.
Why Do Exports Matter?[20]
Countries all over the world try to promote exports. Almost every country offers financial incentives to exporters. Countries like China have Special Economic Zones wherein exporters are not charged any tax. Similarly, other countries have special banks and insurance agencies promoted by the government to facilitate export growth.
This brings us to the importance of exports. If the government is spending so many resources and providing so many incentives to exporters, then they must be important for a country. In this article, we will understand the economic benefits that are derived from exports.
Utilization of Comparative Advantage
The fundamental principle driving international trade is that of comparative advantage. Some countries are blessed with some natural resources whereas others have different resources at their disposal. Consider the case of a country like Saudi Arabia. It has much more oil than it could possibly use. However, there are very few other resources that can be used internally. It is exports which allow Saudi Arabia to lead a prosperous life. They export the excess oil and import all the other goods. Similarly, countries like India and China which have the highest working populations export their labor services. Hence, it is important for any country to recognize their core competency and start focusing on exporting them.
Contribution to GDP
Net exports are the difference between imports and exports. If the net exports number is positive it adds to the GDP of the nation. On the other hand, if the net exports number is negative, it subtracts from the GDP of the nation. This is because goods which are sent abroad are also manufactured locally. Since GDP counts only local production, exports definitely lead to an increased GDP.
Of late, countries have started using GDP as a proxy measure to determine the rate of economic growth. Hence exports have become even more important because they appear to be directly linked to economic growth.
Increase in Employment
Exports lead to domestic production. Domestic production requires domestic labor. Hence, exports lead to an increase in employment in the nation. Apart from direct employment provided by exports, there is also a spillover effect. This means that once export workers get paid, they also spend their money to consume goods and services. This leads to even more job creation. As a result, the entire economy develops. Economists often cite the example of China while explaining this point. The unemployment rate in China has been drastically cut down after the export-oriented policies were brought into place.
Also, economists often cite the United States example to prove their point. After World War-2, the United States was a dominant exporter of goods to the world. This period saw a massive rise in employment in the United States. However, soon America became dependent on cheap imports from nations such as China, Japan, and Korea. Now, the unemployment rate has skyrocketed in America. Since the production of goods is not happening in America, the American worker is unemployed!
It is for this reason that countries are now wary of decreasing exports. A fall in exports is treated as an early indicator of impending economic recession.
Recovery from Recession
Exports are a very important tool to spur economic growth in a country. This means that exports can also be used to recover from recessions. The logic behind this is simple. During the recession, there is a negative sentiment in the entire economy. Factories and offices stop giving wage increments. As a result, consumers start deferring their purchases. The result is that a vicious cycle ensues and production comes to a halt.
During the same time, other countries around the world are not suffering from a recession. Hence the consumers in these countries are willing to spend. It is here that exports come into play. Exporters from recession prone countries can send their goods to nations with favorable economic climate. This will increase the local GDP and reduce unemployment. This puts the economy
Increasing exports is one of the most effective ways to beat the recession.
Earning Foreign Exchange
The dollar is the most important currency in the world today. It is a reserve currency. This means that international trades happen either in dollar or gold. Essential commodities like oil and gold are priced only in terms of dollar or gold. Hence all countries need dollars for their survival.
Exports are the only way to earn dollars. It is for this reason that exports are considered to be vital to the solvency of a nation. A thriving economy can suddenly implode in the absence of dollars. This is because they will not be able to import essential commodities. Hence, exports are considered to be the lifeline of ant economy. This is why governments all over the world create special schemes to spur exports.
It must also be noted that exports need to be done at a profit. Some countries are subsidizing their products so that they become cheaper on the international market and spur exports. This will not benefit the economy. This is because at the end, this amounts to giving away stuff for free! Subsidies do not spur exports. They simply give away money that was earned by other industries in the nation. Subsidies are more political in nature. They are meant to benefit some people at the expense of the majority.
The Case against Export Credit Agencies[21]
Export credit agencies are quasi-government agencies. These agencies are usually backed by government institutions. This means that they are under the purview of government authorities and also have access to taxpayer funds. All developed countries in the world have created their own export credit agencies. Collectively these agencies wield a tremendous amount of influence on world trade. It is estimated that the ECA backed exports amount to more than $200 billion each year.
Economic textbooks often portray export credit rating agencies as a positive force which helps improve international trade. However, there are also many criticisms which are leveled against these agencies. In this article, we will have a closer look at the reasons which make ECA's dangerous and harmful for the economy.
Government Debt
The credit provided by Export Credit Agencies (ECA's) can be thought off as a store credit card. Just like a store credit card provides loans to consumers at high-interest rates, export credit agencies also provide finance to importers from poor countries at high-interest rates.
Export credit agencies sometimes offer direct finance to foreign governments. In other cases, they provide indirect finance. This means that finance is actually provided by a private party. However, it is guaranteed by export credit agencies meaning that the loan becomes risk-free for the borrowers. Many times transactions between private parties end up becoming transactions between public institutions. For instance, if exporter A and importer A use export credit finance, then their transactions may be insured by the ECAs of both countries!
The problem is that importers only take credit from export credit agencies after they have exhausted all other options. This means that the projects funded by ECA's are inherently risky. A lot of times this means that the project fails and the importer is unable to pay back the loans. It is surprising to find out that ECA's are amongst the leading creditors for many third world countries. For instance, export credits amount to about 64% of all the external debt which is owed by Nigeria! Similarly, this number stands at 42% for the Republic of Congo.
This is the reason why export credit agencies are often called debt traps by analysts in these third world countries. They are the Trojan horse which seems friendly at first but end up being more harmful than the bigwigs like World Bank and International Monetary Fund.
Taxpayers Exposed to Bad Loans
As mentioned above, export credit is generally opted for by buyers who are unable to obtain any other source of finance. As a result, they lead to a higher percentage of bad loans than normal. The ECA's charge a higher interest rate to make up for the loss. However, a significant percentage of the loans lent out by the ECAs are never repaid.
This is a big problem since it is a hidden transfer of wealth from the taxpayers to the exporters. The exporters end up being the beneficiary of these loans. On the other hand, taxpayers who have no idea about the underlying situation end up paying for these loans.
Priority Sectors
It is a known fact that export credit agencies have hidden interests. Although, the ECA's themselves are supposed to be non-profit institutions, the employees at these institutions are often patronized by corporations. As a result, a lot of the policies created by ECAs are biased and have hidden agendas.
A lot of times these policies take the shape of priority sectors. Under the guise of providing financing to important sectors, the taxpayer money is redirected to a particular industry or even a particular company. Many analysts have also noted that sometimes the ECAs are keener on guaranteeing the loans and liabilities of some particular financial institutions.
ECA's Lead to Trade Wars
In the more recent past, ECA's have been blamed for the trade wars that have now become a part of global economics. This is because, in some cases, the ECAs often provide subsidized finance to importers. As such, the ECA's make an exported product more attractive for the importer as compared to goods produced locally.
In many cases, this does not go down well with governments. As such, they end up increasing the import duty to offset the financing advantage. This increased duty is seen as a sign of aggression and the other country also ends up levying countervailing duties on the other country. Therefore, ECAs are a way of covertly capturing market share in another country. Many countries have now become aware of this strategy and hence these agencies are at the root of several trade wars.
Lack of Transparency
Lastly, critics argue that for the amount of power and influence these credit rating agencies have, they have very little accountability. In many countries, they are not even audited! Even if they are audited, their records are not made public. Hence, there is an opaqueness to these transactions which makes them appear inherently shady. Leaving apart the financial aspects, there is no control over the social and environmental effects of the projects which are funded by these agencies.
The bottom line is that the export credit agencies are also a government agency. Just like other government agencies, they are also prone to bureaucracy, red tape and corruption.
Import and Export Procedures in India[22]
The Foreign Trade (Development & Regulation) Act, 1992 ('FTDR Act') provides for the development and regulation of India's international trade. The FTDR Act has been enacted with an intention to provide a framework for the development and standardization of India's foreign trade by the way of facilitating imports into enhancing exports from India and all the other matters related to the same. The FTDR Act empowers the Government of India to enact the FTP.
The FTP is a detailed policy statement on India's international trade and facilitates the exports from and imports into India. The FTP also contains within its ambit the Handbook of Procedures ('HBP') along with the item-wise export and import policy called the ITC(HS) which is notified by the Directorate General of Foreign Trade ('DGFT').
Under the FTP, import into and export from India is 'free,' unless specifically 'restricted', i.e., subject to a license, permit or authorization or, 'prohibited.' The policy restrictions under the FTP are contained in the Schedules appended to the ITC(HS). Schedule 1 of the ITC(HS) pertains to the Import Policy, whereas, Schedule 2 of the ITC(HS) pertains to the Export Policy. Further, the DGFT is the authority responsible for the effective implementation of the FTDR Act as well as the FTP as amended from time to time.
In India, the imports and exports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which empowers the federal government to make provisions for development and regulation of foreign trade. The current provisions relating to exports and imports in India are available under the Foreign Trade Policy, 2015-20.
Import procedures[23]
Typically, the procedure for import and export activities involves ensuring licensing and compliance before the shipping of goods, arranging for transport and warehousing after the unloading of goods, and getting customs clearance as well as paying taxes before the release of goods.
Below, we outline the steps involved in importing of goods.
Obtain IEC
Prior to importing from India, every business must first obtain an Import Export Code (IEC) number from the regional joint DGFT. The IEC is a pan-based registration of traders with lifetime validity and is required for clearing customs, sending shipments, as well as for sending or receiving money in foreign currency.
The process to obtain the IEC registration takes about 10-15 days.
Ensure legal compliance under different trade laws
Once an IEC is allotted, businesses may import goods that are compliant with Section 11 of the Customs Act (1962), Foreign Trade (Development & Regulation) Act (1992), and the Foreign Trade Policy, 2015-20.
However, certain items � restricted, canalized, or prohibited, as declared and notified by the government � require additional permission and licenses from the DGFT and the federal government.
Procure import licenses
To determine whether a license is needed to import a particular commercial product or service, an importer must first classify the item by identifying its Indian Trading Clarification based on a Harmonized System of Coding or ITC (HS) classification.
ITC (HS) is India's chief method of classifying items for trade and import-export operations. The ITC-HS code, issued by the DGFT, is an 8-digit alphanumeric code representing a certain class or category of goods, which allows the importer to follow regulations concerned with those goods.
An import license may be either a general license or specific license. Under a general license, goods can be imported from any country, whereas a specific or individual license authorizes import only from specific countries.
Import licenses are used in import clearance, renewable, and typically valid for 24 months for capital goods or 18 months for raw materials components, consumables, and spare parts.
File Bill of Entry and other documents to complete customs clearing formalities[24]
After obtaining import licenses, importers are required to furnish import declaration in the prescribed Bill of Entry along with permanent account number (PAN) based Business Identification Number (BIN), as per Section 46 of the Customs Act (1962).
A Bill of Entry gives information on the exact nature, precise quantity, and value of goods that have landed or entered inwards in the country.
If the goods are cleared through the Electronic Data Interchange (EDI) system, no formal Bill of Entry is filed as it is generated in the computer system. However, the importer must file a cargo declaration after prescribing particulars required for processing of the entry for customs clearance.
If the Bill of Entry is filed without using the EDI system, the importer is required to submit supporting documents that include certificate of origin, certificate of inspection, bill of exchange, commercial invoice cum packing list, among others.
Once the goods are shipped, the customs officials examine and assess the information furnished in the bill of entry and match it with the imported items. If there are no irregularities, the officials issue a 'pass out order' that allows the imported goods to be replaced from the customs.
Determine import duty rate for clearance of goods[25]
India levies basic customs duty on imported goods, as specified in the first schedule of the Customs tariff Act, 1975, along with goods-specific duties such as anti-dumping duty, safeguard duty, and social welfare surcharge.
In addition to these, the government levies an integrated goods and services tax (IGST) under the new GST system. The IGST rates depend on the classification of imported goods as specified in Schedules notified under Section 5 of the IGST Act (2017).
Export procedures[26]
Just as for imports, a company planning to engage in export activities is required to obtain an IEC number from the regional joint DGFT. After obtaining the IEC, the exporter needs to ensure that all the legal compliances are met under different trade laws.
Further, the exporter must check if an export license is required, and accordingly apply for the license to the DGFT.
An exporter is also required to register with the Indian Chamber of Commerce (ICC), which issues the Non-Preferential Certificates of Origin certifying that the exported goods are originated in India.
Import and export documents[27]
Businesses are required to submit a set of documents for carrying out export and import activities in India.
These include commercial documents � the ones exchanged between the buyer and seller, and regulatory documents that deal with various regulatory authorities such as the customs, excise, licensing authorities, as well as the export promotion bodies that help avail export import benefits.
The Foreign Trade Policy, 2015-2020 mandates the following commercial documents for carrying out importing and exporting activities:
- Bill of lading or airway bill
- Commercial invoice cum packing list;
- Shipping bill or bill of export, or bill of entry (for imports).
The important regulatory documents include:
- GST return forms (GSTR 1 and GSTR 2);
- GSTR refund form;
- Exchange Control Declaration;
- Bank Realization Certificate; and
- Registration cum Membership Certificate (RCMC).
Anti-Dumping[28]
Introduction
Antidumping is a process of preventing dumping in Indian market. It is the process of creating a barrier of selling products in low price from its actual price in other countries. The antidumping is a process of stopping illegally trading of products at low cost from its actual price in market. The section 9A, 9AA, 9B of Custom Tariff Act, 1975 deals with the provision of antidumping and dumping in India. This article deals with the dumping and antidumping scenario in India, where Indian market is also dealing with the dumping problem such as, Chinese selling their goods in India with lesser price from its actual price of the products. These kinds of dumping practice are going on in India. The dumping is kind of an unseen crime. Dumping generate many problems for domestic industries of India . The latest amendment of 2020 in the custom tariff act, 1975 has recently substituted of new section for section 8B which stated as power of central government to apply safeguards measures. The government of India is taking some safety measures for domestic industries of India against dumping problems going on from last decades.
What is the meaning of Dumping?
Definition from Oxford Law Dictionary :-The sale of goods abroad at prices below their normal value. Within the EU dumping regulations prohibit the sale of goods at below normal value. Countervailing (or antidumping) duties may be ordered on certain imported goods to prevent dumping.
Definition from Mitra's Legal and Commercial Dictionary:
Placing goods on the market in large quantities at unprofitable prices or prices lower than those charged elsewhere. (Anti-Dumping duties are imposed to limit or discourage the importation and sale of goods in unfair competition with home-produced goods.[5]
Dumping according to GATT (General Agreement on Tariffs and Trade) / WTO (World Trade Organisation):
Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. Thus, in the simplest of cases, one identifies dumping simply by comparing prices in two markets. However, the situation is rarely, if ever, that simple, and in most cases it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country (known as the normal value) and the appropriate price in the market of the importing country (known as the export price) so as to be able to undertake an appropriate comparison.
What are provisions in India governing Anti-Dumping?
Anti-dumping Duty (Section.9A of Custom Tariff Act, 1975):
Where any article is exported from any country or territory (hereafter in this section referred to as the exporting country or territory) to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose:
- if the article is not otherwise chargeable with duty under the provisions of this Act, a duty; or
- if the article is otherwise so chargeable, an additional duty, not
exceeding the margin of dumping in relation to such article: not exceeding
the margin of dumping in relation to such article:
- Sub- section (1) and (2) of section 9 shall stand amended as follows
when section 2 of Act No. 52 of 1982 comes into force:--" (1) Where any
country or territory pays, or bestows, directly or indirectly, any bounty or
subsidy upon the manufacture or production therein or the exportation
therefore of any article, then, upon the importation of any such article
into India, whether the same is imported directly from the country of
manufacture, production or otherwise, and whether it is imported in the same
condition as when exported from the country of manufacture, production or
has been changed in condition by manufacture, production or otherwise, the
Central Government may, by notification in the Official Gazette, impose:
- if the article is not otherwise chargeable with duty under the provisions of this Act, a duty; or
- if the article is otherwise so chargeable, an additional duty, not
exceeding the amount of such bounty or subsidy; Provided that the Central
Government may, pending the determination in accordance with the provisions
of this section and the rules made thereunder of the amount of such bounty
or grant, impose a duty or additional duty under this sub- section not
exceeding the amount of such bounty or subsidy as provisionally estimated by
it and if such duty or additional duty exceeds such bounty or subsidy as so
determined:
- the Central Government shall, having regard to such determination and as soon as may be after such determination, reduce such duty or additional duty; and
- refund shall be made of so much of such duty or additional duty which has been collected as is in excess of the duty of the duty or additional duty as so reduced.
- Sub- section (1) and (2) of section 9 shall stand amended as follows
when section 2 of Act No. 52 of 1982 comes into force:--" (1) Where any
country or territory pays, or bestows, directly or indirectly, any bounty or
subsidy upon the manufacture or production therein or the exportation
therefore of any article, then, upon the importation of any such article
into India, whether the same is imported directly from the country of
manufacture, production or otherwise, and whether it is imported in the same
condition as when exported from the country of manufacture, production or
has been changed in condition by manufacture, production or otherwise, the
Central Government may, by notification in the Official Gazette, impose:
1. Subs. by Act 52 of 1982, s. 2 (w. e. f. 2- 9- 1985 ).
2. Ins. by s. 3 ibid., (w. e. f. 2- 9- 1985 ).
3. Ins. by Act 18 of 1992, s. 110.
(b) in sub- section (2),--
(i) for the words" no amount of any such bounty or grant", the words" amount of any such bounty or subsidy" shall be substituted;
(ii) for the words" additional duty", the words" duty or additional duty, as the case may be," shall be substituted. Provided that the, Central Government may, pending the determination in accordance with the provisions of this section and the rules made thereunder of the normal value and the margin of dumping in relation to any article, impose on the importation of such article into India a duty or additional duty under this sub- section on the basis of a provisional estimate of such value and margin and if such duty or additional duty exceeds the margin as so determined,
(a) the Central Government shall, having regard to such determination and as soon as may be after such determination, reduce such duty or additional duty; and
(b) refund shall be made of so much of such duty or additional duty which has been collected as is in excess of such duty or additional duty as so reduced. Explanation. - For the purposes of this section,
(a) " margin of dumping", in relation to an article, means the difference between the price at which such article is exported and its normal value;
(b) " normal value", in relation to an article, means-
(i) the comparable price in the ordinary course of trade for the said article or like article when meant for consumption in the exporting country or territory- as determined under sub- section (2); or
(ii) where such comparable price cannot be ascertained because of the particular market situation or for any other reason, such value shall be either-
(A) the highest comparable price for the said article or like article from the exporting country or territory to any third country in the ordinary course of trade as determined under subsection (2); or
(B) the cost of production of the said article or like article in the country of origin along with reasonable addition for selling and any other cost, and for profits, as determined under subsection (2).
(2) Subject to any rules made under sub- section (3), the Central Government shall, after making due allowance in each case for differences in conditions and terms of sale, for differences in taxation and for other differences affecting price comparability, and, after such inquiry as it may consider necessary, determine, for the purposes of sub- section (1), the export price and the normal value of, and the margin of dumping in relation to, any article.
(3) The Central Government may, by notification in the Official Gazette, make rules for the purposes of this section, and without prejudice to the generality of the foregoing, such rules may provide for the manner in which articles liable for any duty or additional duty under sub- section (1) may be identified, and for the manner in which the export price and the normal value of, and the margin of dumping in relation to, such articles may be determined and for the assessment and collection of such duty or additional duty.
(4) Every notification issued under sub- section (1) shall, as soon as may be after it is issued, be laid before each House of Parliament.
Refund of Anti-dumping Duty in Certain Cases (Section.9AA of Custom Tariff Act, 1975
- Where upon determination by an officer authorized in this behalf by the
Central Government under clause (ii) of sub-section (2), an importer proves
to the satisfaction of the Central Government that he has paid anti-dumping
duty imposed under sub-section (1) of section 9A on any article, in excess
of the actual margin of dumping in relation to such article, the Central
Government shall, as soon as may be, reduce such anti-dumping duty as is in
excess of actual margin of dumping so determined, in relation to such
article or such importer, and such importer shall be entitled to refund of
such excess duty:
Provided that such importer shall not be entitled to refund of so much of such excess duty under this sub-section which is refundable under sub-section (2) of section 9A.
Explanation - For the purposes of this sub-section, the expressions, margin of dumping, export price and normal value shall have the meanings respectively assigned to them in the Explanation to sub-section (1) of section 9A.
- The Central Government may, by notification in the Official Gazette,
make rules to -
(i) provide for the manner in which and the time within which the importer may make application for the purposes of sub-section (1);
(ii) authorize the officer of the Central Government who shall dispose of such application on behalf of the Central Government within the time specified in such rules; and
(iii) provide the manner in which the excess duty referred to in sub-section (1) shall be -
(A) determined by the officer referred to in clause (ii); and
(B) refunded by the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, after such determination.
No levy on Section 9 or Section 9A in Certain Cases (Section.9B of Custom Tariff Act, 1975):
(1) Notwithstanding anything contained in section 9 or section 9A, -
(a) no article shall be subjected to both countervailing duty and anti-dumping duty to compensate for the same situation of dumping or export subsidization;
(b) the Central Government shall not levy any countervailing duty or anti-dumping duty:
(i) under section 9 or section 9A by reasons of exemption of such articles from duties or taxes borne by the like article when meant for consumption in the country of origin or exportation or by reasons of refund of such duties or taxes;
(ii) under sub-section (1) of each of these sections, on the import into India of any article from a member country of the World Trade Organization or from a country with whom Government of India has a most favored nation agreement (hereinafter referred as a specified country), unless in accordance with the rules made under sub-section (2) of this section, a determination has been made that import of such article into India causes or threatens material injury to any established industry in India or materially retards the establishment of any industry in India; and
(iii) under sub-section (2) of each of these sections, on import into India of any article from the specified countries unless in accordance with the rules made under subsection (2) of this section, a preliminary finding has been made of subsidy or dumping and consequent injury to domestic industry; and a further determination has also been made that a duty is necessary to prevent injury being caused during the investigation:
Provided that nothing contained in sub-clauses (ii) and (iii) of clause (b) shall apply if a countervailing duty or an anti-dumping duty has been imposed on any article to prevent injury or threat of an injury to the domestic industry of a third country exporting the like articles to India;
(c) the Central Government may not levy:
(i) any countervailing duty under section 9, at any time, upon receipt of satisfactory voluntary undertakings from the Government of the exporting country or territory agreeing to eliminate or limit the subsidy or take other measures concerning its effect, or the exporter agreeing to revise the price of the article and if the Central Government is satisfied that the injurious effect of the subsidy is eliminated thereby;
(ii) any anti-dumping duty under section 9A, at any time, upon receipt of satisfactory voluntary undertaking from any exporter to revise its prices or to cease exports to the area in question at dumped price and if the Central Government is satisfied that the injurious effect of dumping is eliminated by such action.
(2) The Central Government may, by notification in the Official Gazette, make rules for the purposes of this section, and without prejudice to the generality of the foregoing, such rules may provide for the manner in which any investigation may be made for the purposes of this section, the factors to which regard shall be at in any such investigation and for all matters connected with such investigation.
Determination of Dumping:
- Diffrence between Normal Value and Export Price : Margin of Dumping (% of export price
- Normal Value :- Comparable price at which the goods under complaint are sold, in the ordinary course of trade, in the domestic market of the exporting country.
- If the normal value cannot be determined by means of domestic sales,
following two alternative methods may be considered:
- Comparable representative export price to an appropriate third country.
- Cost of production of the goods under complaint in the country of origin with reasonable addition for administrative, selling and general costs and for profits.
- Export Price :- Price paid or payable for the goods by the first independent buyer.
- Formula for calculating Margin of Dumping:
- (Export Price - Normal Value = Margin of dumping.)
What is the process of Anti- Dumping in India?
Like Article:
The article produced in India must either be identical to the dumped goods in all respects or in the absence of such an article, another article that has characteristics closely resembling those goods.
Injury to the Domestic Industry:
The Indian industry must be able to show that dumped imports are causing or are threatening to cause material injury to the Indian 'domestic industry'.
Injury analysis can broadly be divided in two major areas:
- The Volume Effect: The Authority examines the volume of the dumped imports, including the extent to which there has been or is likely to be a significant increase in the volume of dumped imports, either in absolute terms or in relation to production or consumption in India.
- The Price Effect: Extent to which the dumped imports are causing price depression or preventing price increases for the goods which otherwise would have occurred Causal Link: A'causal link' must exist between the material injury being suffered by Indian industry and dumped imports.
Who can file an application?
- An application can be filed by the domestic industry or DGAD (Directorate General of Anti-Dumping and Allied Duties) on its own cognizance.
- The proceedings begin and responses are invited from 50% domestic producers constituting the total domestic market.
- Provisional anti-dumping duty is levied on the basis of preliminary findings.
- Final findings are drawn on the basis of inspection of domestic industry and importers.
- The final anti-dumping duty is levied on the exporting company.
The affected domestic industry can hire a corporate lawyer experienced in anti-dumping matters who can file the anti-dumping application for it.
Investigation Process:
- Preliminary Screening: Application scrutinized to ensure that it is adequately documented and provides sufficient evidence for initiation.
- Initiation: Public Notice issued initiating an investigation to determine the existence and effect of the alleged dumping. Diplomatic representative of the Government of the exporting country notified.
- Access to Information: The Authority provides access to the non-confidential evidence presented to it.
- Preliminary Findings: Made within 150 days of the date of initiation.
- Provisional Duty: A provisional duty not exceeding the margin of dumping may be imposed by the Central Government on the basis of the preliminary finding.
- Oral Evidence: Interested parties can request the Designated Authority for an opportunity to present the relevant information orally.
- Final Determination: Made within 150 days of the date of preliminary determination.
- Disclosure of Information: The Designated Authority will inform all interested parties of the essential facts which form the basis for its decision.
Relief to the Domestic Industry:
Anti-Dumping Duties:
Non-cooperative exporters are required to pay the residuary duty (highest of the co- operative exporters) Lesser Duty Rule: Government is obliged to restrict the anti- dumping duty to the lower of the two i.e. dumping margin and the injury margin Injury Margin: Difference between the fair selling price due to the domestic industry and the landed cost of the product under consideration De Minimis Margins: Any exporter, whose margin of dumping is less than 2% of the export price and the volume of the dumped imports are below 3% of the total imports, shall be excluded from duties.
Price Undertakings:
Exporter concerned must furnish an undertaking to revise his price.
Advantages of Dumping
- The main advantage of dumping is selling at an unfairly competitive lower price. A country subsidizes the exporting businesses to enable them to sell below cost. The nation's leaders want to increase market share in that industry. It may want to create jobs for its residents. It often uses dumping as an attack on its trading partner's industry. It hopes to put that country's producers out of business and become the industry leader.
- There is also a temporary advantage to consumers in the country being dumped upon. As long as the subsidy continues, they pay lower prices for that commodity.
Disadvantages of Dumping
- The problem with dumping is that it's expensive to maintain. It can take years of exporting cheap goods to put the competitors out of business. Meanwhile, the cost of subsidies can add to the export country's sovereign debt.
- The second disadvantage is retaliation by the trading partner. Countries
may impose trade restrictions and tariffs to counteract dumping. That could
lead to a trade war.
The third is censure by international trade organizations. These include the World Trade Organization and the European Union.
- PP - used in industries for packaging, woven sacks for cement, fertilizers, sugar and various consumer items such as house ware, auto components, pipes, water tanks, furniture, appliances raw material in a variety of and medical.
- Appeal by Reliance Industries, supported by Haldia Petrochemicals corporation Ltd. (HPCL), the only two producers of PP in the country, against PP imports from Saudi Arabia, Oman and Singapore.
- Reliance industries among the top 8 producers in world, holds a 70 percent share of the domestic market caters to 3 percent of global consumption of PP.
- Directorate General of Anti-dumping and Allied Duties (DGAD) has imposed definitive anti-dumping duty of up to USD 323.5 per tone of PP imported from Saudi Arabia, Oman and Singapore.
- Government's justification of the duty imports from the subject countries have increased in absolute terms as well as in relation to total imports, total demand and total production in India. The market share of the duopolistic domestic industry has come down, while the demand has increased. Despite increase in demand, the prices of the domestic industry have been suppressed.
- However, according to the Indian Plastic Federation (IPF), imports from Saudi Arabia, Oman and Singapore have increased only marginally from 5% in 2005-06 to 6% in 2008-09.
- It will lead to a significant price rise of the raw material (PP); in some cases the price may rise to almost double as the amount of duty is almost equivalent to the international market price. Most of the units associated with processing industry are small and medium enterprises (SMES) and there is fear of hurting them in case of rise in the domestic market.
Competition Law And Anti-Dumping Law � Areas Of Overlaps And Conflicts[30]
COMPETITION ACT, 2002 An Act to provide, keeping in view of the economic development of the country, for the establishment of a Commission to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India, and for matters connected therewith or incidental thereto.
The Act provides a very wide mandate for the Competition Commission of India to enforce. The Act contains provisions which have rather become standard in the competition jurisdictions all across the globe.
The agreements, abuse of dominant position and regulation of combinations. provisions relate to anti-competitive
Dominance is not frowned upon by the Competition Act, 2002 but the abuse of dominance is frowned upon by the legislation. O Anti-competitive agreements and dominance are to be prohibited by the orders of the Commission whereas the mergers are to be regulated by the orders of the Commission abuse of.
Competition Commission of India (CCI):[31]
It is a statutory body of the Government of India responsible for enforcing the Competition Act, 2002, it was duly constituted in March 2009.
- The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was repealed and replaced by the Competition Act, 2002, on the recommendations of Raghavan committee.
- Competition Commission of India aims to establish a robust competitive
environment.
- Through proactive engagement with all stakeholders, including consumers, industry, government and international jurisdictions.
- By being a knowledge intensive organization with high competence level.
- Through professionalism, transparency, resolve and wisdom in enforcement.
Competition Act, 2002
- The Competition Act was passed in 2002 and has been amended by the
Competition (Amendment) Act, 2007. It follows the philosophy of modern
competition laws.
- The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.
- In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established.
- Government replaced Competition Appellate Tribunal (COMPAT) with the National Company Law Appellate Tribunal (NCLAT) in 2017.
Composition of CCI
- The Commission consists of one Chairperson and six Members as per the Competition Act who shall be appointed by the Central Government.
- The commission is a quasi-judicial body which gives opinions to statutory authorities and also deals with other cases. The Chairperson and other Members shall be whole-time Members.
- Eligibility of members:
The Chairperson and every other Member shall be a person of ability, integrity and standing and who, has been, or is qualified to be a judge of a High Court, or, has special knowledge of, and professional experience of not less than fifteen years in international trade, economics, business, commerce, law, finance, accountancy, management, industry, public affairs, administration or in any other matter which, in the opinion of the Central Government, may be useful to the Commission.
Functions and Role of CCI
- To eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
- To give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.
- The Competition Commission of India takes the following measures to
achieve its objectives:
- Consumer welfare: To make the markets work for the benefit and welfare of consumers
- Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy.
- Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
- Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
- Effectively carry out competition advocacy and spread the information on
benefits of competition among all stakeholders to establish and nurture
competition culture in Indian economy.
- The Competition Commission is India's competition regulator, and an antitrust watchdog for smaller organizations that are unable to defend themselves against large corporations.
- CCI has the authority to notify organizations that sell to India if it feels they may be negatively influencing competition in India's domestic market.
- The Competition Act guarantees that no enterprise abuses their 'dominant position' in a market through the control of supply, manipulating purchase prices, or adopting practices that deny market access to other competing firms.
- A foreign company seeking entry into India through an acquisition or merger will have to abide by the country's competition laws.
- Assets and turnover above a certain monetary value will bring the group under the purview of the Competition Commission of India (CCI).
Judgements of CCI
- CCI imposed a fine of ₹63.07 billion (US$910 million) on 11 cement companies for cartelisation in June 2012. It claimed that cement companies met regularly to fix prices, control market share and hold back supply which earned them illegal profits.
- CCI imposed a penalty of ₹522 million (US$7.6 million) on the Board of Control for Cricket in India (BCCI) in 2013, for misusing its dominant position.
- The CCI found that IPL team ownership agreements were unfair and discriminatory and that the terms of the IPL franchise agreements were loaded in favor of BCCI and franchises had no say in the terms of the contract.
- CCI imposed a fine of ₹10 million upon Google in 2014 for failure to comply with the directions given by the Director General (DG) seeking information and documents.
- CCI imposed a fine of ₹258 crores upon Three Airlines in 2015.
- Competition Commission of India (CCI) had penalized the three airlines for cartelisation in determining the fuel surcharge on air cargo.
- CCI ordered a probe into the functioning of Cellular Operators Association of India (COAI) following a complaint filed by Reliance Jio against the cartelization by its rivals Bharti Airtel, Vodafone India and Idea cellular.
- The commission ordered an antitrust probe against Google for abusing its dominant position with Android to block market rivals. This probe was ordered on the basis of the analysis of a similar case in the EU where Google was found guilty and fined.
- CCI issued letters to handset makers in 2019, seeking details of terms and conditions of their agreement with Google.
- This is to ascertain if Google imposed any restrictions on them for using the company's apps in the past 8 years from 2011.
- Google Inc. v. CCI[32].
A Complaint was filed before the CCI that Google Inc. has abused its dominant position in the internet advertising space by promoting its vertical search services like Youtube, Google News, Google Maps, etc. In other words, these services would appear predominantly during a search result on Google, irespective of their popularity or relevance. The main issue was whether an administrative body like CCI had inherent powers to review or recall its order passed under section 26(1) in the absence of any specific provisions in the Competition Act, 2002? The Delhi Court held that Competition Commission of India can recall or review its order subject to certain restrictions and the same should be done sparingly and not in every case where an investigation has been ordered without proper hearing.
COMPAT in M/s. Excel Crop Care Limited v. Competition Commission of India & Ors.[33]
In the case of Sandhya Organic Chemicals, for which the tablets are the sole product, COMPAT reduced the penalty to a tenth of the original sum ordered by the CCI, on account of its relatively small production capacity. The challenge was made to this as an issue. In the present case it has been nightly held that it was important to articulate the reasons as to why a particular percentage of penalties were being imposed and secondly, what would be the relevant turnover for such imposition.
Jet � Etihad Case.[34]
An appeal under Section 53B was made to COMPAT challenging the Jet - Etihad Orde was dismissed on the point of locus standi without examining the merits of the Jet � Ethad Order. Though Section 53A provides that any person, aggrieved may challenge an order of CCI, COMPAT interpreted 'any person' to mean, a person aggneved by the CCI order and that it could not mean 'any and 'every person.
Mohit Manglani v. M/s Flipkart India Pvt. Ltd. & Ors.[35]
It was alleged by the Informant that these e-commerce websites have been indulging in anti-competitive practices in the nature of "exclusive agreements" with seller of goods/services. The Informant stated that owing to such practices, the consumer was left with no option in regards to terms of purchase and price of the goods and services and was bound to either purchase the product as per the terms of the website or opt not to purchase the product in totality. Whether the practice of entering into exclusive agreement for sale and purchase of goods by way of e-commerce is violating the provisions? It was held that an exclusive arrangement between manufacturers and e-portals is not against Section 3. It is rather to help the consumer make an informed choice.
Need of CCI
- Promote free enterprise: Competition laws have been described as the Magna Carta of free enterprise. Competition is important for the preservation of economic freedom and our free enterprise system.
- Protect against market distortions: The need for competition law arises because market can suffer from failures and distortions, and various players can resort to anti- competitive activities such as cartels, abuse of dominance etc. which adversely impact economic efficiency and consumer welfare.
- Thus, there is a need for competition law to provide a regulative force which establishes effective control over economic activities.
- Promotes domestic industries: During the era in which the economies are moving from closed economies to open economies, an effective competition commission is essential to ensure the continued viability of domestic industries, carefully balanced with attaining the benefits of foreign investment increased competition.
Conflict between Anti-Dumping Law and Competition Law
- Antidumping laws were initially enacted to address the situation of 'international price predation'.
- They were considered as extension of competition laws.
- Antidumping laws as they exist today do not seem to be concerned with the issue of predatory pricing.
- They attach sanctions to every instance of international price discrimination which can be shown to cause injury to the domestic industry.
- Objectives of Competition laws are Promotion of competition and prevention of anti- competitive practices Protection and promotion of consumer interest Achieving economic efficiency Geographic/ regional integration Public interest Competition advocacy
- Objectives of Anti dumping laws Remedying the injury to the domestic industry due to dumping Public interest Address predatory pricing
- Consumer welfare
Overlaps:
Competition laws are primarily aimed at protecting and promoting competition in markets. Antidumping laws are aimed at remedying the injury to the domestic industry which may arise due to dumping.
Price Discrimination:
Under competition law, only the price discrimination, which adversely affects competition in markets and thus has negative consumer welfare impact, is prohibited. o Under anti dumping law, every instance of price discrimination is prohibited.
Predatory Pricing:
Under competition law 'predatory pricing' is understood as a deliberate strategy, adopted by a dominant firm, with an intent to drive competitors out of the market by setting very low prices. o Conditions to be met before imposing a sanction The firm should be in a position of dominance The sale of goods should be at a price below a relevant measure of cost � The firm should do so with the intent to reduce competition or eliminate competitors.
Antidumping law does not specifically address the issue of predatory pricing. Antidumping law is concerned only about the price at which the product alleged to be dumped is sold in the two markets and not directly about the cost of production of the product or intent behind the discrimination.
Criticism of Anti-Dumping Law and its effect on competition [36]
From the economics point of view, there is no reason to support any anti-dumping law, since price differentiation across markets is a perfectly rational and legitimate profit-maximization action.
Domestic price discrimination normally is not penalized.
They do not afford effective assistance to the domestic industry they are intended to protect. o They protect producers at the expense of consumers, which results in higher prices, lower quality products, less consumer choice and a general lowering of the standard of living for the vast majority of people.
Domestic producers can enlist the help of government to prevent foreign competition even when there has been no dumping.
They provide good for the minority i.e. producers at the expense of the greatest number i.e. consumers.
They reduce rather than enhance social cooperation and harmony. o They redistribute income in the wrong direction i.e. from the poor and middle classes to the rich. O Domestic producers can raise their prices with little fear of being underpriced by foreign suppliers.
Thus existence of antidumping law hurts competition both ways, � by forcing exporters to sell at higher prices and by providing the domestic producers the freedom to charge higher prices than what would be otherwise possible.
Shortcomings related to the enforcement of Anti-Dumping Laws
Under current anti-dumping rules, national authorities are allowed to exercise enormous discretion. Since the criteria for determining the export price and the normal value are neither stringent nor specific, the importing country can determine incidents of dumping at will. It can lead to the protection of inefficient domestic industry. A firm is likely to be subject to an anti-dumping investigation if it exports a product at a price lower than the normal value in the home market, regardless of whether there is a predatory intent or not.
Anti-dumping rules allow exporters to avoid antidumping actions if exporters agree to raise their prices. o Such agreements are a means of suspending ongoing anti-dumping cases and can be used to promote anticompetitive behaviour.
Effects on Trade Flow due to imposition of Anti-Dumping duties
A decline in the aggregate annual import of about 7% in the year 1993 from a growth of 17.4% in imports arising due to trade liberalization in 1992. In general, trade from the subject country is restricted when the anti-dumping duties are levied. Right after the case is filed and during the duration of investigation, imports drop by a large amount (91%) from pre-petition level. By the next year after the case has been filed, imports start going up again (rise by 53%). However, they never again regain their pre-petition high.
Anti-dumping investigations have restrictive impact on imports from the subject Countries, other countries benefit by increasing their sales. This diversion of trade from subject to non-subject countries can offset the restrictive effects of anti- dumping. o the necessarily imply that anti-dumping duties have no effect at all on overall import trade. existence of trade diversion does not overall imports fall in response to anti-dumping duties, by a small but considerable amount.
Anti-Dumping Scenario Of China
Anti-dumping export ratio (ADER), defined as economy's share of anti-dumping cases in the world divided by economy's share in world exports,
If ADER>1, then that economy is targeted more than its share in the exports.
China's ADER = 4.
Also the ADERS of Korea, India and South Africa are more than 1.
WHY DOES CHINA TOP THE LIST?
- After 1992, when Foreign Direct Investments (FDI) into China was allowed,
many companies have invested heavily in China � Started exporting from China
rather than from the home country. As the labor and transportation costs in
China were relatively very low Exporting the produce from these firms was seemed
to be economical There were instances of anti-dumping duties on these companies
which seem to have Chinese origin. Reduced cases against other countries as
opposed to increased cases against China.
- Also, China is considered as a non-market economy liberty to the
investigating economy to calculate cost incurred by referring to costs of
some neighboring countries like India where labor, transportation and other
factors determining price of comparatively high a commodity is unfair
calculation of normal prices and the injury calculation in domestic market,
might result in more number of antidumping measures against China.
- In first decade of facing anti-dumping investigations Chinese enterprises have not coordinated well in dealing with anti-dumping cases in an effective manner. This reflects the weakness in the Chinese enterprises in terms of backward corporate governance practice and also the overall weakness of nationwide legal infrastructure. This applies to Indian context in some instances as well. We are not effective in defending the anti-dumping duties being imposed against our domestic exporters, especially with the small and medium size enterprises (SMES) as in the shrimp exporters case.
Conclusion
India's import and export system is governed by the Foreign Trade (Development & Regulation) Act of 1992 and India's Export Import (EXIM) Policy. Imports and exports of all goods are free, except for the items regulated by the EXIM policy or any other law currently in force. Registration with regional licensing authority is a prerequisite for the import and export of goods. The customs will not allow for clearance of goods unless the importer has obtained an Import Export Code (IEC) from the regional authority.
The area in which the imports are almost essential are defence requirements, crude oil, fertilizers, capital goods, industrial inputs like raw materials, components, consumables, spares, etc., import of samples, import of technology, import of drawing and designs, import of services etc.
It is necessary for any developing country to expand exports continuously because export growth ultimately results in creation of jobs, building up of infrastructure, economies of scale and added foreign exchange earnings. Today's world is economic in nature and increased exports give credibility to the standing of the country in overseas market. Exports, therefore, are of importance and are considered a national priority by the Government of India.
References
Webliography
- https://managementstudyguide.com/case-against-export-credit-agencies.htm
- https://www.mondaq.com/india/international-trade-investment/845604/import-and-export-procedures-in-india
- https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf
- https://cleartax.in/g/terms/dumping#:~:text=Dumping%20is%20an%20international%20trade,domestic%20market%20of%20the%20exporter.
- https://www.investopedia.com/terms/a/anti-dumping-duty.asp
- https://www.researchgate.net/publication/233143525_Trade_Effects_of_Anti-dumping_in_India_Who_Benefits
- https://www.slideshare.net/domsr/antidumping
- https://www.drishtiias.com/important-institutions/drishti-specials-important-institutions-national-institutions/competition-commission-of-india
- https://www.lawnn.com/top-20-landmark-judgements-competition-law/
- https://managementstudyguide.com/case-against-export-credit-agencies.htm
- https://www.drishtiias.com/important-institutions/drishti-specials-important-institutions-national-institutions/competition-commission-of-india
- https://www.lawnn.com/top-20-landmark-judgements-competition-law/
- https://www.slideshare.net/domsr/antidumping
- https://www.investopedia.com/terms/a/anti-dumping-duty.asp
- https://www.researchgate.net/publication/233143525_Trade_Effects_of_Anti-dumping_in_India_Who_Benefits
- https://www.slideshare.net/domsr/antidumping
- https://www.mondaq.com/india/international-trade-investment/845604/import-and-export-procedures-in-india
- https://www.wto.org/english/res_e/booksp_e/gatt_ai_e/art6_e.pdf
- https://cleartax.in/g/terms/dumping#:~:text=Dumping%20is%20an%20international%20trade,domestic%20market%20of%20the%20exporter.
Award Winning Article Is Written By: Mr.Wasif Salim Shaikh
Authentication No: SP124912820855-06-0921
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