CU-MBA-SEM III-International Trade

during initial days because of the effects of many implications on the commodities like improper communication within the manufacturing unit, price elasticity and the source from where these commodities are brought to the manufacturing units etc. Gradually the demand and the standardization of the commodities or the products have increased. When the demand has increased, international markets start producing those commodities at cheap labour cost. In the midst of these scenarios, US companies were forced to create facilities in production in the local markets in order to maintain their integrity in these markets and subsequently the exports were being slow done. These products have become more standard when there was a flourish in the markets of US and other developed nations. Hence the life cycle developments of the products have attained changes. Because of high demand and less labour costs in international markets, the competition in pricing as well as the cost had increased than prevailed. So, the new opportunity to export to the United States arises and the producers in developed nations grabbed this opportunity. It has allowed the undeveloped nations to offer competitive advantage and has become the exporters. It became evident that the more the commodity gets standardized, the chance for its location for the production had more changed. Similarly, the location for the unstandardized commodities lies in phosphorous region. That is why, certain investment types of US firms had existed in Western Europe during the period 1950 to 1970. In many areas these Americans haven’t possessed the advantage in technology and during this period many direct foreign investment were made. 5.2 FOUR STAGES OF PRODUCTION CYCLE Stage 1: Introduction According to local requirements, the new commodities are being introduced and they are initially exported to nations having similar requirements and similar incomes. Stage 2: Growth Similar product has been made in somewhere and been introduced for capturing the growth in local markets. This cause the production in other nations based on cost of production. Stage 3: Maturity The industry has done the necessary contractions and makes the suitable corrections and the producer having the lower cost will win the battle. Stage4: Decline CU IDOL SELF LEARNING MATERIAL (SLM) 51

Underdeveloped nations will produce the declined commodities and hence become the only market for those products. Vernon’s product life cycle model gives the better idea about FDI as well trading. The product life cycle of a product will get a new dimension when time dimension has been added to the existing monopolistic advantage theory and it explains the company’s focus to FDI from the export. Any firm first innovate and start produce at homeland and gradually enjoy monopolistic advantage and in the process start specializing in the field of export. The company starts growing by investing in foreign markets when standardization of products happened during the growth phase and these companies start exporting and thereby try to achieve monopoly. The same patterns may be followed by the rivals in the home country also. Vernon’s theory also explained the fact that over a period of time, the exporter can change to an importer. It causes the low-cost producers to become exporters. 5.2.1 Porter’s Diamond Model Michael Porter’s Diamond Model (also known by Theory of National Competitive Advantage of Industries) is a diamond-shaped framework that focuses while explaining the reasons for certain industries within a particular nation are competitive internationally, whereas others might not. Also explain the reasons for having consistent innovations by some companies in some nations only. The interrelated location advantages have set for the company’s power to compete in international area. Some industries in some countries possess structure and rivalry, Demand conditions, firm strategy and factor conditions. These were argued by Porter The favourable conditions favour the domestic firms in creating opportunity for the innovation and up gradation. It results in accomplishing competitiveness which really promote these firms to compete with foreign and biggest competitors around the world. This article will explain the four main components and include two components that are often included in this model: the role of the Government and Chance. Together they form the national environment in which companies are born and learn how to compete. CU IDOL SELF LEARNING MATERIAL (SLM) 52

Figure 5.1 Porter’s Diamond Model of National Competitive Advantage Firm Strategy, Structure and Rivalry Large companies which operate successfully around the world mainly depend on the way which leads to its creation, about its organized structure and its management. In turn affects their strategic formula. Also, rivalry among the domestic competitors forces the firms to build own strengths and capabilities and make them grow as international competitors. The high intensity of domestic rivalry pushes the firms to think about the innovations and thereby promote themselves to new highs for sustaining the competitive advantage. Finally, these attributes becomes useful for these firms when playing internationally. A very good instance is the automobile industries in Japan having very much intense rivalry among the players like Suzuki, Honda, Nissan, Subaru, Toyota and Mitsubishi. Because of their own fierce domestic competition, they have become able to compete in foreign markets more easily as well. Factor Conditions Factor conditions refer to available capital, natural and human resources in some countries. For instance, Saudi Arabia is much rich in oil which is one such natural resource available there. Because of this huge availability, they become the one of the biggest oil exporters around the world. Factor condition such as human resources represents skilled labour and their scientific knowledge, infrastructure. But according to Porter, the ‘created’ factor conditions are more important than the ‘natural’ factor condition. Also, these ‘created’ factor conditions must be upgraded continuously using developed skills and the creation of new knowledge. Competitive advantage results from the presence of world-class institutions that first create specialized factors and then continually work to upgrade them. Those countries which are good factor creators are successful in industries. CU IDOL SELF LEARNING MATERIAL (SLM) 53

Demand Conditions The home demand largely affects how favourable industries within a certain nation are. For having larger market create more growth opportunity to become a better company even though it has many challenges. Also prevailing of complex demand conditions from the local customers tend the companies grow, improve and innovate well. The striving need for satisfying more demanding domestic markets helps the firms to reach new heights and helps to get insights for the future customers along the borders. Nations thus gain competitive advantage in industries where the local customers give companies a clearer or earlier picture of emerging buyer needs, and where demanding customers’ pressure companies to innovate faster and achieve more sustainable competitive advantages than their foreign rivals. Related and Supporting Industries Focal industries can thrive better because of the strong foundations which obtained from the related and supporting industries present there. In order to create customer base and good competitions, these firms often look for partnership and alliances with other firms. This fact can be traced by looking its net Value. For attaining the efficient innovation and input quality, the supplier’s role are crucial in providing feedbacks and timely communication. When there are global suppliers, the most benefit reaches to the firms preset in the country. For building of very strong supporting and related industries, it usually take many years of extreme hard works and even the investment. This has helped small local companies to become world competitive. However, once these factors are in place, the entire region or nation can often benefit from its presence. We can for example see this in Silicon Valley, where all kinds of tech-giants and tech- start-ups are clustered for sharing ideas and stimulate innovation. Government The role of the government in Porter’s Diamond Model is described as both ‘a catalyst and challenger‘. Porter doesn’t believe in a free market where the government leaves everything in the economy up to ‘the invisible hand’. However, Porter doesn’t see the government as an essential helper and supporter of industries either. Governments cannot create competitive industries; only companies can do that. his can be done by stimulating early demand for advanced products (demand factors); The government can thus assist the development of the four aforementioned factors in the way that should benefit the industries in a certain country. Chance Porter has seldom used ‘Chance’ or luck in his works. But its role has been included in Diamond model as external events like natural disaster, war etc will affect negatively for the industry and thereby for the nation. However, random events of scientific breakthroughs have also been CU IDOL SELF LEARNING MATERIAL (SLM) 54

included. But the individual firms or the governments have least control over these events. For example, the Mexican exporters had a huge negative impact because of security tightened after the US terrorist attacks on September 11. The discontinuities created by chance may lead to advantages for some and disadvantages for other companies. Some firms may gain competitive positions, while others may lose. While these factors cannot be changed, they should at least be monitored so you can make decisions as necessary to adapt to changing market conditions. Figure 5.2 Porter’s Diamond Model Factors 5.2.2 Factor Proportions Theory Almost after a century and a quarter of the classical version of the international trade theory, Swedish economists named by Eli Heckscher, Bertil Ohlin, propounded a theory which is termed as factor endowment theory or factor proportions theory. But it was Mr.Eli Heckscher (1919) who mooted the notion of any nation’s comparative advantage or disadvantage which is based upon the relative abundance of production factors. Afterwards his student, Bertil Ohlin in 1933 has developed this notion into a theory of the international trade pattern. Factor proportions theory of foreign trade explains that in a framework of two-country, two- commodity and two-factor different nations are endowed with many varying proportions of many several production factors. Some nations have very large number of populations and huge labour resources. Thus, a nation having a huge labour will produce the commodities at lower labour cost using intensive production mode. Also, nations having a very large capital supply would specialize in commodities which involve capital intensive production mode. The former would try to export labour intensive commodities to the latter and will import capital intensive commodities from latter. After trading, both nations would have two different varieties of commodities at least cost (Ohlin, 1933). CU IDOL SELF LEARNING MATERIAL (SLM) 55

It means this theory holds true whether a nation having abundance in capital has very distinct choice for the labour-intensive commodities. If this is wrong one, the theory would not stay true. Also, the theory does not hold true if labour more abundant economy is technologically advanced in capital intensive commodities or vice versa. Samuelson (1948, 1949) has introduced refinements to factor proportions theory by considering the effect of trade upon national welfare and the prices of the factors of production. He stated that the effect of the free trade among nations would be to increase the overall welfare by equating not only the prices of goods exchanged but also the prices of factors of production involved in the production of those goods in different countries. For instance, the cost of capital in USA, which is a capital abundant economy, will be much lower than in India which is a labour surplus economy. But in US, the capital-intensive products are produced very high in quantities once the trade has been established between two nations. Hence the cost of capital will be high in the United States and the existing differential in this context between any two nations will be low. Similarly, much increase in labour intensive commodities is there in our country. There is an increase in wage level in our country and as a result the wage differential is also increasing and which in turn reflects decrease in wage differential between two nations. Leontief (1954) put this theory to empirical testing and found in case of US trade during 1950s the country was exporting less capital-intensive goods even when it had an abundance of capital compared to labour. Had the factor proportions theory been true, the USA would have exported more capital-intensive goods. This is really a paradox, generally known as the Leontief Paradox. However, Leontief himself re-examined this issue and found that the paradox disappeared if the natural resource industries were excluded. Moreover, he found that the USA exported more labour-intensive goods because the productivity of labour in this country was higher than in many labour abundant countries. According to him, it should be noted that the number of unskilled labours in each country will be different even if these nations belong to labour abundant economy. A nation having a large force of skilled labour will produce the identical labour-intensive commodity in capital intensive way and are exported that commodities to labour-abundant countries in which skilled labour is not used for working of same commodity. So, factor endowments are not only homogeneous ones but also differ in parameters other than relative abundance. Leontief’s views were supported later supported by other studies. It was revealed that improvement in the technology has been involved in the US export rather than labour intensive commodities by the works. These things were addressed in the works of Hufbauer in 1966, Gruber Mehta and Vernon in 1967. After the study of Leontief, Mr.Tatemoto and Mr.Ichimura in 1959 has found that for the case of US-Japan trading, Japan has been exported the labour-intensive commodities to the United States and also has imported capital intensive commodities from Japan. In the same way, Mr.Bharadwaj CU IDOL SELF LEARNING MATERIAL (SLM) 56

in 1962 has found out that for the case of Indo-US trading, India has mainly imported the capital- intensive commodities from the United States and has exported the labour-intensive commodities to the US in 1951. These two empirical tests which mentioned here had supported Heckscher- Ohlin theory of International trade. 5.3 SUMMARY  The International Product Life Cycle Theory explains the cycle that products go through when exposed to an international market. The cycle mention about how well a product matures and declines due to internationalization.  In the brand-new phase for the product, the merchandise has made and taken within the United States; no export has taken place within the maturing product phase, mass- manufacture techniques have been created, and foreign requirement expands. The U.S.A. currently exports the merchandise to alternative developed countries within the standardized product phase, production moves to emerging countries that then export the merchandise to developed countries.  This model provides comparative benefit which is dynamic one. The country which has comparative benefit “within the merchandise production may shifts from innovating or developed country to the well emerging countries”.  The American professor in strategy Michael Porter has developed economic diamond model for small-sized businesses helped them to understand the competitive position in world markets. This Porter Diamond Model, also termed as Porter Diamond theory of National Advantage or Porters double diamond model  The Porter Diamond model explains the factors that can drive advantage competitively for one national market or economy over another.  Porter’s Diamond Model of National Advantage explains the reasons for some industries in some of the nations are much developed and competitive when compared with the industries elsewhere.  The Diamond Model could therefore be used when analysing foreign markets for potential entry or when making FDI decisions  Factor Proportions theory about the international trade has explained that in a framework consists of two-country, two commodity and two-factor, many nations are endowed with varying proportions consist of different production factors. 5.4 KEYWORDS Foreign Direct Investment: A FDI is an investment done by a firm or individual in one country into business interests located in another country. Usually when any investor performs overseas business operation or whenever he owned any foreign assets in an overseas firm, FDI happens. CU IDOL SELF LEARNING MATERIAL (SLM) 57

Demand Conditions: Demand conditions refer to the nature and size of the domestic demand for an industry's products and services. Here, the main characteristics are the strength and sophistication of domestic customer demand Factor Conditions: Physical resources, knowledge resources, human resources, infrastructure and capital resources collectively form the various factor conditions. Firm Strategy: is a plan which helps to achieve goals in comprehensively manner to face these conditions. Strategy underlines the concept of achieving long term success for a company. Commodities: A commodity is defined as an elementary good which is used in trading for the exchange of similar goods. Examples of commodities are beef, grains, oil, gold and natural gas. 5.5 LEARNING ACTIVITY 1. Use Porter’s Diamond model to analyse Germany’s luxury high power car manufacturing industry, for brands such as Audi and explain a regional advantage. ……………………………………………………………………………………………….. ……………………………………………………………………………………………….. 2. Identify regional advantage for in manufacturing on Automobiles by Indian Brands. ……………………………………………………………………………………………….. ………………………………………………………………………………………………… 5.6 UNIT END QUESTIONS A. Descriptive Short Questions 1. Explain Michael Porter’s diamond model? 2. Explain product life cycle theory. 3. Discuss four stages of production cycle. 4. Explain demand conditions in Porter’s diamond model. 5. Discuss Factor Proportions theory of international trade. Long Questions 1. Discuss Porter’s five forces model applying to manufacturing company. 2. Discuss additional theories which developed Porter’s idea. 3. Discuss the contributions of Porter's Five Forces model in assessing the attractiveness the industry in which Apple Inc. currently operates. CU IDOL SELF LEARNING MATERIAL (SLM) 58

4. Explain Factor Proportions theory using an example. 5. Explain two-country, two-factor and two-commodity framework. B. Multiple Choice Questions 1. Factor conditions in some country refers____________. a) Natural b) Capital c) Human resources d) All of these 2. Stages of production cycle are _______________. a) Introduction b) Growth c) Maturity d) All of these 3. Michael Porter’s Diamond Model is a _________ framework. a) Diamond-shaped b) Square Shaped c) Oval-Shaped d) None of these 4. Vernon’s international product life cycle theory of 1996 was based on experiences of the ________market. a) U.S. b) UK c) China d) Russia 5. A larger market means ____. a) More challenges b) Less challenges c) No Challenges d) None of these Answers: 1-(d), 2-(d), 3-(a), 4-(a), 5-(a) CU IDOL SELF LEARNING MATERIAL (SLM) 59

5.7 REFERENCES Textbooks  Dixit, Avinash and Victor Norman 1980: Theory of International Trade. Cambridge: Cambridge University Press.  Porter, M.E. (1990). The Competitive Advantage of Nations. Harvard Business Review. Reference Books  Grant, R.M. (1991). Porter’s Competitive Advantage of Nations: An Assessment. Strategic Management Journal.  Smit, A.J. (2010). The Competitive Advantage of Nations: Is Porter’s Diamond Framework A New Theory That Explains the International Competitiveness of Countries? Southern African Business Review.  Harvard Business Review: https://hbr.org/1990/03/the-competitive-advantage-of-nations Websites  https://www.preservearticles.com/  https://imanagerpublications.com/  https://www.termpaperwarehouse. CU IDOL SELF LEARNING MATERIAL (SLM) 60

UNIT 6: TRADE POLICY STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Exim Policy 6.3 India’s Current Foreign Trade Policy 6.3.1 Objectives & Highlights of Foreign Trade policies 6.4 Summary 6.5 Keyword 6.6 Learning activity 6.7 Unit End Questions 6.8 References 6.0 LEARNING OBJECTIVES After studying this unit, student will be able to:  Explain different trade policies in India.  Explain EXIM policy.  Describe the present Indian global trade policy.  Explain objectives and important points of overseas trade. 6.1 INTRODUCTION Trade policy refers to the regulations and agreements that control the exporting and importing to foreign countries. Complete knowledge on International agreements of trade include CAFTA, NAFTA, and the Middle Eastern Trade Initiative, including farm subsidies, regulations, and tariffs. More emphasis is on the learning about the trade agreements which include CAFTA, NAFTA and most of the Middle Eastern Trade Initiatives, the protocols, tariffs and the farm subsidies. Usually, the general trade policies aims and focuses on how to reduce protection and achieve more outward oriented trade management, improved market access for exporting, and superior global integration, which is focused on how to increase the economic competence, competition and also lead growth in export. CU IDOL SELF LEARNING MATERIAL (SLM) 61

The main intention of the prospective trading is to make India more competitive in the International trade arena. India has become the main manufacturing base for all the International market exports. The goal here is very clear and we are likely to attract more foreign investment to the country while creating more jobs for the Indians themselves. Indian consumers can buy products at the best and most reasonable price only if our country controls the supplies. All of this is intended to promote productivity growth so that Indian farmers and the majority of the population can achieve the best value because of what they generate and produce. Both domestic and International investments are dependent on the trade policies and the market sizes for the production of firms. The effect of trade policies on the investment environment is rapidly growing with time. As the technology changes, so is the liberalization of the host nations policies towards the trade and investment sectors and the constant growth of a business organization of International manufacture chains within multinational enterprises (MNEs). They have the same trade policies in host and home which is a very important decision to encourage International and national investment and in course in increase the contribution of that investment towards development of the organization. Trade policy defines standards, goals, guidelines that pertain to trade relations between countries. These policies are specific to each country and are formulated by its public officials. Their aim is to boost the nation’s international trade. A host country’s policy on trade includes trade taxes, inspection regulations, quotas and tariffs. As open market economy prevails in most developed countries, international economic organizations support free trade policies while developing nations prefer partially-shielded trade practices to protect their local industries. Globalization today mainly depends on the sound trade policies to mirror the market changes, and to establish trade practices to be fair and free and also expand the opportunities for booming and thriving international trade. 6.2 EXIM POLICY The measures for promoting export depends on the extent of regulations or liberalization of global trade according to the Export-Import Policy (EXIM Policy). This policy was first declared by the global Trade (Development and Regulation Act), on 31st March 1992. Every year a policy is announced even though we have the EXIM Policy for a timeframe of 5 years. CU IDOL SELF LEARNING MATERIAL (SLM) 62

In the year 1992, the EXIM policy announced an important feature that is freedom. In also substantially eliminated licensing, measurable restrictions and all other regulatory and optional controls. Every five years, the Union Commerce Ministry under the Indian Government announces a comprehensive integrated policy called the Foreign Trade Policy (FTP). This can also term as EXIM policy. Changes and new schemes are renewed every year in this EXIM policy. April 1 is declared as the first day of year financially, so it marks the new beginning of new schemes. The Foreign Trade Policy (FTP) in the year 2009, on the 28th of August announced an integrated comprehensive policy between the year 2009 and 2014. The trade of exporting and importing in any country is depended upon the Export Import (EXIM) Policy which sets the guidelines for that country. This policy offers strategy to the government and it needs to follow that to encourage National and International exports and regulations. By the changing International and National environment every year the policy is intermittently changed. The policy ensures that the goal of government towards the numerous types of export trade and import trade is carried to the various exporters and importers. EXIM Policy of India Foreign Trade Development and Regulation Act, 1992 regulates the foreign trade policy (FTP) which is called as the EXIM (export-import) policy. DGFT (Directorate General of Foreign Trade) is the most important governing body for all concerning matters of the EXIM policy. EXIM policy is a significant topic that is included under the Economic Globalization in ESI regular paper of the RBI Grade B Mains exam that includes all the important study essentials that the candidate must prepare for the EXIM Policy. Aim of the Foreign Trade Development and Regulation Act, 1992 We are aware of the fact that the EXIM policy is regulated by the Foreign Trade Development and Regulation Act, 1992. The important aim of this ACT is to offer development and regulation of foreign trade or International trade by assisting imports into and expanding exports from our country. The imports and Exports (Control) Act 1947 was replaced by the Foreign Trade Act. Goals of EXIM Policy of India  For achieving 1% of global trade India promoted regular growth in merchandise exports.  Capital goods, intermediate products, raw materials, installations, consumables and elements that are necessary for incorporating services and increasing production are used to reassure stable economic growth. CU IDOL SELF LEARNING MATERIAL (SLM) 63

 To progress in the technological strength and productivity of agriculture in India, businesses, and services, enhanced competition and power which in turn created fresh employment and regulated the success of internationally acknowledged norms of excellence.  To stream consumers with acceptable and excellent conditions of services and goods at international competitive rates, we started to generate a new level of range for the production domestically. India’s EXIM Bank: Functions and Management For providing financial support to traders and to be the main financial foundation and for working together with the processes of the organizations, the Exim Bank on 1st of January 1982 established global finance branch of the IDBI (Industrial Development Bank of India). The Central Government sanctioned a wealth Rs. 200 crores from the Exim Bank which had a paid-up asset for Rs. 100 crores. Management and Organization A board having of a Chairman, the Managing Director (MD) along with 17 Directors from important and distinct areas administer the export and import bank. They are the Secretary to Banking, Commerce Secretary, Secretary to the Department of Industrial Board, Secretary IDBI, Finance Secretary, Secretary ECGC, Secretary RBI, and three main executives representing surplus scheduled commercial banks, four main Directors who are selected from the various export societies, and three directors for representing ministries and departments. Exim Bank: Functions The Exim bank accomplishes the following critical tasks:  The funds of medium-term credit from the bank gives immediate financial aid to International exporters of the plant or firm, equipment, and also corresponding services.  Any organization that is involved in International exports the EXIM bank provides bonds, stocks, debentures and shares.  The bank lays further rediscount to the International export bills for a period up to than 90 days in contradiction of a small period usage of the export invoices denigrated by banks.  Foreign buyers are given an extra credit to all their overseas importers for importing any industrial products from our country and all services.  Creating and funding export-oriented enterprises. CU IDOL SELF LEARNING MATERIAL (SLM) 64

 To gather and accumulate the credit and market important details about International trade. These are crucial ideas in the EXIM policy that one should go through in the RBI Grade B Phase-2 exams. After the lockdown was over due to the pandemic, there was an announcement of examinations in October or November, and RBI would release the notifications with a related timelines. 6.3 INDIA’S FOREIGN TRADE POLICY CURRENTLY As an important directive of the Department of Commerce India became an important player in global trade and undertook the role of leadership in global trade organizations which commensurate with growing India’s status. The Department also created commodity and country-specific plans for the medium term, tactical plan and vision for India’s future Foreign Trade Policy. Framing of strategy and policy to promote trade is what India’s Foreign Trade Policy (FTP) provides which is revised and reviewed periodically to the ever changing international and domestic markets. The Department takes care and is accountable for all multilateral and all bilateral commercial relations, all special economic zones (SEZs), state trading, complete export promotion, all trade facilitation, and complete development and regulation of definite export-oriented industries/ firms and commodities. The Foreign Trade Policy (2015-20) emphasizes on improving India’s market share in the current markets and products and also explores to brand new products and new markets. Helping exporters in the Indian Foreign Trade Policy foresees leverage profits of GST, very close monitoring of export presentations, successful improving and easiness of trading across borders, increasing steadily realization from India’s very own agriculture-based exports and promoting exports from MSMEs and labour-intensive segments. By making the states active partners in exports was the main job for the DOC. Presently, the State governments are vigorously developing the export strategies based on the assets of their segments. Critical constraints within our country including infrastructure blocks, huge transaction costs, and export procedures, limitations in manufacturing and insufficient diversification in India’s services exports were some of challenges the external situation had to face during the success of the export policies. India is a significant participant to the Trade Facilitation Agreement (TFA) at the WTO, which contributes to the explanation and lowering of transaction operation costs. CU IDOL SELF LEARNING MATERIAL (SLM) 65

With consideration to the present WTO rules which includes those under negotiation in India, want to ultimately remove subsidies gradually or grants and proceed forward to an essential systemic procedure. According to the agreement or contracts on Subsidies, our country has moved from Annex VII countries of WTO on opening the US$ 1,000 per capita income standard benchmark for 3 successive years in 2015. The Commerce & Industry Minister named Shri. Piyush Goyal has ensured that India will need to change and grow from being dependent on all subsidies, “I do not think that any programme or ambitious scheme can run only on subsidies and government help. We have to move out of this continuous effort and demand and make our industry truly competitive and self-reliant.” The Indian government is focusing on endorsing exports of high value-added goods. India with its strong national manufacturing base includes various engineering products, electronic products, medical drugs and pharma products, textile industry and agriculture sector. AYUSH and our country’s services sector is comparatively different here. Only around 70% of products that are exported in India create products that have just 30% share in trade sector. The Indian government is always on the lookout for product groups like defence equipment, medical devices units, ago-processing units, technical textiles units and chemicals. In the year 2018, the Commerce & Industry Minister named Shri. Suresh Prabhu envisioned a strategy or plan to double India’s international exports by the year 2025. This strategy included developing a commodity-specific plan for important sectors like various jewellery industries, leather industry, textile units & apparel, engineering sectors, electronics, chemicals and petrochemicals, pharmaceutical, agricultural and allied products and many marine products. This was planned according to the specific Territory strategy that covered North American Free Trade Agreement (NAFTA), entire Europe, North East Asia, South Asia, ASEAN, Latin America, WANA and Africa, New Zealand, Australia and CIS. 6.3.1 Objectives & Highlights of Foreign Trade Policies The main objectives of the Foreign Trade Policy in India include:  Trade that enables steady economic growth and country wise development. The main focus is not foreign exchange, but also encouraging greater economic movements. India’s foreign trade policy is on the basis of the on the following: i. To enable boosting in Indian economy by extensive growth in International exports from India and also import to India. ii. To double the proportion of the share in International produce trade conducted in the next five years.  To steadily recover the balance of financial payments and trade. CU IDOL SELF LEARNING MATERIAL (SLM) 66

 To act as an operational partner in the economic growth by creating employment opportunities for the citizens of India thereby if there is large expansion of trade activities then there is demand for work force.  To afford for supportable growth which in a way gives access to essential commodities for production and other important components, consumables, and capital goods which are required for growing the production and increasing efficient services.  To raise the technological capacity for production and cost effectiveness of the market and its services. This improves the competitive strength when compared to other nations, and also encourages the success of globally accepted product which have high standards of quality.  To offer buyers or clients high-quality goods and efficient services at International competitive rates and quality. ‘Canalization’ which is an important section of Foreign Trade Policy specifies that any class of products can only be imported from other countries only by the chosen agencies.  Creating opportunities thereby engaging in decent and ethical practices.  By accelerating the country’s economy from low-level economic activities to reasonable high-level economic actions by making it internationally oriented and with vibrant economy.  To accomplish the maximum profits by growing in the International market and also seize the best prospects that come along.  Make policies that are business and e-governance friendly.  To make trade transactions hassle-free.  Reducing the number of export documents required between the exporters and the directorate general of foreign trade.  To permit the importing of equipment and technology in order to maintain the best global standards and to reduce the production cost.  Creating an ease and an advanced licensing system which is issued by the directorate general of foreign trade. this system allows duty-free imported materials and integrated exporting of the goods, thereby making a normal alliance for wastage of materials.  To permit particular imported goods as per the open general license. This is an export license for domestic suppliers issued by the Government. 6.4 SUMMARY  Trade policy controls the importing and exporting to global markets by agreements and regulations.  Exim Policy is a set of instructions and guidelines that must be followed and are related to the import and export of different types of goods. The Exim Policy is notified by the Indian CU IDOL SELF LEARNING MATERIAL (SLM) 67

Government every five years from 1997 under Section 5 of the Development and Regulation Act of Foreign Trade 1992.  To facilitate uninterrupted growth, the EXIM policy was introduced by our government. This gave access to intermediates, important raw materials, consumables, components and capital products scheme that are compulsory for expanding the produce and provide services.  These foreign trade policies are intended to accelerate the growth for exporting goods from India and also restrict imports. They take care of the import quotas, tariffs, and export subsidies too.  Reduction of tariffs and miscellaneous trade barriers and removing discrimination and for ease of trading goods was the main aim of the GATT 1994.  The international treaty was signed between the Agreement on Agriculture (AoA) and the World Trade Organization. This came into play during the Uruguay Round of the General Agreement, which is based on Tariffs and Trade, and came into force with the foundation of the WTO on January 1, 1995.  Sanitary and phytosanitary (SPS) processes are quarantine and biosecurity processes which are aimed to apply for the protection of the human life, animal life or plants life and helps health from hazards that could arise from the introduction, formation and massive spread of pests and dangerous diseases and from all risks that could arise from various additives, dangerous toxins and contaminants found in foods and feeds.  The Technical Barriers to Trade (TBT) Agreement focuses and makes sure the procedure is non-discriminatory through technical regulations, standards, and conformity assessment to check unnecessary barriers in trade.  The Agreement on Trade-Related Investment Measures (TRIMS) distinguishes between investment procedures that can restrict and distort certain trade. It states that any WTO members can apply for any amount that distinguishes against global imported products or that leads to measurable restrictions, both violating the basic WTO principles.  The dispute settlement system offers an excellent mechanism by which WTO Members have their rights enforced. 6.5 KEYWORDS Foreign Direct Investment: A foreign direct investment (FDI) is an investment created for individuals and firms of a one country that involve with commercial business interests situated in another nation. The FDI comes into action when a certain investor establishes global business operations or acquires foreign commercial business assets in a foreign company. CU IDOL SELF LEARNING MATERIAL (SLM) 68

Demand Conditions: Demand conditions refer to the quality and scope of the domestic demand for an industry's products and services. Here, the main characteristics are the strength and sophistication of domestic customer demand. Factor Conditions: Factor conditions are human resources, physical resources, knowledge resources, capital funds and infrastructure. Firm Strategy: is a comprehensive plan to accomplish its goals in the face of certain conditions. Strategy defines how a firm will achieve long-term success. Commodities: A commodity is a basic product used in commerce that is interchangeable with other goods of the same type. Traditional specimens of commodities may include grains, beef, gold, natural gas and oil. 6.6 LEARNING ACTIVITY Make a chart of highest exporting categories in India. 1. Who is the key trading partner of India’s Foreign Trade? …………………………………………………………………………………………. …………………………………………………………………………………………. 2. What is India’s part in world import? ………………………………………………………………………………………… ………………………………………………………………………………………… 6.7 UNIT END QUESTIONS A. Descriptive Short Questions 1. Explain trade policy and its features. 2. Explain importance of the India’s EXIM Policy. 3. Discuss is EXIM Policy of India. 4. Explain objectives of foreign trade. 5. Explain the regulation ACT and the foreign trade development. Long Questions 1. Explain key features of India’s current Foreign Trade Policy. 2. Explain role of Exim Bank in areas of export and import. Identify the main features of the EXIM Policy? CU IDOL SELF LEARNING MATERIAL (SLM) 69

3. Explain the Functions or purpose of Exim Bank. 4. Explain key features of Foreign Trade Policy (2015-20). B. Multiple Choice Questions 1. Every _____year the Indian government announces the incorporated Foreign Trade Policy FTP. a) Five year b) Two year c) Three Year d) None of these 2. India is a participant to the ________at the WTO. a) Trade Facilitation Agreement b) Trade Force Agreement c) Trade Agreement d) None of the these 3. Foreign Trade policy improve the_________. a) Balance of payment b) Balance of currency c) Payment d) None of these 4. EXIM (export-import) policy is regulated by the ___________. a) Foreign Trade Development and Regulation Act, 1992 b) Foreign Trade Act, 1994 c) Foreign Trade Development Act, 1995 d) None of these 5. India’s __________provides the basic framework of policy and strategy for promoting exports and trade. a) Foreign Trade Policy b) Foreign Trust Policy c) Foreign Transaction Policy d) None of the these Answers: 1-(a), 2-(a), 3-(a), 4-(a), 5-(a) 6.8 REFERENCES Textbooks CU IDOL SELF LEARNING MATERIAL (SLM) 70

 Agarwal, Manmohan, The Role of the External Sector in India's Development Strategy: Implications for MTN, in John Whalley Ed. Developing Countries and the Global Trading System, vol. 2 Macmillan. Reference Books  External Sector of India, Economic Survey (Various Issues), Government of India.  GOI. 2004-05. Economic Survey, Government of India, Ministry of Finance, New Delhi.  GOI. 2002. Medium Term Export Strategy 2002-07, Government of India, Ministry of Commerce and Industry Department of Commerce, New Delhi.  GOI. 2004. Foreign Trade Policy 2004-09, Government of India, Ministry of Commerce and Industry, Department of Commerce, New Delhi.  Centre for Monitoring Indian Economy (CMIE). 2005. Foreign Trade and Balance of Payments, July, Bombay.  Kaukab, R., ‘Inclusiveness of trade policy-making: Challenges and possible responses for better stakeholder participation’, Commonwealth Trade Hot Topics, Issue 70, February 2010. Websites  https://howtoexportimport.com/  https://www.learninsta.com/  https://brokers-finder.com/ CU IDOL SELF LEARNING MATERIAL (SLM) 71

UNIT 7: INTERNATIONAL TRADE PRICING DECISIONS STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Barriers to Trade 7.2.1 Tariff and Non-tariff Barriers 7.3 Subsidies 7.4 Summary 7.5 Keywords 7.6 Learning Activity 7.7 Unit End Questions 7.8 References 7.0 LEARNING OBJECTIVES After studying this unit, student will be able to:  Explain Trade barriers and its importance.  Differentiate between Tariff barriers and the Non-Tariff Barriers.  Explain Subsidies. 7.1 INTRODUCTION Trade barriers can be defined as actions by government to accelerate the net exporting and thereby restricting certain imports of services or products, increasing national production, domestic revenue and providing employment. They can be extremely beneficial to national business firms by giving them a heads-up in their International import competition, however there is some harm to domestic or national customers. While local business firms enjoys greater sales, less competition or rivalry, and greater revenues the domestic business consumers may have experienced higher prices domestically as there is a restriction of imported products. The main barriers of trade in the current scenario are Tariffs, non-tariff and import quotas. CU IDOL SELF LEARNING MATERIAL (SLM) 72

The meaning of Tariffs is when taxes are added on products that are imported. To reduce the demand in the product locally the tariff is added to the price of the product. Tariffs can be useful in many ways. They allow local or domestic products to be demand and also increase the state revenue. Tariffs are levied on local products if they persuade the government policy makers to pay off for International producers who have an unfair gain of competitive with low global wages, dumping practices, or extremely low cost of production. This is done to limit general importing of goods that gives domestic manufacturers a lot of benefit from this kind of trade barrier and it gives additional revenues to the government. We will now find out why we need to apply trade barriers if both countries benefit by this international trade. The main aim of trade barriers are for: Infant Industries: As the name suggests infant industries is when trade barriers and certain restrictions are imposed to protect the young and immature industries which are not large enough to compete with International products and markets. This is when the government intervenes and helps such infant industries that are unable to grow big enough and gives them an opportunity to establish their own brand and to develop a healthy economic atmosphere. They are safe guarded from International competition while they are still in the growing phase. Domestic Employment: The main advantage is to add trade barriers to provide local employment. By imposing trade barriers on the imported products, the governments aims to protect the domestically produced products or relevant services. As the demand increases for domestic products so is the increase in production and local employment. Unfair Trade: Many times, International products are subsided by their government and are sold below their actual price to meet the local market. This results in dumping of the global products and this takes over the domestic market and does not let the domestic products to compete. This ensures that there is an increase of global products locally. National Security: These barriers safeguard that the industries and organizations are protected for essential products for the defence of the country and national security. This way we do not have to depend on other nations for our defence and security products. Trade barriers help in preventing global producers from unlawful gain which leads to a competitive gain in the local economy and participation is fair. In case this is used appropriately by the government then it could help in international trade and it can regulate the trade deficit of any country. CU IDOL SELF LEARNING MATERIAL (SLM) 73

7.2 BARRIERS TO TRADE Both organizations and governments run International trade till any of them puts up trade barriers. This avoids companies from selling to another firm in any foreign markets. The main obstacles for International trade are natural barriers, tariff barriers, and non-tariff barriers. These are government induced restrictions on international trade, which generally decrease the overall economic efficiency. Trade barriers are given by the government and this restricts international trade. There are man- made trade barriers that include:  Tariffs  Non-tariff barriers to trade  Import licenses  Export licenses  Import quotas  Subsidies  Local content requirements  Voluntary Export Restraints  Embargo  Currency devaluation  Trade restriction All trade barriers aim to impose some kind of price on trade or business so that it raises the prices of the merchandised products. Usually trade wars begin when two or more countries repeatedly execute trade barriers against one another. Usually, economists feel that these barriers are harmful to the markets and tend to decrease the overall economic competency. This is easily explained by the theory of comparative advantage. In this theory, only barriers for wellbeing or national security are considered and the rest are free to remove these trade barriers. In many countries while endorsing free trade, there is a heavy subsidy in particular industries like steel and agriculture. Economists agree that trade barriers effect the evolving world, as economically rich countries face very high barriers and they set trade policies and products. For example, agricultural goods produced are best by developed countries. Trade barriers like the ones imposed on food importing or subsidies for farmers in advanced developed economies, leads to surplus and clearance on markets, thereby lowering the prices and also hurting the poor-country farmers. These tariffs tend to be usually against the poor with small rates for raw supplies and extraordinary rates for labour demanding goods. The Commitment to Development Index processes the way rich countries use trade policies in the CU IDOL SELF LEARNING MATERIAL (SLM) 74

evolving world. This results in having limited choice of products which would force consumers to pay greater prices and receive inferior quality of products. Given a particular protection level, quota like limitations carry a higher potential for decreasing welfare than doing tariffs. Quotas, Tariffs, and non-tariff barriers are the main causes for the economy’s resources that are used to yield tradable products or goods. Domestic producers are given export subsidy, so they have an advantage over a global producer. These export subsidies usually tend to have certain negative effect because of the addition in distorting supply allocation, and they practically reduce the terms of the trade. When we compare tariffs with export subsidies the latter leads to an extensive allocation of the resources of the economy to the produce of tradable products and goods. Natural Barriers Cultural and physical are the two aspects of Natural barriers to trade. As an example, the cost is less when we produce cotton in India than to grow cotton in Atlanta. The shipping cost of the cotton from India to Atlanta might increase the cost extensively. Here in this example, the distance is one of the natural barriers to international trading. Another barrier is the Language. When people who cannot speak the language properly then they will not be good at negotiating trade agreements too or they even mess up the shipping of the products. Ethical Barriers Countries face challenges with ethical trading and organizational practices in spite of having International trade laws and trade declarations. Global trade can be defined as the interchange of services and goods across countrywide borders. In many countries, this is represented as an important part of gross domestic product (GDP). Because of the growth of industrialization, globalization, and innovations in technological departments the significance of international trade has increased along with the economic, political and social, effects on the various countries that are involved. Ethically practices in the International environment is called as the UN Global Compact and this has been instituted to help mutual collaboration with benefits between governments, industries, and also public institutions. How much ever the countries try, they still face challenges with the ethical trading and commercial business practices, with regard to economic financial inequalities and violations of the human rights. CU IDOL SELF LEARNING MATERIAL (SLM) 75

Arguments against International Trade The main job of the capital markets is to raise and invest money in different ventures. There is always an argument that says that by the increased integration of the monetary markets between nations, it leads to a reliable and a break free trade practices. While others feel capital flows usually favour the owners of capital funding. Similarly, worker and owners of a specific sector in capitol exporting countries bear the load of regulating to increased drive of capital exporting. The trade and industry strains and hardships that usually result from such conditions leads to political partitions and a question arises whether we need to inspire or rise integration of the global trade markets. Critics debate that as the income discrepancies between the poor and the rich are intensified, then industrialized countries grow in power at the cost of undercapitalized nations. Anti-Globalization Movements This can be defined as the International movement for activists that is very important for the globalization of entrepreneurship. The activists of this Anti-globalization are mostly serious about the unfair nature of capitalist globalization and the raise of neoliberalism by worldwide institutions such as the International Monetary Fund (IMF) and the World Bank. The main targets of the anti- corporate and the anti-globalization movements are the Organization for Economic Co-operation and Development (OECD), WTO, Free Trade Area of the Americas (FTAA), Free trade treaties like the North American Free Trade Agreement (NAFTA), the Multilateral Agreement on Investment (MAI), and the General Agreement on Trade in Services (GATS). Such meetings usually witness with tough protests, as protestors attempt to draw attention to the overwhelming effects of global capital in local conditions. The city of Seattle, Washington witnessed around fifty thousand individuals assembled to protest the WTO gatherings on the 30th of November 1999. Economic, Labour and environmental activists were successful in closing and disrupting the meetings as they did not agree and approve corporate globalization. This incident symbolized the increased debating and the growing war between the ethical questions on global trade, capitalization and globalization. Cultural Barriers Cultural barriers make doing commercial business in an overseas country very difficult than in our home country. Culture and Global Business When a company is either physically investing in or is interested in product growth, it faces a lot of difficulty to do commercial business in an alien country than in the home country. Even while expanding one has to have deep understanding of the current market channels and its suppliers, CU IDOL SELF LEARNING MATERIAL (SLM) 76

of consumers various preferences and understand the current buying behaviour and have extensive knowledge of domestic and foreign guidelines and regulations. Because of the cultural and language barriers companies face challenges and institutional modifications among nations. Globalization and improved global trade makes it inevitable that diverse cultures meet, have conflicts, and merge together. Because of cultural differences, people from various cultures are unable to communicate and it is not only owing to language barriers.  Hollon (1989), a Texas based agricultural exporting company found that from a firm’s management viewpoint, the first entry into international export markets was more difficult than handling the ongoing export activities or even when they had considered expansion to new export produce lines or markets. They came up with a chart of 38 items in three different categories i.e., marketing gaps, knowledge gaps, and monetary aspects against three different time horizons ranging from ongoing, start-up, and expansion. The start-up marketing phase items were rated as the most difficult of the three issues. Lack of through knowledge of the evolving markets or absence of information on potentially commercial markets was an important issue.  International market’s initial entry snags and the overseas product promotions and distributions.  Difficulty involving export transaction, includes papers and “red tape.” Market access and transaction difficulty are two items that remains problematic for many companies in the ongoing processes and in the expansion of new product in the market. Export competition and import restrictions becomes difficult in advanced phases of export operations even when the economic problems are persistent in export operations. Tools for Understanding Cultural Deviations in Business Different topographical regions and/ or nationalities represent different characteristics while operating businesses. Often a successful global business leader is the one who ends differences in ethnic predisposition, which is an important building block. There are many researchers from different International business who have developed business models to explain the vital cultural considerations among countries. The best and most used business model is the Geert Hofstede’s Cultural Dimensions Theory, which includes the six cultural nonconformities and how highly relevant they are to managers. The figure represents the Geert Hofstede’s Cultural Dimensions Theory model. CU IDOL SELF LEARNING MATERIAL (SLM) 77

Figure 7.1 Hofstede’s Cultural Dimensions From the figure, we can see that the six dimensions emphasize variances in the perspective in each classification. At any point two countries (or more) are selected for comparison, where we can identify differences in the trade practices based on the cultural barriers. Let us now see each dimension in detail:  PDI rating indicates the strong acceptance of power in a particular culture  UAI signifies the grade of risk-taking at a commonplace where higher rating means lower propensity of risk  IDV (individualism) rating focuses on the individuals as different to the broader section or group  MAS denotes the measure between materialism competitiveness, and fierceness (high rating) when comparing relationships and the quality of life  LTO specifies the strategy planning for longer term goals rather than short term goals  IVR is generally a simple spendthrift habit of an average person in a certain culture (Buying more than you need) Technological Barriers In global trading standards-related trade measures are known as WTO parlance and are an important technical barrier used for trading. Farmers, U.S. companies, ranchers, and all manufactures have to face non- tariff trade barriers like proper product standards, testing requirements, and various technical necessities as they have to meet the International standards of products and services. Since the tariff barriers for CU IDOL SELF LEARNING MATERIAL (SLM) 78

industries and agricultural trades have dropped, standards-related methods have become a key concern. Governments, participants of market, and all entities use these standards-related methods to have an operative and efficient means of getting legitimate commercial trade and policies. When these standards-related methods are ignored then it may reduce competition, suffocate innovation, and also create redundant technical trade barriers to the industry. These standard related methods pose problems to small and medium sized enterprises (SMEs), that often have selective resources and who cannot address problems on their own. When exporting important International trade barriers in the form of product standards, technical guidelines, certification and testing, and other essential procedures are involved to check whether the products adhere to standards and follow technical regulations. These standards-related trade methods which can also be referred in World Trade Organization (WTO) parlance as “technical barriers to trade,” play an important part in giving shape to the International trade. This includes access to the global trade by the SMEs which enable the governments to ensure all businesses pursue legitimate objectives, like protection of human wellbeing and the environment around us and in preventing false practices. Significant barriers that act on the U.S. trade are non-transparent, biased, or otherwise unjustified as all standards- related measures. SMEs usually face issues with such kinds of measures and as they do not have the means or resources to address these issues on their own. Figure 7.2 Members of the World Trade Organization Members of the World Trade Organization Most nations are presently a part of the World Trade Organization. Those that are not focused on Oceania, Northeast Africa, and the Middle East. The European Union is its own alliance within the WTO. CU IDOL SELF LEARNING MATERIAL (SLM) 79

The Argument for Barriers Some claim that the salaries of Americans are low or trending downside because they import from nations with low salaries and that’s why they need trade barriers. It is a fact that trade has definitely created more jobs for overseas workers at the expense of American paid workers. It’s not wrong to say trade creates and destroys employment opportunities in line with market services. Economical trade involves employment opportunities in businesses that have relative advantage and destroys employment opportunities in industries that have a relative disadvantage. During this process as the employment changes so does the economy. So, we do not see net loss of jobs because of trade. U.S. imports has increased 240% over the last economic expansion from the year 1992 to year 2000. Its employment has also increased over that same period by 22 million jobs, and the rate of unemployment fell from 7.5% to 4.0% which is a record in more than 30 years. American firms when they get overseas outsourcing, they create employment, and it destroys jobs for many people and thereby the level of employment is unaltered. With overseas outsourcing the international trade will have some short run hardships but the whole economy’s standard of life is raised and that’s a fact even economists will agree. Economists claim that by easing changes for those who are harmed is financially more fruitful than protecting the net economic advantage of trade to the entire economy. Imports from nations with low wages has put a descending pressure on the salaries of Americans. The International trade has its strong effects whether it is good or bad on the remunerations of American employees. The workers are buyers, so they benefit from the expanded market choices and low prices because of the trade. The last 25 years saw a huge expansion of International trade and the salaries of American workers increased more slowly than the period of post war, and there was a sharp rise in the inequality of remunerations between the skilled and not so skilled workers. A question arose whether trade was the force behind this worsening wage performance for the American workers? There are many industries of importance like the national security that needs to be protected from the variations of such international market services. This can only be achieved by doing it on case-by-case basis as the national security criteria has to be met and it is not the same for all. Therefore, we need to control such exports, which clearly needs to be justified from a nationwide security perspective; however, the cost of loss of export sales and an economic loss to the nation is unavoidable. Decreasing the economic welfare damage from such export controls hinges on identification and regular re-evaluation of the subclass of goods with significant nationwide security potential that needs to be controlled. CU IDOL SELF LEARNING MATERIAL (SLM) 80

The Argument against Barriers Economists agree that trade barriers are harmful and reduce the overall economic competency. Generally, trade barriers operate on the principle where some cost or tax is imposed on the goods that increases the price of the traded products. Trade wars happen when two or more nations repetitively use trade barriers against each other. These trade barriers are criticized for the effects it has on the evolving world. The rich country players decide and set trade policies and goods, so crops that are produced by developing countries are best however they have to face high trade barriers. Trade barriers for example, taxes on food imports or subsidies for local farmers in established economies, leads to surplus and dumping in world markets, thereby reducing the prices and exploiting the poor country farmers. Tariffs are also imposed on the poor only, where low rates are imposed on raw commodities and high rates are imposed for labour demanding processed products. Imposing barriers to International trade enriches the economy and that prevents the country from fully comprehending the economic gains from International trade and reduces welfare of the nation. By protecting import-competing industries with quotas, tariffs and non-tariff barriers, it leads to an over-allocation of the country’s rare resources into the protected sectors and also with under-allocation of resources into the insecure tradable products industries. This simply means that when the trade is more efficient in productive process then reducing the inflow of imports will result in the reduction of the outflow of exports. Thus, we can say less output needs less input. As the exporting sector loses the protected import competing undertakings gain. From the consumers perspective the goods are overpriced and not much choice is given in the market. The overall economy of the consumed imported goods will be lost because of the efficient production process as per the International trade standard that needs to be maintained. Thus, we can understand that the ultimate economic cost of the trade barrier is not only to transfer the well- being to other sectors, but it also results in permanent net loss for the country’s economy. Such barriers distortions are less efficient when the economy’s rare resources are used. The theory of comparative advantage is very well explained by economists who agree that trade barriers are harmful and reduce the overall economic competence of the country. The theory involves removal of all barriers, except the health and the national security barrier which are very crucial to the country. Many countries who promote free trade give heavy subsidize to industries like agriculture and steel. CU IDOL SELF LEARNING MATERIAL (SLM) 81

7.2.1 Tariff and Non-tariff Barriers Tariff Barriers A tariff is a tax imposed by a nation on imported goods. For example, the tax can be just a charge per unit depending on whether we are talking about the barrel of oil or a new vehicle. It can be a percentage of the goods value or charged with other combinations. We must understand that adding taxes or such tariffs makes imported goods expensive and that’s why they cannot compete with the domestic products. These protective tariffs when applied to imported products make them less attractive to consumers than the locally available products. For example, the U.S. applies these protective tariffs on most imported products like textiles, poultry, sugar, types of steel and different clothing options. During the Trump administration in March of 2018, they added tariffs on all steel and aluminium products imported from other countries. Similarly, in Japan domestically produced cigarettes are 60% cheaper than the imported cigarettes imported from the U.S. The U.S. tobacco firms think that if such heavy taxes are not imposed on them, they can have a better stand in the Japanese market. There are many arguments for and against Tariffs. Ever since 1789, Congress has argued about the issue of tariffs. Some important arguments for tariffs include the following:  Tariffs when imposed to infant industries protect them. It also helps infant industries to become effective global competitors.  Tariffs are said to protect U.S. jobs and helps them to keep overseas labour from taking away U.S. jobs.  Tariffs also aids in the military preparedness and they protect industries and technology during the time of peace which is important for the military in the event of war. Some important arguments against tariffs are:  Tariffs discourage free trade which leads to less competition and work is not efficient.  Tariffs when added to products of goods raises its prices thereby reducing the purchase power of the buyer. The United States forced tariffs of 63.86 percent up to 190.71 percent in a particular year on a variety of Chinese steel products, so it can give chance to the U.S. steel manufacturers the fair market. No one understands the effects of these tariffs however, the steel prices are likely to increase which will lead to increased production costs for all heavy users of steel, like the ones in the automobile industries and construction. Similarly, the Chinese government imposes tariffs on most U.S. services and products that effect their intellectual property and piracy. CU IDOL SELF LEARNING MATERIAL (SLM) 82

Wendy Wu, “China Upset at High U.S. Tariffs on Steel Imports,” South China Morning Post, http://www.scmp.com, February 4, 2017. Non-tariff Barriers There are many ways the governments restrict trade. The import quota is one such type of non- tariff barrier where they set limit to the quantity of goods that one can import. This sets a limit on the imports of any given product. For example, the United States protects its diminishing textile industry with such quotas. The U.S. Customs and Border Protection Agency website gives a complete list of the commodities and products that are subjected to import quotas. “Commodities Subject to Import Quotas,” https://www.cbp.gov, accessed June 25, 2017. An embargo is when there is a complete ban against importing or exporting of a product and they are usually set for products pertaining to National security. For example, the United States exports its high-tech products, like their supercomputers and lasers only to allied countries even if it means huge lose in sales. It does want to their enemies to use these latest technology supplied by them in their military hardware. Buy-national regulations means when the government rules give special privileges to their domestic suppliers, manufacturers and local retailers. For example, United States never uses imported steel for any of their constructions like U.S. highways. Most state governments adopt this buy-national rules to encourage suppliers and service providers. The government of any country makes it difficult for imported products to be easily available in markets by making changes to the generally accepted International standards. Exchange controls can be defined as laws that require an export company earning foreign exchange (foreign currency) to sell the same foreign exchange to a control agency which is usually a central bank. For example, a Swedish company called Ikea sells products to Hiles Mart a U.S. chain, for US$700,000. Then, if Sweden had exchange controls, Ikea would have to sell all its U.S. dollars to the Sweden central bank and would receive Swedish Kronas (Currency of Sweden). So, it makes it mandatory to buy foreign exchange (currency) in a way controlling the amount of foreign exchange that is sold to companies and the government can also control the amount of goods that can be imported. This creates a balance in the trade when we are limiting importing and encourage exporting. Non-tariff barriers can be defined as trade barriers that limit or control the import or export of products any other way than using tariffs. The World Trade Organization (WTO) identifies some non-tariff barriers to trade as import licensing, rules of origin, pre-shipment inspections, custom delayers, and other methods that can prevent or restrict import and export trade. CU IDOL SELF LEARNING MATERIAL (SLM) 83

Figure 7.3 Non-Tariff Barriers These non-tariff barriers by developed countries are an effective economic strategy to limit or restrict the level of trade with other countries. When deciding on the non-tariff barriers that can be implemented for global trade, countries consider the availability of goods and import and export services as well as the prevailing political alliances with all other trade associates. Developed countries create non-tariff barriers with a different financial effect instead of adding taxes on import and export of goods. Origin of Non-Tariff Barriers Countries come up with ways to raise money to finance domestic projects and also pay frequent expenditures, so they placed restrictions like tariffs to imports and exports of goods and services. Industrial countries transitioned from regular tariff barriers to non-tariff barriers as they built other funding sources. Many countries use this type of tariff barriers to raise revenues to fund nationwide projects and thereby regulating international trade with one another. Slowly manufacturing sectors in countries switched from tariff to non-tariff barriers for more than one reasons. Regulation of International trade without the presence of tariff barriers was the main reason for the switch and countries stopped paying additional taxes on goods and started to create other significant non-traffic barriers. Another reason for bringing in non-tariff barriers was to support small and industries that were affected by the withdrawal and reduction of tariff barriers. These non-tariff barriers became a way for interest groups to make an impact on trade regulation even with the absence of trade tariffs. Types of Non-Tariff Barriers Non-tariff barriers come in the following forms:  Protectionist Barriers CU IDOL SELF LEARNING MATERIAL (SLM) 84

Protectionist barriers protect particular sectors of local industries at the expense of other countries and make trade difficult for overseas products and services. Some of the barriers can be licensing requirements, allocation of quotas, import deposits, antidumping duties, and so on.  Assistive Policies Assistive policies as the name suggests does not directly restrict trade with other countries, however they protect the domestic companies so that they can impede free trade with other nations. Some examples of assistive barriers are packaging and labelling requirements, custom procedures, technical standards and norms, and all sanitary standards, and so on. All International companies need to meet the requirements before starting the trade of export or import on certain goods. The governments provide subsidies and bailouts to help domestic companies sustain local and global markets.  Non-protectionist Policies Non-protectionist policies protect the health and safety of people and animals and also maintain the environmental balance. They do not restrict the trading process of import or export of goods and services for they restrict free trade. Some examples of non-protectionist policies are packaging, licensing, and labelling requirements, import bans for specific fishing, plant and animal inspections, or harvesting methods, all sanitary rules and so on. Examples of Non-Tariff Barriers  Licenses Based on the list of licensed goods, companies are allowed to import goods and commodities. There are two types of product licenses, general license and a one-time license. The general license is time bound and is for a said period of time where one can import and export goods. The one-time license is when we import and go through customs for a precise product, quality, cost, country from where the product is imported.  Quotas Quotas can be defined as quantitative restrictions imposed on imports and exports for a specific time and for a particular product. They are used when countries use these quotas as a direct forms of governmental regulation of International trade where it trades only certain commodities from certain countries. This way there is a restriction on the goods that can be imported or exported at any particular time.  Embargoes CU IDOL SELF LEARNING MATERIAL (SLM) 85

Embargoes are also legal barriers where total ban is on the importing and exporting of specific commodities and from specific countries legally by government, so they achieve economic and political goals specifically.  Import Deposit Import deposit is also a foreign trade regulation that involves importers to pay the central bank of the country a definite amount of money for a definite period. This is usually equal to the cost of imported goods. 7.3 SUBSIDIES Subsidies are given by government to producers to encourage production and also to who attempt to lower the price of produce and increase the quantity of the produce. (). They are usually given to domestic producers to increase withstand international competition. Figure 7.4 The Market for Rice in Japan Under International Trade The diagram above explains the market for rice in Japan under international trade. When the trade takes place without protectionism, the equilibrium is at the intersection of S world with D at the quantity Q4 and price Pw. At this price, domestic producers supply Q1, and the imports are Q4-Q1. When the Japan government starts subsidizing its producers, the domestic supply curve shifts downwards by the size of the subsidy per unit: (Pw + subsidy – Pw). Domestic production increases Q1 → Q2 and the quantity imported shrinks to Q4-Q2. Effect of the Subsidy on Different Stakeholders  Government: Subsidies are issued by the Japan’s government is seen as a green-marked area. We can see that the taxpayer’s money is used for subsidizing inefficient producers. (This money could be used more efficiently)For IB Economics HL students – Size of the subsidy mathematically: Q2 (quantity produced by domestic producers) * subsidy size CU IDOL SELF LEARNING MATERIAL (SLM) 86

 Consumers: Since there is no change in the price of rice, loss of the consumer surplus does not occur.  Domestic Producers: the price received increases to Pw+subsidy. Their revenue increase from (Area 1 + Area 2) to (Area 1 + Area 2 + green-marked area).  Foreign Producers: there is a decrease in revenue from (Area 2 + Area 3 + Area 4) to (Area 3 + Area 4) as rice imports were minimised.  Deadweight welfare loss: Deadweight Welfare Loss (DWL) marked triangle Area 5 emerges because of the increased production by the inefficient domestic producers the green area marks the size of the subsidy by government and everything in the green area apart from Area 5 goes to producers to increase their revenue. Hence, what is left in the green are goes to no one – that is why Area 5 is said to be a DWL) 7.4 SUMMARY  Trade barriers cause an incomplete choice of products and force customers to pay higher prices and accept inferior quality. Trade barriers favour rich countries as they influence and set the international trade policies and standards.  Economists argue that trade barriers are harmful and reduce the overall economic competency which is explained by the theory of comparative advantage.  Critics feel that when there is an increased International trade and global capital flows the income discrepancies between the rich and poor are worsened, and the powerful industrialized nations grow at the cost of undercapitalized countries.  Anti-globalization groups protest the unethical trading practices of many multinational businesses and capitalist nations who generally target groups like the WTO and IMF.  When the process of globalization and global trade is involved, it is unavoidable that different cultures meet, have conflicts, or even and blend together. People from different cultures have a hard time communicating and this owe to language barriers alone but cultural differences too!  When the firm is in the initial stages of development, it faces a lot of difficulty to do business in a new foreign country than in their home country.  Expansion plans involves in-depth knowledge of the existing market suppliers and channels, about buyer preferences and current purchase trends, and of all domestic and global rules and regulations.  Hofstede’s Cultural Dimensions Theory explains the useful strategic frameworks and tools for evaluating the variance in cultural predisposition.  Market participants, Governments, and other entities use standards -related methods as an effective and efficient means of accomplishing genuine commercial and policy objectives. CU IDOL SELF LEARNING MATERIAL (SLM) 87

 Important overseas trade barriers in the form of technical regulations, product standards, and testing, certification, and additional procedures are involved in defining whether or not products follow all international standards and technical regulations.  Economy-wide international trade creates employment opportunities in industries that have a comparative advantage and destroys employment opportunities in industries that have a comparative disadvantage. Trade barriers protect the domestic industry and jobs of the country.  Employees in the export industries are benefitted by trade. Workers are buyers and they benefit more from the expanded market options and the low prices that trade brings. 7.5 KEYWORDS Deadweight Welfare Loss: Is an amount of the dollar value of consumers surplus lost (but not transferred to producers) as a consequence of a price increase. Gross Domestic Product: Gross domestic product is a financial measure of the marketplace value of the final services and goods manufactured in a definite time period. Voluntary Export Restraints: This can be defined as a government-imposed limit on the amount of goods that can be exported to any specific country in a specific time period. They are also called 'Export Visas'. Embargo: Embargoes are also legal barriers where total ban is on the importing and exporting of specific commodities and from specific countries legally by government, so they achieve economic and political goals specifically. Currency Devaluation: Devaluation is the deliberate downward adjustment of the value of a country's money relative to another currency, group of currencies, or currency standard. 7.6 LEARNING ACTIVITY India is the major importer of gold in the world accounting for 20 per cent of the entire import share in 2013. Due to the massive trade deficit in the year 2012 (190.91 USD), the Indian government introduced a hike in the customs duty to 10 per cent (Average Global Import Duty was about 3.9 per cent). The immediate effect was that import of gold was reduced to 845 tonnes in 2012-13 as against 919 tonnes during 2011-12. This hike in the customs duty helped in decreasing the current account shortfall and it also gave good returns in the customs income, but it also gave raise to some additional problems in the Indian economy. 1. Study the effect of increase in duty hike on jewellery market in India. …………………………………………………………………………………………………. CU IDOL SELF LEARNING MATERIAL (SLM) 88

…………………………………………………………………………………………………. 2. Identify the external factors influencing the price of Gold. …………………………………………………………………………………………………. …………………………………………………………………………………………………. 7.7 UNIT END QUESTIONS A. Descriptive Short Questions 1. Explain Barriers of Trade? 2. Explain Non-protectionist policies. 3. Write short note on Subsidies. 4. Explain effect of Subsidies of different stakeholders. 5. Distinguish between Tariff and Non-Tariff barriers. Long Questions 1. Explain Non-Tariff Barriers with example? 2. Explain types of Non-Tariff Barriers. 3. Explain pitfalls of Tariff imposed on imports. 4. “Protective tariffs make imported products less attractive to buyers than domestic products”. Is this an accurate statement? Explain? 5. Explain benefit of Subsidies with an example? B. Multiple Choice Questions 1. Tariffs are ________ added on imported products’ prices. a) Taxes b) Discount c) Subsidies d) None of these 2. International trade is carried out by __________. a) Businesses b) Governments c) Both a & b d) None of these 3. NAFTA stands for ______________. a) North American Free Trade Agreement b) North American Foreign Trade Agreement CU IDOL SELF LEARNING MATERIAL (SLM) 89

c) North American First Trade Agreement d) North American Fast Trade Agreement 4. Neoliberalism is associated with ______________. a) Free market b) closed Market c) New market d) None of the these 5. IMF stands for _______________. a) International Monetary Fund b) International Money Fund c) International Multi Fund d) International Market Fund Answers: 1-(a), 2-(c), 3-(a), 4-(a), 5-(a) 7.8 REFERENCES Textbooks  De, Prabir. \"Assessing Barriers to Trade in Services in India: An Empirical Investigation.\" Journal of Economic Integration.  Carbaugh, Robert J. , 1995, International Economics, South-Western.  Cross, Frank B. , 1996―Paradoxical Perils of the Precautionary Principle,‖ Revision 851, Washington and Lee Home Page, Volume 3.  Health Alert, Earth Guardian, QS, 1999, New Principle to Protect Human Health and the Environment.  Agarwal, Manmohan, The Role of the External Sector in India's Development Strategy: Implications for MTN, in John Whalley Ed. Developing Countries and the Global Trading System, vol. 2 Macmillan.  Centre for Monitoring Indian Economy (CMIE). 2005. Foreign Trade and Balance of Payments, July, Bombay. Reference Books  C. B. Gupta, International Business, S. Chand Publications.  International Trade: The Basics. Jessie Poon, David L. Rigby. Website  https://www.export-u.com  https://www.brainkart.com/  https://www.yourarticlelibrary.com/ CU IDOL SELF LEARNING MATERIAL (SLM) 90

UNIT 8: MANAGEMENT INFORMATION SYSTEM AND TYPES STRUCTURE 8.0 Learning Objectives 8.1 Introduction 8.2 Legal Framework for Foreign trade in India 8.2.1 Export Promotion in India 8.2.2 Organizational Setup and Incentives 8.3 Summary 8.4 Keywords 8.5 Learning Activity 8.6 Unit End Questions 8.7 References 8.0 LEARNING OBJECTIVES After studying this unit, student will be able to:  Explain Legal Framework for International Trade in India.  Explain Export promotion in India.  Explain Organizational setup and Incentives. 8.1 INTRODUCTION India's economic growth levels have remained sustained, with the International Monetary Fund (IMF) estimating the gross domestic growth rate of a product at 7% for 2019/ 20. This growth is because of structural domestic developments and favourable International trade conditions. The government and the domestic industry are preparing for greater opportunities and deeper integration in the International value chain, with a special emphasis is on the manufacturing sector. There are many obstacles to India's growth like enforcing contracts and registering of property. India ranked 63rd out of 190 countries for the year 2020 according to the World Bank's Ease of Doing Business Report 2020. However, the government is making efforts to improve its CU IDOL SELF LEARNING MATERIAL (SLM) 91

ratings. This is reflected in the increase by 14 positions from 77 in the previous edition of the report. The Indian trade policy for the year 2015- year 2020 is set out in the Foreign Trade Policy (FTP) and is repeated every 5 years. This FTP is reviewed from time to time to check for internal and external macroeconomic factors. The FTP focused on increasing India's share in International exports to 3.5% by 2020. It introduced \"Digital India\", \"Make in India\", and \"Skill India\" and established connections between India’s trade policy and other national initiatives. These policies together attempted to incentivize the broadening of the Indian export base that resulted in increased International competitiveness. India is coming up new measures to implement for attracting foreign direct investment (FDI). In many sectors the FDI limit applicable is liberalized and the FDI policy itself is made simple. India made many changes to the domestic competition and intellectual property laws and policies so as to allow ease in foreign trade. While attempting to liberalize domestic investment policies the Indian government has not signed any new or renewed any existing bilateral investment treaties. India strives to use trade remedy measures and has made the steel industry benefit from the burden of anti-dumping duties. On 1st July 2017, India introduced the goods and services tax (GST) regime that replaced all indirect tax laws. Both the central government as well as state government implemented GST on all goods and services that were imported or produced. GST has helped India in trade competition by removing the load of multiple taxes which made Indian economy into a single common market. This GST method has helped ease the complex tariff structure. 8.2 LEGAL FRAMEWORK FOR FOREIGN TRADE IN INDIA Legal Basis of Foreign Trade Policy (FTP) The Foreign Trade Policy updated during 2015-20, w.e.f. 05.12.2017 was notified by the Government of India, in exercise of powers conferred under Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (No. 22 of 1992) [FT (D&R) Act], as amended. Duration of FTP The Foreign Trade Policy (FTP) updated during 2015-2020, w.e.f. 05.12.2017 including provisions relating to import and export of goods and services, shall come into force with effect from the date of notification and shall remain in force up to 31st March 2020, unless otherwise specified. All imports and exports made up to the date of notification shall, accordingly, be governed by the relevant FTP, unless otherwise specified. CU IDOL SELF LEARNING MATERIAL (SLM) 92

Amendment to FTP Central Government, in exercise of powers conferred by Section 5 of FT (D&R) Act, 1992, as amended periodically, reserves the right to make any amendment to the FTP, by means of notification, in interest of the public. Handbook of Procedures (HBP) and Appendices & Aayat Niryat Forms (AANF) Director General of Foreign Trade (DGFT) may, by means of notifications, in a public interest, notify Handbook of Procedures, that include Appendices and Aayat Niryat Forms or amendment thereto, if any, laying down the procedure to be followed by an exporter or importer or by any Licensing/ Regional Authority or by any other authority for purposes of implementing provisions of FT (D&R) Act, the Rules and the Orders made there under and provisions of FTP. Specific Provision to Prevail Over the General Where a specific provision is spelt out in the FTP/Handbook of Procedures (HBP), the same shall prevail over the general provision. Transitional Arrangements  Any License / Certificate / Authorization / Scrip / instrument bestowing financial or fiscal benefit issued before commencement of FTP, 2015-20 (as updated) w.e.f. 05.12.2017 shall continue to be valid for that limited time duration for which it was issued, such License/ Certificate / Authorization/ Scrip / any instrument granting financial or fiscal benefit Authorization was issued, unless otherwise stipulated.  Item wise Import/Export Policy is delineated in the ITC (HS) Schedule I and Schedule II, respectively. The importability/ exportability of a particular item is governed by the policy as on the date of import/export. The date of import/ export is defined in para 2.17 of HBP, 2015-20. Bill of Lading and Shipping Bill are the key documents for deciding the date of import and export, respectively. In case of change of policy from ‘free' to 'restricted/prohibited/state trading' or 'otherwise regulated', the import/export already made before the date of such regulation/restriction will be unaffected. This facility will not cover the import through High Sea sales. Further, the import/ export on or after the date of such regulation/restriction will be allowed for importer/exporter has a commitment through Irrevocable Commercial Letter of Credit (ICLC) before the date of imposition of such restriction/ regulation and shall be limited to the balance quantity, value and period available in the ICLC. For operationalizing such ICLC, the applicant shall have to register the ICLC with jurisdictional RA against computerized receipt within 15 days of imposition of any such restriction/regulation. Whenever, Government CU IDOL SELF LEARNING MATERIAL (SLM) 93

brings out a policy change of a particular item, the change will be applicable prospectively (from the date of Notification) unless otherwise provided for. 8.2.1 Export Promotion in India The Indian Government has relaxed many schemes for export processing Zones and export- oriented units. Agriculture, poultry, Horticulture, fisheries and dairies are a part of the export- oriented units. This allows export processing zones to export through trading and star trading houses and they take equipment on lease. These units also have an advantage where they are given 100% participation in International equities. Export Promotion Schemes Foreign Trade Policy (FTP) 2015-20 and other such schemes provide promotional methods to increase the exports in India and set infrastructural efficiencies and all associated costs that are involved to provide export traders a fair game. These measures include: i. Merchandise Exports from India Scheme (MEIS) Under this scheme, export traders are notified of their goods/ products in markets as listed in Appendix 3B of Handbook of Procedures and are granted freely transferable duty credit scrips on realized FOB and value of exports in free International exchange of 2 -5%. These duty credit scrips are used for paying the custom duties for importing goods and products, for paying the excise duty on local procurement of goods, for paying service tax and also for paying of custom duties in case of EO default. Exports of notified goods more than Rs. 25,000/- of FOB value up per consignment, through courier or International post office using e-commerce will be eligible for MEIS benefit. ii. Service Exports from India Scheme (SEIS) As per Appendix 3E, service providers of notified services are entitled for free transfer of duty credit scrip @ 5% of net foreign exchange that is earned.  Export Houses, Trading Houses and Star Trading Houses The Indian government has announced concepts like export houses, star trading houses and trading houses to encourage exporters to increase their competence in the market. Registered exporters who show consistent performances over time are upgraded to the status of export houses and trading houses. From the year 1994, golden super star trading house a new category has been announced by the government for any trading house that has the highest average annual foreign exchange incomes. CU IDOL SELF LEARNING MATERIAL (SLM) 94

 Duty Exemption & Remission Schemes These schemes encourage duty-free import of goods and export obligation (EO) for export production. These schemes include: i. Advance Authorization Scheme Under this scheme, duty free import of inputs are allowed, that are physically incorporated in the export product (wastage allowance included) with minimum 15% of value addition. Advance Authorization (AA) is given for inputs in relation to resultant products as per SION or on self-declaration basis, as per procedures of FTP. They are valid for 12 months for the purpose importing and a period of 18 months for Export Obligation (EO) both from the date of their issue. It’s mandatorily issued to a manufacturing exporter or merchant exporter who have a tie-up with supporting manufacturer(s). ii. Advance Authorization for Annual Requirement Exporters having two financial years of SION items experience in past export performance are entitled for Advance Authorization for Annual requirement. iii. Duty Free Import Authorization (DFIA) Scheme DFIA issues duty free import of inputs, with a minimum value addition of 20%. DFIA is exempted only after the payment of basic customs duty. For all SION notified products, DFIA is issued on post export basis. There are separate schemes for jewellery and gem industries sector for which FTP needs to be referred. iv. Duty Drawback of Customs/Central Excise Duties/Service Tax Issued by the Department of Revenue this scheme applies to products or goods made out of duty paid inputs and are first exported to other countries and thereafter they are refunded of the service tax paid. The duty is claimed in two ways: a. All Industry Rates: As per Schedule b. Brand Rate: On the basis of data/ documents v. Rebate of Service Tax through All Industry Rates There is a refund of service tax paid available on specified output services that are used for export of goods at specified industry rates.  Export Promotion Capital Goods (EPCG) Scheme i. Zero Duty EPCG Scheme This scheme involves importing of capital goods at zero custom duty for producing international quality goods and services that improve India’s export competition and import under EPCG. It is subjected to export duty that is equal to six times of duty CU IDOL SELF LEARNING MATERIAL (SLM) 95

saved in six years and allows local sourcing of capital goods with 25% less export duty. ii. Post Export EPCG Duty Credit Scrip Scheme This scheme is available for exporters who intend to import capital goods against full cash payment of applicable duty. iii. EOU/EHTP/STP & BTP Schemes This scheme is available for exporters who undertake their entire production of goods and services for import or procurement locally without payment of duties. Other Schemes i. Towns of Export Excellence (TEE) Towns which exceed Rs. 750 crores or more while producing goods are notified as TEE where they have the potential to grow in exports and so they are provided with financial assistance under MAI Scheme from recognized associations. ii. Rebate of Duty on “Export Goods” And “Material” Used in Manufacture of Goods Under the Rule of 18 of Central Excise Rules, 2002, exporters can get a rebate on duty paid on excisable goods or for the duty paid on the material used to manufacture such export goods. iii. Export of Goods Under Bond i.e. Without Payment of Excise Duty Rule 19 of Central Excise Rules, 2002, applies to approved factories, warehouses and other premises that can provide clearance for excisable goods for exports without paying the central excise duty. iv. Market Access Initiative (MAI) Scheme This Scheme provides financial assistance to promotions related to export activities on the focused country, focus based product to EPCs, Industry & Trade Associations, etc. There are several activities like setting up showroom/ warehouse, market studies/ surveys, taking part in international trade fairs, all public promotional campaigns, brand marketing promotion, repayment of registration dues for pharma industries, testing charges for engineering products abroad, and so on. For more details of the Scheme logon on to www.commerce.nic.in v. Marketing Development Assistance (MDA) Scheme When exporters have an annual turnover of up to Rs. 30 crores, then monetary assistance is available for all trade fairs, any buyer seller meetings organized by EPC’s/ Trade promotion organizations and so on. Details of MDA guidelines are available at www.commerce.nic.in CU IDOL SELF LEARNING MATERIAL (SLM) 96

vi. Status Holder Scheme Once the exporter achieves the prescribed export performance, a status is tagged like one star Export House or two Star Export House or three-star export house, or four- star export house or five-star export house according to the eligibility of the applicants. These status Holders are also eligible for a number of non-fiscal privileges as approved in the Foreign Trade Policy. There are more facilities like 24X7 customs clearances, single window clearance in customs, self-assessment of customs duties, advanced filing facility for all shipping bills etc. are available to simplify exports. Export Promotion Councils of India – Top 15 Organizations Set ups The Export Promotion Councils have been set up under the Indian Companies Act 1956, as non- profit organizations. The Indian Government through the Ministries of Commerce and Industries has come up with an integrated structure for promoting and servicing export trade. This provides information, guidance, and assistance to all involved in export trade. These organizations are specialized in promoting export for a particular product or a group of products. The organizations set up for export promotions are:  The Board of Trade – It is a body comprising of senior members of the Indian Economic Ministries. These representatives meet time-to-time to go through the country’s International trade issues and recommend and resolve them.  Advisory Council of Trade – RBI, Public sector trading firms, Research and Development Organization, Members of Parliament, ECGC constitute as members. They review the economy and growth and all commercial details of International trade.  Regional Advisory Committees on Exports and Imports – These are four zonal Committees. North, South, East and West. These committees discuss local problems faced by exporters, importers and manufacturers, relating to import licensing, customs clearance, release of foreign exchange for travel abroad, duty drawback, quality control, pre-shipment export incentives and shipping and transportation etc.  Chambers of Commerce and Industries – They play an important role in promoting export. Their activities are mainly the dissemination of information, providing a forum for discussion of problems arising due to policy matters, issue of certificate of origin to exporters, etc.  Federation of Indian Export Organization (FIEO) – It was formed by the Government of India to provide an apex co-ordinating agency dealing particularly with problems of general nature, common to all commodities and services.  Export Promotion Councils (EPCs) – There are 17 such councils in India handling wide range of products. They are a registered non-profit organizations working under the CU IDOL SELF LEARNING MATERIAL (SLM) 97

Companies Act and they have active association of producers, growers, and exporters in country’s drive to encourage export.  The Trade Development Authority (TDA) – It is the promoter of India’s industrial exports. Though it is public sector organization, it serves the private and the public sector alike. It extends a package of services to an entrepreneur. It is a promoter of new products, markets and export-oriented units. It also promotes export oriented joint ventures.  Commodity Boards – There are in all nine such boards for different commodities which are tea, coffee, rubber, cardamom, coir, silk and handloom and handicrafts products. They are formed to organize, develop and promote production and exports along proper lines.  Export Houses –To develop the capacity, resources, competence and specialization in the field of export market, the Indian Government has started a scheme in 1958 to recognize certain export organizations as export houses. For example, a manufacturing export house in the small-scale sector, the qualifying export amount is around Rs. 25 lakhs (FOB) as exports for products in the select list and Rs. 2 crores for any other products. They get the facilities, offices, surveys, advertisements and exhibition etc., acquisition by transfer of import replenishment licenses.  Indian Institute of Foreign Trade (IIFT) – It mainly concentrates on areas of market research, training of personnel and distribution of market information and intelligence in India. It started as an independent body which was registered under the Societies Registration Act in 1963.  Indian Council of Arbitration – Its main object is promoting arbitration and as a means of setting commercial arguments and to popularize arbitration among traders.  Export Inspection Council (EIC) – It tries to maintain quality standards for the Indian products that are exported. Under this Export (Quality Control and Inspection) Act of 1964, the Indian Government notified commodities which are subject to compulsory quality control or inspection or both before shipment. Such commodities should acquire certificates obtained from the EIC.  Export Processing Zones – In India, there are two such zones, i. Kandla Free Trade Zone (KFTZ) ii. Santacruz Electronics Export Processing Zone (SEEPZ) They offer the benefits for duty-free importing of capital goods and equipment, tax exemption from custom duties, and other counter-veiling duty on raw materials, components, consumable items and so on for exemption from central government excise duties, advance import licenses etc. CU IDOL SELF LEARNING MATERIAL (SLM) 98

 The Directorate of Exhibitions and Commercial Publicity – It arranges contribution in international exhibitions, Indian exhibitions abroad, runs showrooms in foreign countries and establishes trade centres in important selected markets outside India.  The State Trading Corporation of Indian and its subsidiaries. Its key functions are: i. Diversification of India’s export trade. ii. Effecting exports to the existing markets and new market exploring. iii. Maintaining exports of traditional items. iv. Canalizing imports of certain commodities. Export Promotion Council of India – Top 20 Councils in India These are organizations specialized in a particular product or a group of products. Their main aim is to promote export of such commodities or a group of products. The Export Promotion Councils have been set up under the Indian Companies Act 1956, as non- profit organizations. There are about 20 export promotion councils in India, dealing with various commodities. These are being mentioned below:  Cotton Textile Export Promotion Council, Mumbai.  Engineering Export Promotion Council, Kolkata.  Export Promotion Council for Finished leather and leather Manufactures, Kanpur.  Gem and Jewellery Export Promotion Council, Mumbai.  Handloom Export Promotion Council, Chennai.  Apparel Export Promotion Council, New Delhi.  Basic Chemicals Pharmaceutical and Cosmetics Export Promotion Council, Mumbai.  Cashew Export Promotion Council, Cochin.  Leather Export Promotion Council, Chennai.  Chemicals and Allied Products Export Promotion Council, Kolkata.  Plastics and Linoleums Export Promotion Council, Mumbai.  Shellac Export Promotion Council, Mumbai.  Processed Food Export Promotion Council, New Delhi.  Carpet Export Promotion Council, New Delhi.  Overseas Construction Council of India, Mumbai.  Wood and Woollens Export Promotion Council, New Delhi.  Silk Export Promotion Council, Mumbai.  Spices Export Promotion Council, Cochin.  Silk and Rayon Textiles, Export Promotion Council, Mumbai. CU IDOL SELF LEARNING MATERIAL (SLM) 99

 Sports Goods Exports Promotion Council, New Delhi. 8.2.2 Organizational Setup and Incentives International trade leads to division of labour and specialization at the international level. As there is sufficient labour in India we promote and encourage such schemes and policies for expanding the overseas trade. The Indian government comes up with attractive incentives and plans to encourage business organizations to enhance the competition for exporting. The Indian Government has introduced several institutions to give infrastructural help and marketing assistance to organizations that are doing global business. Foreign Trade Promotion Measure and Schemes  Duty Drawback Scheme Export quality merchandise need not pay excise, or levy charges or custom duties. On showing verification of export products to the concerning authority such charge returns. Such refunds are therefore called ‘Duty Drawbacks.’  Export Manufacturing under the Bond Scheme Under this scheme, organizations are able to manufacture merchandise without having to give excise duties and charges. The organizations can benefit from this facility after giving a bond that they are producing commodities for the export goal.  Exemption from Payment of Sales Taxes Merchandise manufactured only for exporting is not conditional upon paying sales tax. For a very long time, the money thus received from exporting operations are exempted from giving Income-tax. This exemption is only available to 100% export units and units that are set up in Export Processing Zones or special economic zones.  Advance Licence Scheme In this policy issued by the government it permits the provider duty free supply of local and imported resources are required for the manufacturing of export products or goods. The firms that export not so regularly acquire such licenses against any specific export order.  Export Processing Zones They are industrial trade domains that shape enclaves from the Domestic Tariff Areas. They are usually located close to air terminals and seaports. Their purpose is to provide a worldwide competitive duty-free environment for a cheaper export production. There are several measures, such as availability of export fund, capital merchandise scheme, export promotion which are used for international promotion of trade. CU IDOL SELF LEARNING MATERIAL (SLM) 100