[Economic Survey Ch7] International Trade, FTA, PTA, ASIDE, E-BRC, CEPA vs CECA Difference ExplainedDevendra Vishwakarma
- Baltic Dry Index (BDI)
- India’s Chief import exports
- Market Diversification
- Top three trading partners
- Trade surplus / deficit?
- WTO Negotiations and India
- Trade agreements
- Customs Union
- Common Market
- Economic union
- CEPA vs CECA
- India’s trade agreements
- Trade agreements: Recent development
- Problem Areas: Export
- Problem Areas: Ease of Doing business
- Measures to improve trade?
- Foreign Trade Policy annual supplement 2013
- Salient Features FTP Annual Supplement 2013
- ASIDE scheme
- Towns of Export Excellence
- Interest Subvention
- Special Economic Zones
- RBI’s measures
- Chindu’s budget speech (2013): Foreign Trade
- CAD worrysome
- To boost trade
- Taxation: Export
- Coal dependence
- What is countervailing duty (CVD)?
- Important Summits
- Trade Blocs/ Regional Groups
- Mock Question
Baltic Dry Index (BDI)
- London based Baltic Exchange, releases this index number on daily basis.
- It measures changes the cost to transport raw materials by sea.
- If Baltic Dry index number increases = more raw material is getting shipped= world economy is doing good (and will do good).
- If Baltic Dry index number decreases = there is decrease in export of raw material / pre-production items= something bad is about to happen with world economy.
- In the recent times, BDI was highest in 2008 and then started falling. There was a small rise in BDI index during Nov.2012, but still it is nowhere near to the high level of 2008.
- Meaning, world economy hasn’t yet recovered from the fallout in US and EU.
India’s Chief import exports
^As per Commerce chapter India 2013 (Yearbook.)
- Compositional changes in India’s export basket have been taking place over the years.
- The share of manufacturing exports fell drastically, mainly due to the fall in shares of traditional items like textiles and leather and leather manufactures even though the share of engineering goods and chemicals and related products increased.
The rise or fall in India’s export depends mainly on following factors
- World growth
- Trading partner’s growth
- Exchange rates
- India has been fairly successful in diversifying its export markets from developed countries like the US and Europe to Asia and Africa
- This has helped us get reduce the damage from global crisis of 2008 and the recent global slowdown.
- Region-wise, while India’s exports to Europe and America have declined, its exports to Asia and Africa have increased
Top three trading partners
- In recent years, the top three trading partners of India = US, UAE, China (whoever their rank /position keeps changing like in the game of musical chairs).
- For 2011-12: first is China, second is UAE and third is USA. (2012-13 data yet to come)
Trade surplus / deficit?
- India’s trade deficit = 10% of GDP. This is one of the highest in the world, and hence very disturbing.
- As per 2011-12 data, Countrywide, India has
|Trade surplus with||Trade deficit with|
WTO Negotiations and India
- Basics of WTO explained: http://mrunal.org/2012/05/wto-doha-made-easy.html
- Pascal Lamy= Chief of WTO.(update: Roberto Azevedo, a top Brazilian trade diplomat, will replace Pascal Lamy as the head of the WTO in September 2013)
- In 2001, WTO started Doha Round of trade negotiations. (Doha is the capital and chief port of Qatar)
- Doha negotiations are still unfinished due to differences among members on various issues.
- Since multilateral trade negotiations (WTO) are stalled/pending, the regional trading agreements are on rise.
|What?||Level of integration|
CEPA vs CECA
Both are examples of Free trade agreements.
|Comprehensive Economic Cooperation Agreement||Comprehensive Economic partnership Agreement|
|Reduce the tariffs (custom/import duties).||Reduce tariffs + cooperation in trade in services, investment. = wider scope.|
|Countries sign CECA first and then gradually move towards CEPA like agreement.||–|
|Example, India has CECA with
||Example, India has CEPA With
India’s trade agreements
- So far, India has signed 10 free trade agreements (FTAs) and 5 preferential trade agreements (PTAs) and these FTAs/PTAs are already in force.
FTA/PTA: Already concluded
10 FTA with
5 PTA with
- ^as per commerce chapter, India 2013 (Yearbook).
- Further, India is currently negotiating 17 FTAs, including review/expansion of some of the existing ones.
- Issue: Government needs to review the inverted duty structure under the India-Thailand FTA. Because finished jewelry imports from Thailand are cheaper than primary gold (raw material) available in India!
Trade agreements: Recent development
|Signed and came into force.South Asia Free Trade AreaUnder SAFTA, India has granted zero basic custom duty to all LDCs, viz. Afghanistan, Bangladesh, Bhutan, and Maldives, on all items, except alcohol and tobacco products.|
India Thailand FTA
|Signed but negotiations still on.|
|Signed, broader framework already in force. Minor details remain to be negotiated.|
RECP among ASEAN+6
|Broad based trade and investment agreement. Negotiations still going on.|
Problem Areas: Export
- Jawaharlal Nehru Port Trust (JNPT) Port at Mumbai, entry gates closing prematurely resulting in export consignments being dumped in the buffer yard at a very high cost and delay in shipments
Problem Areas: Ease of Doing business
- Ease of doing business index is an index created by the World Bank.
- India ranks 132. (Singapore 1st)
- India requires 9 export documents to be cleared, while China needs 8, with good practice economies like France needing 2.
- Time to export is 16 days for India and five for Denmark.
- On an, average an Indian exporter is required to sign at about 130 places to complete an export transaction!
- If we want to increase our exports, then Government must reduce these procedures and costs need to the barest minimum.
Measures to improve trade?
- India’s foreign trade policy covers the period of 2009-14.
- Under that, Commerce Ministry (and not finance ministry) releases Annual supplement to foreign trade policy every year.
- 2012: Government has reduced the import duty on various capital goods/ machinery required for fertilizer, mining, infrastructure, horticulture projects etc.
- Support for export of green technology products
- Incentives for labour intensive industries, North East, agriculture etc.
Foreign Trade Policy annual supplement 2013
- Released in April 2013, by Ministry of Commerce, Industry and Textiles
- Although Government did not launch any new scheme in it
- But the existing schemes were modified to provide for more relaxations and benefits to importers who are also exporters.
Salient Features FTP Annual Supplement 2013
- Reduced Minimum land area requirement for SEZ, by half
- No minimum land requirement for settingup IT SEZ
- Permitted sale and transfer of units inside SEZ.
- Zero Duty Export Promotion Capital Goods Scheme
- Government will give 2% Interest Subvention Scheme for more sectors. (upto 31st March 2014)
- Duty Credit Scrips issued under Focus Market Scheme, Focus
- Product Scheme and Vishesh Krishi Gramin Udyog Yojana(VKGUY) can be used for payment of service tax.
- Import of cars/vehicles is permitted through designated ports only. Now import of cars/vehicles would also be allowed at Faridabad and Ennore Port (TN)
- System for online issuance of Registration Certificate for export of Cotton, Cotton Yarn, Non Basmati Rice, Wheat and Sugar.
- The exporter will not be required to make any request to the bank for issuance of a bank export and realization certificate (BRC).
- Thus their time and money will be saved.
- For electronic transmission of foreign exchange realization from the respective banks to the Directorate General of Foreign Trade (DGFT) server on a daily basis.
- Assistance to States for Developing Export Infrastructure and Allied Activities (ASIDE) Scheme
- It provides assistance to State and union territories to create infrastructure for export Development.
- Top 5 exporter states in India (also top-5 in terms of ASIDE allocation): Gujarat, Maharashtra, Tamil Nadu, Karnataka, and Andhra Pradesh. (Why? Think about the geographical, social, political, economic factors).
Towns of Export Excellence
These get more attention / funds under ASIDE scheme and other schemes of commerce ministry for boosting exports.
^this list in not exhaustive. I’ve only listed the new towns of export excellence under 2012 and 2013’s annual supplements to foreign trade policy. But if and when you’re preparing for UPSC interview, dig all the export excellence towns in your home state.
- Earlier Government gave 2% interest subvention on handlooms, handicrafts, carpets, and SMEs
- This scheme has been extended to labor-intensive sectors viz. toys, sports goods, processed agricultural products, and readymade garments.
- Scheme is applicable upto 31 March 2014.
Special Economic Zones
- Asia’s first Export processing zone (EPZ) was setup in Kandla, Gujarat, 1965
- Special Economic Zones (SEZ) Act, enacted in 2005 and and Rules were notified in February 2006.
- Government has given formal approvals to setup 579 SEZs, of which 384 have been notified.
- As a whole, SEZs have provided employment to more than 9 lakh people.
- 100 per cent FDI is allowed in SEZs through the automatic route
- Problem area: land acquisition. (some of that is addressed under the 2013’s annual supplement to Foreign trade policy.)
- Vishesh Krishi and Gram Udyog Yojana (VKGUY)
- To promote the export of produce from agro, minor forest, gram udhyog etc.
- RBI increased ceilings for External Commercial Borrowings (ECBs)
- RBI allowed the banks to determine their interest rates on loans to exporters (in foreign currency).
- Directorate General of Anti-dumping and Allied Duties (DGAD) has initiated 10 fresh cases. Against China PR, the European Union, South Korea, Malaysia, Mexico, Taiwan, Thailand, Turkey, Saudi Arabia, and the USA.
- DGAD falls under Commerce Ministry.
Chindu’s budget speech (2013): Foreign Trade
- India is part of the global economy: our exports and imports amount to 43 percent of GDP
- But My greater worry is the current account deficit (CAD).
- The CAD continues to be high mainly because of
- our excessive dependence on oil imports,
- the high volume of coal imports,
- our passion for gold
- slow down in exports.
- This year, and perhaps next year too, we have to find over USD 75 billion to finance the CAD.
- (To finance Current Account deficit) , there are only three ways before us:
- External Commercial Borrowing (ECB).
- That is why I have been at pains to state over and over again that India, at the present juncture, does not have the choice between welcoming and spurning foreign investment.
- If I may be frank, foreign investment is an imperative.
- What we can do is to encourage foreign investment that is consistent with our economic objectives.
To boost trade
- Peak rate of basic customs duty = 10% (for non agro products)
- Normal excise duty = 12%
- Normal service tax= 12%
|What?||Duty Increase/decrease?||Chindu said|
|Import Machinery for leather factory||Decrease||
|Precious stones exporting||Decrease||
- Despite abundant coal reserves, we continue to import large volumes of coal.
- If the coal requirements of the existing and future power plants are taken into account, there is no alternative except to import coal and adopt a policy of blending and pooled pricing.
- In the medium to long term, we must reduce our dependence on imported coal.
- One of the ways forward is to devise a PPP policy framework to increase the production of coal. Coal ministry will announce the policies in this regard.
- The Rangachary Committee was appointed to look into tax matters relating to Development Centres & IT sector and Safe Harbour rules for a number of sectors.
- By the way, Rangachary was also a member of Shome Panel (for GAAR).
What is countervailing duty (CVD)?
Suppose we imported xyz thing from USA. And that xyz thing is also manufactured by Indian producers as well.
- But the American Government provides some subsidies to their exporters, hence the price of imported XYZ item is more than the locally produced “desi” variety. And or
- The Indian producers are required to pay more taxes hence desi variety has become more expensive than the American product.
- In such case, Indian Government can imposes addition tax on the imported item to protect the domestic industry. This is known as countervailing duty (CVD).
In 2013, US Department of Commerce started investigation a countervailing duty (CVD) investigation against India and six other countries on export of shrimp. Because the (domestic) American shrimp industry had complained that Indian Government provides lot of incentives, subsidies and tax reliefs to Indian shrimp exporters, so US Government should impose a CVD on the shrimps imported from India.
Gold and CAD
- In the earlier article on Gold ETF, we saw the measures taken by govt. to reduce the gold import(click me) While the supply of gold through organized channels can be constricted, there is need to be vigilant regarding gold inflows through unauthorized channels (= Smuggling).
- Ultimately, the best way to reduce gold imports in a sustainable way will be to offer the public financial investment opportunities that generate attractive returns.
- This means bringing down inflation as well as expanding the range of investments investors have easy access to. (e.g. Rajiv Gandhi Equity savings scheme RGESS).
- India always stood for open, unbiased, international trading system, but since WTO negotiations are not moving in positive direction, we need to focus on Regional Trade agreements (RTAs). Particularly for exporting our technology-intensive items.
- There is also need to address the inverted duty structure in sectors like electronics, textiles, and chemicals and the artificial inverted duty structure caused by some FTAs/RTAs.
|Addu, Maldives (2011)||Kathmandu|
|Phnom Penh, Cambodia||Brunei|
Trade Blocs/ Regional Groups
List is not exhaustive.
|APEC||Asia-Pacific Economic Cooperation||
|APTA||Asia Pacific Trade agreement||
|ASEAN||Association of South East Asian Nation||
|BRICS||Brazil, Russia, India, China and South Africa||
|CELAC||Community of Latin American and Caribbean States||33 countries in that region. Names not worth the space hahaha.|
|CIS||Commonwealth of Independent States||
|COMESA||Common Market for Eastern and Southern Africa||20 member states stretching from Libya to Zimbabwe.|
|ECOWAS||Economic Community of Western African States||15 members in Western Africa.|
|EFTA||European Free Trade association||
|G20||Group of 20||
|G8||Group of 8 (Wealthiest nations)||
|GCC||Gulf cooperation council||
|GSTP||Global system of trade preferences||44 developing countries. List is not worth the table space hahaha.|
|IBSA||India Brazil South Africa||
|IORARC/Ocean Rim||Indian Ocean Rim association of regional cooperation.||
|MERCOSUR||Southern Common Market. (Mercado Comun Del sur)||
|NAFTA||North American Free Trade Agreement||
|SAARC||South Asian Association for Regional Cooperation||
|SACU||Southern African Customs Union||
|SAFTA||South Asia Free Trade Agreement||
|SCO||Shanghai Cooperation Organisation||
IMF: Advanced Economies in ASIA
- Hong Kong
- Baltic dry index measures
- change in crude oil prices
- change in dollar’s value against major currencies.
- Performance of share markets in Baltic nations
- None of Above
- Increase in Baltic Dry index means
- World economy is moving in negative direction
- World economy is moving in positive direction
- World economy is moving towards a stalemate
- None of above
- Which of the following is not among the top 3 trading partners of India?
- India doesn’t have trade surplus with
- Hong Kong
- All of above
- India doesn’t have PTA agreement with
- Sri Lanka
- India doesn’t have FTA agreement with
- With Japan, India has ______ agreement
- No trade
- GSTP aims to increase trade between _____ countries under ______.
- Developed, UN
- Developing, UNCTAD
- All, WTO
- member, ASEAN
- India has high current account deficit mainly because of
- coal import
- crude oil import
- slow down in export
- All of above
- Current Account Deficit can be financed through
- Only FDI, FII
- Only FDI and ECB
- Only ECB and FII
- FDI, FII and ECB
- Ilmenite is the primary ore of
- Which of the follow coal is used in Thermal power stations?
- steam coal
- Bituminous coal
- Rangachary Committee is associated with taxation of ____ sector.
- gems and jewelry
- Addu declaration is associated with
- For 2013, SAARC summit will be held in
- Durban summit, 2013, is associated with
- In 2012, G20 summit was held in
- Los Angeles
- Phnom Penh
- Los Cabos
- None of above
- Phnom Penh hosted the _____ summit in 2012.
- Correct order in terms of membership (smaller to bigger)
- ASEAN, BIMSTEC, G20
- BIMSTEC, ASEAN, G20
- BIMSTEC, G20, ASEAN
- None of above
- Switzerland is a member of
- Which of the following is associated with African Continent?
- All of above
- Who among the following, is a member of GCC?
- G8 doesn’t have member from which continent?
- North America
- MERCOSUR membership doesn’t include
- NAFTA includes
- only US, Canada
- only US, Mexico
- Only Canada, Mexico
- US, Canada and Mexico
- SAARC has ___ members
- SAFTA doesn’t include
- China, Pakistan and Afghanistan
- China and Myanmar
- Nepal and Myanmar
- Myanmar and Maldives
- As per IMF classification, which of the following is not an Advanced economy
- South Korea
- ___, ____ and ____ are the chiefs of World Bank, IMF and WTO respectively
- Christine lagarde, Pascal Lamy, Jim Yong Kim
- Pascal Lamy, Christine lagarde, Jim Yong Kim
- Jim Yong Kim, Christine lagarde, Pascal Lamy
- Christine lagarde, Jim Yong Kim, Pascal Lamy
- To reduce its dependence on China, Japan recently inked a pact with India to import ____.
- Eggs and unprocessed meat
- Iron ore
- Rare earth minerals
- The annual supplements to Foreign Trade policy are released by
- Finance ministry
- Commerce Ministry
- External Affairs ministry
- Which of the following is a town of export excellence for Apparel
- In 2013, Morbi was declared a town of export excellence for its ____ sector
- In 2013, Gurgaon was declared a town of export excellence for its ___ sector
- Government provides interest subvention to
- Handloom, handicraft exporters
- Who benefits from E-BRC scheme?
- Indian Exporters
- Indian IT companies
- Indian Embassies in Brazil, Russia and China
- All of Above
- ASIDE Scheme is meant to
- Provide assistance to physically challenged
- improve infrastructure for Export development
- provide loans to farmers
- provide assistance to HIV positive people.
- Matters related to dumping falls under the purview of
- Commerce Ministry
- Finance Ministry
- External Affairs Ministry
- Home ministry
- Countervailing Duty: correct statements
- It is an example of Indirect Tax
- It is imposed on imported goods in certain circumstances.
- What is the purpose of countervailing duty?
- Protect domestic industry against foreign industry
- Protect exporters against domestic industry in the foreign country
- Protect exporters against currency exchange rate fluctuations
- None of above
- “Ease of Doing business” data is released by
- World Bank