Foreign Trade Development & Regulation Amendment Bill, 2009

Standing Committee on Commerce invites Suggestions on Foreign Trade (Development and Regulation) Amendment Bill, 2009

The Foreign Trade (Development and Regulation) Amendment Bill, 2009, introduced in the Rajya Sabha on the 25th November, 2009, has been referred to the Department Related Parliamentary Standing Committee on Commerce, with Shri Shanta Kumar, Member, Rajya Sabha, as its Chairman, for examination and report.

The Bill seeks to amend the Foreign Trade (Development and Regulation) Act, 1992 with a view, interalia, to:-

i) Provide a statutory provision for safeguard measures enabling imposition of Quantitative Restrictions (QRs);
ii) Bring in tighter export or trade control in the case of dual-use goods and related technologies and to provide enabling provisions for establishing controls as in the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005;
iii) Bring “technology” and “services”, including financial services, within the ambit of the Act for the purpose of administering incentive schemes and other provision of the Foreign Trade Policy;
iv) Dispense with the requirement of obtaining any licence or permit for import or export except as may be provided under the Act;
v) Enable swift and exemplary action in trade dispute matters;
vi) Further rationalise as well as improve the system of levying and realising fiscal penalties;
vii) Empower Customs and Central Excise Settlement Commission for settlement of customs and excise duty and interest dues;
viii) Broaden the scope of word “licence” defined in the Act;
ix) Provide a provision for review of all decisions of subordinate officers by Director General of Foreign Trade.

Foreign Trade Policy

In India, the main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act, 1992. The Act provides for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto. As per the provisions of the Act, the Government :- (i) may make provisions for facilitating and controlling foreign trade; (ii) may prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions; (iii) is authorised to formulate and announce an export and import policy and also amend the same from time to time, by notification in the Official Gazette; (iv) is also authorised to appoint a 'Director General of Foreign Trade' for the purpose of the Act, including formulation and implementation of the export-import policy.
Accordingly, the Ministry of Commerce and Industry has been set up as the most important organ concerned with the promotion and regulation of foreign trade in India. In exercise of the powers conferred by the Act, the Ministry notifies a trade policy on a regular basis with certain underlined objectives. The earlier trade policies were based on the objectives of self-reliance and self-sufficiency. While, the later policies were driven by factors like export led growth, improving efficiency and competitiveness of the Indian industries, etc.
With economic reforms, globalisation of the Indian economy has been the guiding factor in formulating the trade policies. The reform measures introduced in the subsequent policies have focused on liberalization, openness and transparency. They have provided an export friendly environment by simplifying the procedures for trade facilitation. The announcement of a new Foreign Trade Policy for a five year period of 2004-09, replacing the hitherto nomenclature of EXIM Policy by Foreign Trade Policy (FTP) is another step in this direction. It takes an integrated view of the overall development of India’s foreign trade and provides a roadmap for the development of this sector. A vigorous export-led growth strategy of doubling India’s share in global merchandise trade (in the next five years), with a focus on the sectors having prospects for export expansion and potential for employment generation, constitute the main plank of the policy. All such measures are expected to enhance India's international competitiveness and aid in further increasing the acceptability of Indian exports. The policy sets out the core objectives, identifies key strategies, spells out focus initiatives, outlines export incentives, and also addresses issues concerning institutional support including simplification of procedures relating to export activities.The key strategies for achieving its objectives include:-
Unshackling of controls and creating an atmosphere of trust and transparency;
Simplifying procedures and bringing down transaction costs;
Neutralizing incidence of all levies on inputs used in export products;
Facilitating development of India as a global hub for manufacturing, trading and services;
Identifying and nurturing special focus areas to generate additional employment opportunities, particularly in semi-urban and rural areas;
Facilitating technological and infrastructural upgradation of the Indian economy, especially through import of capital goods and equipment;
Avoiding inverted duty structure and ensuring that domestic sectors are not disadvantaged in trade agreements;
Upgrading the infrastructure network related to the entire foreign trade chain to international standards;
Revitalizing the Board of Trade by redefining its role and inducting into it experts on trade policy; and
Activating Indian Embassies as key players in the export strategy.
The FTP has identified certain thrust sectors having prospects for export expansion and potential for employment generation. These thrust sectors include: (i) Agriculture; (ii) Handlooms & Handicrafts; (iii) Gems & Jewellery; and (iv) Leather & Footwear. Accordingly, specific policy initiative for these sectors have been announced.

In order to review the progress and policy measures, each year, "Annual Supplements" to the five year Foreign Trade Policy (FTP) have been announced by the Ministry :-
The Annual Supplement announced in April, 2005 incorporated additional policy initiatives and further simplified the procedures. It provided for an active involvement of the State Governments in creating an enabling environment for boosting international trade, by setting up an Inter-State Trade Council. Also, different categories of advance licences were merged into a single category for procedural facilitation and easy monitoring. The supplement provided renewed thrust to agricultural exports by extension of 'Vishesh Krish Upaj Yojna' to poultry and dairy products and removal of cess on exports of all agricultural and plantation commodities.
The Annual Supplement put forward in April 2006, announced the twin schemes of 'Focus Product' and 'Focus Market'. To further meet the objective of employment generation in rural and semi urban areas, export of village and cottage industry products were included in the 'Vishesh Krishi Upaj Yojana', which was renamed as "Vishesh Krishi and Gram Udyog Yojana". Also, a number of measures were introduced in order to achieve the objective of making India a gems and jewellery hub of the world. These include:- (i) allowing import of precious metal scrap and used jewellery for melting, refining and re-export; (ii) permission for export of jewellery on consignment basis; (iii) permission to export polished precious and semi precious stones for treatment abroad and re-import in order to enhance the quality and afford higher value in the international market.
Likewise, the third Annual Supplement to the Foreign Trade Policy was announced on 19 April,2007 (effective from 1 st April, 2007). Some of the important measures introduced by it are:- (i) exemption from service tax on services (related to exports) rendered abroad; (ii) service tax on services rendered in India and utilized by exporters would be exempted/remitted; (iii) categorization of exporters as 'One to Five Star Export Houses' has been changed to 'Export Houses & Trading Houses', with rationalization and change in export performance parameters; (iv) expansion of ceiling, scope and coverage under the 'Focus Market Scheme (FMS)' and 'Focus Product Scheme (FPS)'.
The final annual supplement to the Foreign Trade Policy for 2004-2009 was announced in April 2008 in which several innovative steps were proposed. They included the following:
Import duty under the EPCG scheme is being reduced from 5% to 3%, in order to promote modernization of manufacturing and services exports.
Income tax benefit to 100% EOUs available under Section 10B of Income Tax Act is being extended for one more year, beyond 2009.
To promote export of sports and toys and also to compensate disadvantages suffered by them, an additional duty credit of 5% over and above the credit under 'Focus Product Scheme' is being provided.
Our export of fresh fruits and vegetables and floriculture suffers from high incidence of freight cost. To neutralize this disadvantage, an additional credit of 2.5% over and above the credit available under Visesh Krishi and Gram Udyog Yojana (VKGUY) is proposed.
Interest relief already granted for sectors affected adversely by the appreciation of the rupee is being extended for one more year.
DEPB scheme is being continued till May 2009.

In accordance with the provisions of the Act, a "Directorate General of Foreign Trade (DGFT)" has been set up as an attached office of the Ministry of Commerce and Industry. It is headed by the 'Director General of Foreign Trade' and is responsible for formulating and executing the Foreign Trade Policy/Exim Policy with the main objective of promoting Indian exports. The DGFT also issues licences to exporters and monitors their corresponding obligations through a net work of 32 regional offices located at the following places:- Ahmedabad; Amritsar; Bangalore; Baroda (Vadodara); Bhopal; Kolkata; Chandigarh; Chennai; Coimbatore; Cuttack; Ernakulam; Guwahati; Hyderabad; Jaipur; Kanpur; Ludhiana; Madurai; Moradabad; Mumbai; New Delhi; Panaji; Panipat; Patna; Pondicherry; Pune; Rajkot; Shillong; Srinagar(Functioning at Jammu); Surat; Thiruvananthapuram; Varanasi; and Vishakhapatnam.

Foreign trade policy to be aligned with GST after April 1, 2010

The new foreign trade policy, which is being prepared by the commerce ministry, will be aligned with the Goods and Services Tax (GST) only after implementation of this indirect tax mechanism.
The new policy is likely to be announced by the next government at the Centre by mid-2009, while the GST is likely to be implemented from April 1, 2010.
The current foreign trade policy of 2004-09 was unveiled by the United Progressive Alliance government on September 1, 2004 and was to expire on March 31, 2009. However, the Directorate General of Foreign Trade (DGFT) under the commerce ministry had extended its tenure till a new policy was ready.
The foreign trade policy has several export promotion measures that reimburse indirect levies charged on exports. These levies will now be subsumed under the proposed GST and will have only two slabs — one for the Centre and the other for the states. Therefore, the new export policy will have to specify how the current benefits given to exporters are matched with the proposed GST rates.
“We expect the new policy to be released by mid-2009. Till the GST mechanism is in place, provisions of the policy will not be changed. This is to ensure there is no confusion. Once GST is rolled out, the foreign trade policy will be modified to take into account the new taxation mechanism,” said a government official requesting anonymity.
Officials are still not clear if the state-level GST levied on exporters will be reimbursed. At the moment, many state-level duties are not reimbursed to exporters.
The DGFT has already started consultations with various export-related organisations and industry lobby groups on the new Foreign Trade Policy.
Officials maintained that the new government would take a call whether the present structure of the foreign trade policy should be continued.
“The process of consultations will go on till April 20, after which the suggestions will be compiled. Thereafter inter-ministerial consultations will begin. The commerce ministry wants to be ready with the recommendations when the new government is in place,” the official added.
Before the current policy was released, foreign trade procedures were spelt out through an “export-import policy”. This mechanism was prevalent from 1992 to 2004. The UPA government replaced this with the current five-year trade policy to bring stability and incorporate sector-specific export promotion measures.
Exporters have been demanding a host of benefits in the new policy, including continuation of the Duty Entitlement Passbook Scheme, which was extended till further notice by the commerce ministry. This scheme, which is not compliant with world trade rules, reimburses indirect tax levied on inputs used by exporters.
Representatives of the Federation of Indian Chambers of Commerce and Industry (Ficci), who met DGFT officials today, demanded customised schemes to help exporters tide over the liquidity crisis, reduce transaction time and other costs related to foreign trade.
Pointing out that reimbursement of Value Added Tax levied on exporters took about 12 to 15 months, Ficci demanded refund of the Fringe Benefit Tax and Service tax.