EPCG

Treaties –

India does not have a regional block with Brazil (Brazil has its own regional block called Merkoza), but has a preferential trade agreement – Duty is reduced for Brazilian products in India & vice versa. Hence, one country gets into preferential trade agreement with another when there is high degree of trade among them.

MFN (Most favored nation) – Every country has an MFN, but WTO said, under preferential trade agreement, MFN is not possible as MFN is a form of preferential trade agreement. WTO facilitates the meeting where all such treaties are kept and discussed.

In ASEAN, because of entry of India (full access after 10 years of struggle), which members would be most affected –

1) Korea – India has become largest supplier of automobile spare parts, greater than China

2) Malaysia

India is largest exporter of Prawns today. Thailand might affect it (Tiger prawns).

Companies like Phizer has its largest selling Vitamin tablet – Bechosils, manufacturing outsourced to small units (subcontracting).

Direct Selling - Project Shakti– Unilever – In Indian rural markets, the widows in village are asked to become a distributor of Unilever (as shelf space in shops / retail chains is too costly). These women take the material from Depots and pay them later. The material to be sold is Sashes (In villages, big bottle of shampoos / detergent can’t be sold).

Export promotion capital goods scheme (EPCG) – Used by Brazil, India has copied this concept from Brazil.

I, as a manufacturer, imports a machine valued 10 million. Government waives the duty on it (may be worth 2 million), but asks the manufacturer to give a legal undertaking that he should export goods worth 8 times the duty (16 million) in the coming 8 years using that machine.

In this process, the manufacturer is upgrading himself.

Who does all this–

1) Person who is into exports in a big way

2) Person who is 100% sure that he has got a buy-back agreement (Parent company abroad promises to buyback all the material I have produced).

Drawback – If promise not fulfilled, the person has to pay original duty + 100% penalty on a depreciated machine 8 years later. He would have been better off paying 2 million on a new machine than 4 million on a depreciated machine.

All licenses are issued by DGFT in India (Directorate General of Foreign Trade) like AL, EPCG.

Corollary 1 – If find an equally capable manufacturer in India, who can manufacture the same machine. But since, I am buying from India and not importing the machine, whether I can get EPCG – Government says – YES, they will waive all the local taxes imposed to manufacture the machine in India. Why- Because there is no outflow of foreign exchange (because of buying the machine locally), so saving of foreign exchange by nation. Also, the local manufacturing will enhance (Incentive for local) the machine manufacturer to climb up the value chain and sell the same machine in international market.

3 books in India –

1) Export Import policy – Foreign trade policy

a. Chief controller of imports and exports – now DGFT

2) Standard input output norms (SION)

3) Value addition norms

The last 2 books covers all the products India can, has, will export and has described the parameters for those products. Example – A shirt if exported, then one can take DD, AL, only for 8 buttons per shirt (how much kilos of buttons / fabric/ yarn one can import for 1 kilo of shirt exported).