Foreign Policy

A countrys relation with other countries of the world is known as their external relations. The external relation of a country is based on certain principles and policies. They are collectively called as foreign policy Thus foreign policy is the totality of actions of a state in dealing with external environment In other words foreign policy is the sum total of a countrys relationship with internal & external actors while pursuing its perceived goals and objectives. Through the process of foreign policy a state translates its goals and interests into specific course of action.

Foreign Trade Policy (FTP)

Issued by the MoC to regulate all import-export transactions
5 year policies issued Current Policy 2009-2014
Procedural aspects set out in the Handbook of Procedures accompanying the Policy

Various goods bifurcated into Free/Restricted/Prohibited

Prescribes necessary registrations, etc for undertaking such transactions

Obtaining Importer Exporter Code Necessary licenses in case of restricted goods

Export Incentive Schemes for :

Exporters of Goods Service Exporters Deemed Exporters Supported by appropriate notification from MOF

FTP issued under Section 5 of the F T (D&R) Act, 1992

THE CURRENT OBJECTIVES

1)Increase the amount of Exports

2)Revive the sectors

3)Expand the Markets

Chapter 1A- Legal Framework Chapter 1B- Special Focus Initiatives Market Diversification Technological Upgradation Support to status holders Agriculture and Village Industry Handlooms Handicrafts Gems & Jewellery Leather and Footwear Marine Sector Electronics and IT Hardware Manufacturing Industries Sports Goods and Toys Green products and technologies Incentives for Exports from the North Eastern Region Chapter 1 C- Board of Trade

CHAPTER-2 GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

Exports and Imports shall be free, except where regulated by FTP or any other law in force. Import / export of arms and related material from / to Iraq shall be prohibited. Every exporter or importer shall comply with the provisions of FT (D&R) Act, the Rules and Orders made there-under, FTP and terms and conditions of any Authorization granted to him. For all goods and services exported from India, services received / rendered abroad, where ever possible, shall be exempted from service tax.

GENERAL PROVISIONS REGARDING IMPORTS AND EXPORTS

DGFT may, specify procedure to be followed for an exporter or importer or by any licensing or any other competent authority for purpose of implementing provisions of FT (D&R) Act, the Rules and the Orders made there under and FTP.

PRINCIPLES OF RESTRICTION
DGFT may, through a notification, adopt and enforce any measure necessary for: 1. Protection of public morals. 2. Protection of human, animal or plant life or health. 3. Protection of patents, trademarks and copyrights and the prevention of deceptive practices. 4. Prevention of use of prison labour. 5. Protection of national treasures of artistic, historic or archaeological value. 6. Conservation of exhaustible natural resources. 7. Protection of trade of fissionable material or material from which they are derived; and 8. Prevention of traffic in arms, ammunition and implements of war.

TERMS AND CONDITIONS OF A LICENCE / CERTIFICATE / PERMISSION / AUTHORISATION

Every Authorisation shall be valid for prescribed period of validity and shall contain such terms and conditions as may be specified by RA which may include: (a) Quantity, description and value of goods; (b) Actual User condition; (c) Export obligation; (d) Value addition to be achieved; and (e) Minimum export / import price.

AUTHORISATION / LICENCE / CERTIFICATE / PERMISSION NOT A RIGHT

No person may claim an Authorization as a right and DGFT or RA shall have power to refuse to grant or renew the same in accordance with provisions of FT (D&R) Act, Rules made there under and FTP.

IMPORTER-EXPORTER CODE(IEC) NUMBER

No export or import shall be made by any person without an Code IEC number unless specifically exempted. An IEC number shall be granted on application by competent authority in accordance with procedure specified in HBP v1.

TRADE WITH NEIGHBOURING COUNTRIES

DGFT may issue instructions or frame schemes as may be required to promote trade and strengthen economic ties with neighbouring countries

TRANSIT FACILITY
Transit of goods through India from / or to countries adjacent to India shall be regulated in accordance with bilateral treaties between India and those countries will be subject to such restrictions as may be specified by DGFT in accordance with International Conventions

SECOND HAND GOODS

All second hand goods, except second hand capital goods, shall be restricted for imports and may be imported only in accordance with provisions of FTP, ITC (HS), HBP v1, Public Notice or an Authorisation issued in this regard. Import of second hand capital goods, including refurbished / re-conditioned spares shall be allowed freely. However, second hand personal computers / laptops, photocopier machines, air conditioners, diesel generating sets will only be allowed against a licence. Import of re-manufactured goods shall be allowed only against a licence.

IMPORT ON EXPORT BAISIS

Freely exportable new or second hand capital goods, basis equipments, components, parts and accessories, containers meant for packing of goods for exports, jigs, fixtures, dies and moulds may be imported for export without an Authorisation on execution of LUT / BG with Customs Authorities.

REIMPORT OF GOODS REPAIRED ABROAD

Capital goods, equipments, components, parts and accessories, whether imported or indigenous, except those restricted under ITC (HS) may be sent abroad for repairs, testing, quality improvement or upgradation or standardization of technology and re-imported without an Authorisation.

IMPORTS OF GOODS USED IN PROJECTS ABROAD

After completion of projects abroad, project contractors may import, without an Authorisation used goods including capital goods provided they have been used for at least one year.

Sale on High Seas

Sale of goods on high seas for import into India may be made subject to FTP or any other law in force.

IMPORT UNDER LEASE FINANCING

Permission of RA is not required for import of capital goods Financing under lease financing

CLEARENCE OF GOODS FROM CUSTOMS

Goods already imported / shipped / arrived, in advance, but not cleared from Customs may also be cleared against an Authorisation issued subsequently.

Execution of BG / LUT
Wherever any duty free import is allowed or where otherwise specifically stated, importer shall execute prescribed LUT / BG / Bond with Customs Authority before clearance of goods. In case of indigenous sourcing, Authorisation holder shall furnish LUT / BG / Bond to RA concerned before sourcing material from indigenous supplier / nominated agency as prescribed in HBP v1.

PRIVATE / PUBLIC BOUNDED WAREHOUSES FOR IMPORTS

Private / Public bonded warehouses may be set up in DTA as per terms and conditions of notification issued by DoR. Any person may import goods except prohibited items, arms and ammunition, hazardous waste and chemicals and warehouse them in such bonded warehouses. Such goods may be cleared for home consumption in accordance with provisions of FTP and against Authorisation, wherever required. Customs duty as applicable shall be paid at the time of clearance of such goods. If such goods are not cleared for home consumption within a period of one year or such extended period as the custom authorities may permit, importer of such goods shall re-export the goods.

Free Exports
All goods may be exported without any restriction except to extent such exports are regulated by ITC (HS) or any other provision of FTP or any other law for time being in force. DGFT may, however, specify through a public notice such terms and conditions according to which any goods, not included in ITC (HS), may be exported without an Authorisation.

Export of Samples
Export of samples and Free of charge goods shall be governed by provisions given in HBP v1

EXPORT OF IMPORTED GOODS

Goods imported, in accordance with FTP, may be exported in same or substantially same form without an Authorisation provided that item to be imported or exported is not restricted for import or export in ITC (HS). Exports of such goods imported against payment in freely convertible currency would be permitted against payment in freely convertible currency. Goods, including those mentioned as restricted for import (except prohibited items) may be imported under Customs Bond for export in freely convertible currency without an Authorisation provided that item is freely exportable without any conditionality / requirement of Licence / permission as may be required under ITC (HS) Schedule II. A Hides, Skins and semi finished leather may be imported in the Public Bonded warehouse for the purpose of DTA sale and the unsold items thereof can be reexported from such bonded warehouses at 50% of the applicable export duty. However, this facility shall not be allowed for import under Private Bonded warehouse.

EXPORT OF REPLACEMENT GOODS

Goods or parts thereof on being exported and found defective / damaged or otherwise unfit for use may be replaced free of charge by the exporter and such goods shall be allowed clearance by Customs authorities, provided that replacement goods are not mentioned as restricted items for exports in ITC (HS).

EXPORT OF REPAIRED GOODS

Goods or parts, except restricted under ITC (HS) thereof, on being exported and found defective, damaged or 25 otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without an Authorisation and in accordance with customs notification.

PRIVATE BONDED WAREHOUSES FOR EXPORTS

Private bonded warehouses exclusively for exports may for Exports be set up in DTA as per terms and conditions of notifications issued by DoR. Such warehouses shall be entitled to procure goods from domestic manufacturers without payment of duty. Supplies made by a domestic supplier to such notified warehouses shall be treated as physical exports provided payments are made in free foreign exchange

DENOMINATION OF EXPORT CONTRACTS

All export contracts and invoices shall be denominated either in freely convertible currency or Indian rupees but export proceeds shall be realised in freely convertible currency. However, export proceeds against specific exports may also be realized in rupees, provided it is through a freely convertible Vostro account of a non resident bank situated in any country other than a member country of ACU or Nepal or Bhutan. Additionally, rupee payment through Vostro account must be against payment in free foreign currency by buyer in his non-resident bank account. Free foreign exchange remitted by buyer to his non-resident bank (after deducting the bank service charges) on account of this transaction would be taken as export realization under export promotion schemes of FTP. Contracts [for which payments are received through Asian Clearing Union (ACU)] shall be denominated in ACU Dollar. Central Government may relax provisions of this paragraph in appropriate cases. Export contracts and Invoices can be denominated in Indian rupees against EXIM Bank / Government of India line of credit.

Trade Facilitation through EDI Initiatives

It is endeavor of Government to work towards greater simplification, standardization and harmonization Of trade documents using international best practices. As a step in this direction, DGFT shall move towards an automated environment for electronic filing, retrieval and authentication of documents based on agreed protocols and message exchange with other community partners including Customs and Banks

DGCI&S Commercial Trade Data: To enable users to make commercial decisions in a

more professional manner, DGCI&S trade data shall be made available with a minimum time lag in a query based structured format on a commercial criteria.

Fiscal Incentives to promote Initiatives adoption: With a view to promote use of

Information Technology, EDI DGFT will provide fiscal incentives to user community. Deductions in Application Fee would be admissible for applications signed digitally or / and where application fee is paid electronically through EFT (Electronic Fund Transfer). Details are enumerated in HBP v1.

Exemption / remission of service tax in DTA

For all goods and services which are exported from units in DTA and units in EOU / EHTP / STP / BTP exemption / remission of service tax levied and related to exports, shall be allowed, as per prescribed procedure in Chapter 4 of HBP v1. Exemption from Service Tax in SEZ: Units in SEZ shall be exempted from service tax.

Exemption from Service Tax on Services received abroad: For all goods and
services exported from India, services received / rendered abroad, where ever possible, shall be exempted from service tax.

GRIEVANCE REDRESSAL
(A) DGFT as a facilitator of exports / imports: DGFT has a commitment to function as
a facilitator of exports and imports. Focus is on good governance, which depends on clean, transparent and accountable delivery systems. 1. Citizens Charter: DGFT has in place a Citizens Charter, giving time schedules for providing services to clients, and details of grievance committees at different levels. 2. Grievance Redressal Committee (GRC): In order to facilitate speedy redressal of grievances of trade and industry, a new grievance redressal mechanism has been put in place in the form of GRC by a Government Resolution. The Government is committed to resolving all outstanding problems and disputes pertaining to past policy periods through GRC set up on 2 7.10.2004, for condoning delays , regularizing breaches by exporters in bonafide cases, resolving disputes over entitlements, granting extensions for utilization of Authorisations.

(B) Export of perishable agricultural products: To reduce transaction and handling

costs, a single window system to facilitate export of perishable agricultural produce has been introduced. The system will involve creation of multi-functional nodal agencies to be accredited by Agricultural and Processed Food Products Export Development Authority (APEDA), New Delhi. The detailed procedures have been notified at Appendix 40 of HBP v1.

Significant Export Promotion Schemes

Promotional Measures
Served from India Scheme (SFIS) Focus Market Scheme (FMS) Focus Product Scheme (FPS)

Duty Exemption & Remission Schemes

Advance Authorization Scheme Duty Free Import Authorization Scheme Duty Entitlement Passbook Scheme

EPCG Scheme Special Schemes

Deemed Exports Export Oriented Unit (EOU) Special Economic Zone (SEZ)

Identifying appropriate Scheme

Each Scheme has following 4 aspects:
Objective
Enables clarity on interpretational issues

Eligibility
Meeting the eligibility criteria is most critical before any further analysis as to applicability of the Scheme is undertaken

Entitlement
With a view to optimise the total benefit, it is critical that such scheme as would result into maximum benefit, considering commercial requirements is opted

Imports permitted
Each scheme restricts the nature of goods that can be imported under the entitlement conferred by the Scheme

Conditions and obligations

Satisfaction of the conditions is an absolute necessity

PROMOTIONAL MEASURES

Served From India Scheme

Objective
To accelerate the growth in export of services To create a powerful and unique SFI brand, instantly recognized and respected world over Enhance Indias share in global exports of services Help small scale service providers

Eligibility
Individual service provider
who earn forex of at least Rs. 5 lakhs during preceding financial year

Other service provider

who earn forex of at least Rs. 10 lakhs during preceding or current financial year
Eligible services include all services listed under GATS

Served From India Scheme

Duty free entitlement benefit Imports allowed

10% of the total foreign exchange earned

Capital goods including spares; Office equipment and professional equipment; Office furniture and consumables Entitlement cannot be used for payment of duty in relation to imported vehicles
Transferability allowed within the service providers of the Group Company with actual user condition Financial Services Sector, export proceeds realizations

Conditions

Goods imported shall be non transferable

Not to include inter alia Foreign exchange remittances related to

Focus Market Scheme

Objective Entitlement
To offset the high freight cost and other disabilities to select international markets with a view to enhance export competitiveness Duty free credit scrip equivalent to 3% of FOB value of exports made from Aug. 27, 2009
Notified countries set out in Appendix 37 C
Focus Markets (Table 1- American, African, East European, Asian and CIS-CAR block) New Focus Markets (Table 2- Latin American and Asia-Oceania block)

Eligible exports all goods to notified countries

Ineligible exports

Supplies to SEZ units; Service exports; Ores and Concentrates; Diamond and other precious, semi precious stones; Gold, silver etc.. Cereals of all types; Sugar, of all types; Milk & milk products Crude / Petroleum Oil

Focus Market Scheme

Imports allowable
Duty Credit Scrip and goods imported there under are freely transferable Inputs or Capital goods which are otherwise freely importable under ITC

Others
Proof of landing critical for availment of the benefit Cenvat / Drawback
Additional Customs duty / Excise duty paid, can be adjusted as Cenvat credit or Duty drawback

Focus Product Scheme

Objective
To incentivise export of such products, having high employment intensity in rural and semi urban areas To offset the inherent infrastructure inefficiencies and other associated costs involved in marketing of these products

Entitlement & Eligibility

Exports of notified products to all countries entitled for duty free credit scrip equivalent to 2% (5%-special products) of FOB value of exports for each licensing year Following exports shall not be taken into account for credit entitlement

Deemed exports
Exports made by SEZ units or SEZ products exported by DTA units EOUs / EHTPs / BTPs whore availing direct tax benefits / exemptions Exports through transshipment

 Imports allowable

Focus Product Scheme

Duty Credit Scrip and goods imported there under are freely transferable Inputs or Capital goods which are otherwise freely importable under ITC

Others
Cenvat / Drawback
Additional Customs duty / Excise duty paid, can be adjusted as Cenvat credit or Duty drawback

This scheme is an alternate option to

Focus Market Scheme or Vishesh Krishi and Gram Udyog Yojana

DUTY EXEMPTION AND REMISSION SCHEMES

Advance Authorization Scheme

(Erstwhile Advance License Scheme) Issued on the basis of
Inputs and export given under Standard Input Output Norms (SION); or Adhoc norms or self declared norms
Para 4.7 of the Handbook of Procedure

Authorization can also be applied for annual requirement for a particular product group by Status holders and by the other exporters having at least past two years export performance

Eligibility
Manufacturer/Exporter as well as Merchant/Exporter tied up with supporting manufacturer

 Advance Authorization Scheme

Entitlement Duty free imports of inputs & consumables are allowed for manufacture of export product Normal allowance for wastage available Duty free imports of spares upto 10% of the CIF value of the Authorization which are required to be exported Imports allowable All items except prohibited items Conditions

Authorization is under actual user condition i.e. materials imported cannot be transferred, must be incorporated in the export product
Option with Authorization holder to dispose off the product manufactured out of the duty free inputs on completion of export obligation If imports made in higher quantity, then duty alongwith interest to be paid

 Advance Authorization Scheme

Limitation / Practical Issues
Strict enforcement of technical characteristics, quality and specification of inputs gives very little flexibility to exporters Problem in auditing of Duty Entitlement Exemption Certificate (DEEC) after fulfillment of export obligation Dual monitoring of export obligation by both DGFT and Customs with little coordination interse between them Payment of high interest on the unutilized quantity of raw material even in case of bonafide default

Very widely used Scheme, however, a review of the effectiveness of this scheme vis--vis other schemes may reveal different results

Duty Free Import Authorization Scheme

Combined features of
Advance Authorisation Scheme; and Erstwhile Duty Free Replenishment Certificate Scheme Duty free import of inputs which are used in manufacture of export product as per SION
Normal allowance for wastage available

Entitlement

Eligibility

Manufacturer/Exporter as well as Merchant/Exporter tied up with supporting manufacturer Minimum 20% value addition required with an export commitment Actual user condition in case of pre-export authorization

Conditions

Duty Free Import Authorization Scheme

Benefit
Exemption from following duties on procurement

Customs, Additional Customs & Excise duty, Education Cess, Anti-dumping duty & Safeguard duty

Import allowable
All items except prohibited items

Transferability
Allows transferability of scrip as well as goods imported thereunder

Cenvat facility
Cenvat credit facility available for inputs either imported or procured indigenously against the Authorization

Duty Entitlement Passbook Scheme

Objective
To neutralize the incidence of Customs duty on import content of the export product Duty credit on the basis of pre-notified entitlement rates Such credit can be utilized to import goods without payment of duty DEPB or Products imported against it are freely transferable Freely transferable No actual user condition Additional Customs Duty/Excise Duty paid in cash or through debit under DEPB can be adjusted as Cenvat Credit Additional Customs duty / Excise duty paid in cash or through debit may also be adjusted as Cenvat Credit or Duty Drawback

Entitlement

Advantages

Applicability of Drawback

EXPORT PROMOTION CAPITAL GOODS

Export Promotion Capital Goods Scheme

Objective
Achieve growth in exports by allowing capital goods to be imported at concessional rate of duty
Pre export benefit import at consessional rate of 3% and 0% customs duty
Components and spares also eligible to concession

Entitlement Eligibility

Imports allowed - capital goods, including

Manufacturer exporters Supporting manufacturers Service providers

spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds Second hand capital goods without any restriction on age

Export Promotion Capital Goods Scheme

Benefits
Deemed export benefits on domestic sourcing Leasing of imported capital goods permissible

Obligations
Export Obligation to be fulfilled upto 50% by export of goods manufactured or services rendered, balance can be through other units/Group Companies
EO = 8 times duty saved (6 times in 6 years in case of 0% duty) To be fulfilled within 8 years from issue of license; To be fulfilled within 12 years in case amount of duty saved exceeds Rs. 100 Cr Exports under Advance Authorisation, DFIA, Drawback, etc. can also be considered towards fulfillment of EO Special extended period to achieve EO for BIFR / SSI

Actual user condition till fulfillment of export obligation

SPECIAL SCHEMES

Deemed Exports
Concept
Unique to India Specified transactions where goods arenot physically exported outside the country
Payment for such supplies is received either
in Indian rupees or in free foreign currency

Objective

Public Interest Encourage exports directly / indirectly

Benefits
Deemed Exporters shall be entitled to
Advance Authorisation / DFIA Deemed export Drawback Refund of Terminal Excise duty

Deemed Exports
Entitlement Following categories of supplies by main contractors / sub-contractors treated as deemed exports Against Advance Authorisation / Advance Authorisation for annual requirement / DFIA To EOU / STP / EHTP / BTP Capital goods to EPCG Authorisation holders Projects financed by multilateral or bilateral agencies / funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding (ICB) Supply of goods where legal agreements provide for tender evaluation without inclusion of Customs duty Supply and installation of goods and equipment where bids are evaluated on the basis of Delivered Duty Paid (DDP) prices for goods manufactured abroad

Deemed Exports
Capital goods to fertilizer plants
including CG in unassembled / disassembled condition plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till stage of commercial production, and spares to the extent of 10% of FOR value

To any project or purpose in respect of which the MoF, by notification, permits import of such goods at zero Customs duty To power projects and refineries not covered above (Subject to ICB) Supply of marine freight containers by 100% EOU
Containers to be exported out of India within 6 months or such further period as permitted by Customs

To projects funded by UN Agencies To nuclear power projects through competitive bidding as opposed to ICB

Export Oriented Units

Concept
Unit primarily expected to export Covers capital goods (including raw material for making capital goods), raw materials and others Entitlement to sell upto 50% of FOB value of exports to the Domestic Tariff Area (DTA) Sub-contracting to DTA permitted Exemption from Customs Duty on import / local procurement and Excise duty on manufacture for export Refund of Central Sales tax on inter state procurement of goods Exemption from Income tax in respect of export earnings Leasing of Capital Goods without payment of Customs / Excise duty

Fiscal benefits

Export Oriented Units

Obligation
The unit should be positive net foreign exchange earner (NFEE) Duty, interest and penalty payable on non fulfillment of NFEE
The biggest incentive of Income Tax holiday fadding out at end of the current fiscal year

SPECIAL ECONOMIC ZONES

Specially delineated duty free enclave

Special Economic Zone

Deemed foreign territory for trade, operations, duties and tariff No licence required for import

Manufacturing, trading or service activity allowed

Full freedom for subcontracting including subcontracting abroad

SEZ unit to be positive net foreign exchange earner within three years Job work on behalf of domestic exporters for direct exports allowed

No separate documentation required for Customs and Exim Policy

Key Players
Development of SEZ
Developer Person responsible for procuring the land on which the SEZ will be set up and arranging for the construction, development, provision of infrastructure, operation and maintenance of the SEZ Co-developers Person who enters into an agreement with the Developer to assist the Developer in providing infrastructure in the SEZ or undertaking any other operations as have been authorized by the Board of Approval

Units in SEZ
Entrepreneurs Units are set up within the SEZ by Entrepreneurs to undertake manufacturing activities and / or provide services

Other Key players

Parties involved in the development of a SEZ
Contractors Service Providers and Vendors

Contractors / Service Providers / Vendors

Application to DC for getting approval Post Approval will be eligible for SEZ benefits

Direct Tax Benefits - Units

Deductions of Profits (Section 10AA)
Deduction (% of Profit) Years

100
50 50*

0-5
5-10 10-15

*Deduction is allowed provided the amount is credited to a Special Reserve Account which
is created and utilized for the business of the unit within 3 years

Deduction available only in respect of profit and gains from physical exports

Indirect tax Benefits

APPLICABLE LAWS
Excise
Customs

EXEMPTIONS
Goods manufactured and exported out of the SEZ units Goods procured from the Domestic Tariff Area into the SEZ
Goods imported into a SEZ Goods exported from a SEZ Unit (other than except DTA Sale) Drawback on goods brought from the DTA into a SEZ Unit Taxable Services exported out of the SEZ units to a place outside India Taxable Services procured from the Domestic Tariff Area into SEZ Drawback on services provided from the DTA into a SEZ Drawback on services provided in SEZ by service providers located outside India

Service tax

Central Sales tax

Exemption from CST on purchase of goods from DTA No exemption on sale by SEZ unit into the DTA

Indirect tax benefits are available only for carrying out Authorized Operations

Positive NFE requirement

The unit shall achieve positive Net Foreign Exchange (NFE) NFE to be calculated cumulatively for a period of 5 years from the commencement of production
NFE to be computed as :-

A - B > 0 A = FOB value of exports

Includes supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, colour display tubes for monitors and deflection components for colour monitors or other items notified by Central Government Includes supply to other units and developers in the same or other SE or EOU/EHTP/STP/BTP

B = CIF value of imported inputs and imported capital goods (for annual calculation of NFE, the value of imported capital goods and lump sum payment of foreign technical know-how fee shall be amortized over 10 years @ 10% of the value)