India-China Foreign Trade Policy

8/7/2019 India-China Foreign Trade Policy

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India-China

Foreign Trade Policy

Chirag K Sardhara Roll No: 38



Instruments of Trade Policy

TariffsNon-Tariff Barriers

± Subsidies± Quotas± Voluntary Export Restraints± Local Content Requirements± Administrative Rules± Consumer Safety± Antidumping Policies



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India s Foreign Trade

In the last five years, robust growth in merchandiseexports

From US$ 63 billion in 2003-04 to US $ 185 billion in2008-09.

Share of global trade (WTO estimates):

2003 2008

Merchandise trade 0.83% 1.45%

Commercial Servicesexports

1.4% 2.8%

Goods & Services Trade 0.92% 1.64%



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India s Foreign Trade :Exports & Imports(Figures in US$ billion)

Year ExportTarget

ActualExport

%Growth

Imports %Growth

2004-05 75 83.53 30.8 111.52 42.7

2005-06 100 103.09 23.4 149.17 33.8

2006-07 125 126.26 22.5 185.60 24.4

2007-08 160 162.90 29.0 235.9 27.0

2008-09 175(Revised)

185.29 13.6 287.76 14.3

2009-10(April-Oct¶09)*

91.05 146.77



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Impact on Indian Exports(Figures in US$ billion)

P eriod 2007-08 * (US $Billion)

2008-09 **(US $ Bi llion) Increase(+) / Decrease (-)

Apr il- Sept. 73.558 108.907 + 48.1

October 14.675 14.131 -3.7

November 12.909 11.163 -13.5

December 14.625 13..368 -8.6

January 2009 14.889 12.869 -13.6

February 15.221 11..941 -21.5

March 17.254 12..916 -25.1

April¶ 08 to March¶ 09 163.13 185.295 +13.6

Month 2008-09@ 2009-10 Increase(+) / Decrease (-)

Apr il 2009 18.460 11.909 -35.5

May 18.687 11.368 -39.2

June 19.181 13.059 -31.9

July 19.030 13.623 -28.4

August 17.759 14.289 -19.5

September 15.789 13.608 -13.8



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D ECLINE IN EXPORTS

Impact on Indian exports :

April - September 2009 exports show a decline of 28.5% (in $ terms)and 18.6% (in Rupee terms) vis-à-vis last year.

Employment intensive sectors have been severely affected.

Tea (-37.2%), Spices (-27.8%), Cashew (-27.5%), Oil-meals (- 42.9%)Iron-ore (-29.5%), Leather and Leather Manf. (-26.6%),Gems & Jewellery (-28%), Basic Chemicals (-26.9%),Engineering Goods (-32.1%), Electronic Goods (-32.2%).Cotton Yarn /Fabrics /Made-ups (-31.5%), Jute Mfg. incl. Floor Covering

(-39.8%), Carpets (-29.8%), Handicrafts (-29.8%),Petroleum Products (-43.1%), Plastics & Linoleum (-23.2%).



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REASONS FOR EXPORTD ECLINE

Major Hurdles faced by Indian Exporters:

U nprecedented Rupee Appreciation by about 12% in the year 2007-08;Global Economic Slowdown and Recession in Developed Economies during2008-09 and its impact.High Interest RatesNon-availability of trade creditWithdrawal of GSP Benefits by U S on certain products such as Gems andJewellery items, certain leather products etc.Ban on exports of certain food products since 2007.

High Incentives provided by some of the countries like China, Bangladeshetc.



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Foreign Trade Policy 2009-14New Initiatives

Strategies

Stable Policy environment

Fiscal incentivesD iversification of export marketsProcedural rationalizationInstitutional changes



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Foreign Trade PolicyComponents and schemes

Import / Exports controlsRestrictions removed over the next 10 years, removing almost all theQuantitative Restrictions.S chemes for Duty Exemption/RemissionPrinciple - Goods and Services are to be exported and not the Taxes and Levies.

Purpose: Procure inputs and capital goods without the component of Central Indirect Taxes & Levies-DFIA Scheme( D uty Free Import Authorisation )-Duty Entitlement Passbook Scheme (DEPB)- Gems & Jewellery Scheme

Promotional Measures/ Incentive

Schemes-Vishesh Krishi and Gram Udyog Yojana (VKGUY)

-Focus Market Scheme (FMS)-Focus Product Scheme (FPS)-Market Linked Focus Product Scheme (MLFPS)-Served From India Scheme (SFIS)



T echnological Upgradation-Export Promotion Capital goods Scheme (EPCG)

-Status Holders Incentive Scrip (SHIS)

Deemed Exports-Supply of goods manufactured by Domestic U nits to

certain authorisation holders / recognised projects which areotherwise entitled for Duty Free Imports.

Export Oriented Units (EOUS), Electronics HardwareTechnology Parks (EHTPS), Software Technology Parks(STPS) and Bio-Technology Parks (BTPS)

Special Economic Zones



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Impact Assessment

GDP growth figures for India for 2008 is 5.4%; and it had beenprojected at a higher level of 6.5% for the Year 2009, with duecredit to Stimulus Measures announced by the Government of India and the RBI .

IIP figures for May, 2009 onwards show that certain industrialsectors like steel, commercial vehicles, cement, two wheelers,intermediate goods etc have started looking up.

Rate of decline in export growth is somewhat reducing, which

indicates that while the impact of global recession is stillcontinuing on our exports, the stimulus packages have startedshowing their impact in arresting the steep decline in exports.



Focusing on China

China constitutes more than one-fifth of theworld population.In surface area, only Russia andCanada are larger.

Only 10% of China's land is suitable forcultivation.

Thus, with more than 70% of the Chinese laborforce engaged in agriculture, the average farmworker controls less than one acre of land (India -2 acres on average; in U SA - 100 acres). 'spopulation.



The Chinese empire was the only giant of the ancientworld to survive into the twentieth century.The imperialist rule came to an end in the later stage of the century.Communist rule was imposed in the late 1970 s.Special enterprise zones begun (1980 in south of country)

Primary stage of socialism idea of professor LiYining a Marxian rationale for a wide range of marketreforms and ownership arrangements argued thatChina did not achieve a high level of capitalistdevelopment before its socialist revolution, so it mustemploy institutions usually associated with capitalismto prepare it for a higher stage of socialism. (Samereasoning used by Lenin in the 1920s to justify his

New Economic Policy in Russia)



Foreign D irect Investment

Foreign-capital EnterprisesJoint Venture Companies

Stock Exchanges 2 types of IndicesA-Shares PRC CitizensB-Shares Foreign Exchanges

1.1.ShenzenShenzen B-Share

2. Shangha i B-Share- Shang



Business in China

Maintains strict regulations± Product registration requirements (3 mo- 2yrs)± Price Control branch of government

Subsidizes some local entrepreneurs± Structures policy to enable success

Completely owns the banks and media± Raising capital can be a large obstacle

± Relationships and good favor become criticalMeetings with Government OfficialsAnnual Reports



Chinese Trade PolicyInterest rates & exchange are centrally determined by the People sBank of China which is controlled by the Ministry of Finance.The corporate income tax is theoretically 33%.(A 15% rate appliesin special economic zones, and a 24% reduced rate applies in 14coastal open cities.)There is also a considerable amount of tax evasion that occurs.Tax breaks offered for investment in the west and north-east andin high-technology industries.The Big 4 Banks allocate 80% of all loans in China.(Bank of China, Construction Bank, Industrial and Commercial Bank,

Agricultural Bank.)Last 10 years: Government released control of most businessesPrivate Sector booming





W hat W TO Entry Meant to China..??

´Galvanized by its WTO admission, China's macroeconomicsituation has improved remarkably. Its gross domestic

product (GDP) grew by 7.9 per cent year on year in the firstthree quarters of the year 2002.The fact is China's exports increased by 19.4 per cent in the

first three quarters of the year [2002]. Its total trade volumeduring that period was U S$445.1 billion, an 18.3 per centincrease year on year «

A WTO report released on October 10 this year said thatChina has become the fourth largest trade body in the world

following the U nited States, European U nion and Japan.The rapid growth in China's trade volume is directlyattributable to the improved trade environment following itsWTO entry. µ

China Daily



W TO Impacts ContinuedChinese deregulation should streamline regulations andsimplify administrative procedures. 789 of the 4000 types of business permits and authorizations are slated for eliminationby the end of 2003.China¶s government will be required to redirect its efforts tofocus on current and growing social issues, includingpensions, unemployment and health benefits, safety andhealth measures. T his is also being driven by the extremeeconomic stratification between China¶s East and West (³GoWest´ initiative).Reform of state-controlled banking«the removal of China¶s³safety net´ practice of covering firm by state-owned banks(which will hopefully create opportunities for U.S. and other Western financial institutions).



China¶s economic Westernization is being accelerated byinternational trade policy, particularly after its entry into theWorld T rade Organization (W T O).

A five year process begun in November 2001.Average tariffs on products gradually dropped below 10% (versus 44% in1991).Nontariff barriers (quotas, licensing) eased.Increases in jointly-owned enterprises (9% in 1990, 60% now, perhaps75% by 2011).Reforms of state-run monopolies expected to accelerate in the next threeyears, with new antimonopoly laws driving restructuring of China¶s serviceindustries (such as telecommunications).



Present ScenarioWorld Merchandise Trade:

India $ 217 billion 1.5% (18 th place)China $ 956 billion 6.7% (3 rd place)

CommodityCommodity Price, 1997Price, 1997 Price, 2001Price, 2001 Decrease &Decrease &Decreasing«.Decreasing«.

DVD Player DVD Player $491$491 $165$165 66.4%66.4%

Fax MachineFax Machine $314$314 $136$136 56.7%56.7%

VHSVHSRecorder Recorder $157$157 $70$70 55.4%55.4%CommunicatiCommunication Equipmenton Equipment

$19$19 $12$12 36.8%36.8%

GlassGlassWindshieldsWindshields

$27.41/sqm$27.41/sqm $18.5/sqm$18.5/sqm 32.5%32.5%



China lacks the infrastructure of modern consumer financeand is years possible decades away from building it to thestandards of the developed worldThe outstanding consumer credit stands at about 13% of theGDP(Mc Kinsey Study,2009), as compared to 48% in Malaysia,70% in South Korea & 65% in India.

From banking habits to government policy, there are manyreasons why China is unlikely to increase consumption

- The Mint (Today)

A n Observation: The unpredictable and covert economicreforms implemented time & again by China are proving to bebeneficial for the economy , while at the same time causing aslight discomfort for the global trade community.

Eg. Ban on new vehicle registration in the country as a measure

to counter the growing traffic & pollution levels .



Managerial Implications

Trade barriers act as a constraint on firm s strategy toefficiently and globally disperse productive

May be useful to move some production activities in theprotected countries to overcome barriers

Antidumping actions limit a firm s ability to pursue

aggressive pricing to gain market share

Firms need to engage the political process and encouragefree-trade and not laissez-faire policies



³China always attaches great importanceto the protection of intellectual propertyrights.´

-C hina C ouncil for the Promotion of International Trade ( CC PIT) & C hinaC hamber of International C ommerce( CCO I C )



That·s All Folks..!!

Thank You & Mi Hau..!!!

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India-China Foreign Trade Policy