Arun Goyal | 11 Jul, 2006
The
Director General of Foreign Trade released a new set of DEPB schedule
on 03 July 2006. All DEPB rates are down by one to two percent when
compared to the previous rates.
There is no upward revision in the DEPB cap rates. Even though the
international prices of raw materials have risen substantially. The
result is that the exporters have lost because the incidence of duty on
inputs has risen. In the medium run, exports will become uncompetitive
in certain segments.
Our calculations show that the total customs duty in the recent Budget
has actually gone up by a little over two percent to 36.736288 percent
from the pre budget level of 34.44336 percent in the general case even
after the reduction in the peak duty to 12.5 percent from 15 percent.
The main reason is that the special CVD of four percent (actual impact
is five to six percent due to the manner of levy) have been introduced
in all cases in the tariff. The CENVAT mechanism is designed to set off
the impact of the four percent special CVD to some extent in the case
of large manufacturers who have CENVAT debit in their final product
accounts. However, these cases are relatively few, the bulk of the
exports are by small and medium merchant exporters who are outside the
CENVAT framework and have to suffer the four percent special CVD
without relief from DEPB or drawback.
Shipments on or before 3rd July, 2006 are eligible to the higher rates.
All consignments bearing let export order after the crucial date of 3rd
July will get only the reduced rates in the new dispensation.
It is expected that the drawback rates too will be revised downward in
the manner of the DEPB. The new drawback schedule will be released very
soon. For once, the Department of Revenue and the Commerce are working
in co-ordination. Exporters complain that the two come together when
exporters interest suffers by a joint action on the part of the
government agencies.
SAFTA: The Department of Revenue released three notifications on the
duty structure relating to SAFTA (South Asia Free Trade Area Agreement)
on 30 June, 2006. Under this arrangement between seven South Asian
countries, each party move to zero duty in the next decade or so
depending upon the speed with which relations between the India-Pak
improves. The notifications list out a long and complex duty
arrangements by which the concession of 2.5 percent on the normal peak
rate of 12.5 percent is offered to the two developing countries in
South Asia, namely, Pakistan and Sri Lanka. The least developed
countries consisting of Bangladesh, Bhutan, Maldives and Nepal will get
little more duty concession compared to Pakistan and Sri Lanka.
The notifications specify a long negative list for the developing
countries and the least developed countries on which there is no
concessional duty.
The Rules of Origin give tariff line wise minimum value additions of 30
percent or so and the substantial transformation condition with most
tariff lines. Change of subheading is required between the raw material
and final product under substantial transformation rules to ensure a
structural change in the value addition process.
There is a separate notification which covers the textiles part of
SAFTA. Essentially, the formula of ad valorem cum specific duty rates
is followed in the SAFTA textiles dispensation with a concession of
2.5% in the ad valorem duty route. However, the specific rate is the
same as in the general textile tariff schedule, there is no concession
on this route. The higher rate between ad valorem and specific duty
routes is applicable.
It is a moot point as to how much trade will actually flow into India
under the SAFTA notifications. The South Asian, except Pak, already
have a very liberal dispensation under SAPTA (an arrangement for low
duty rates) or Bangkok Agreement or a bilateral agreement with India.
Besides, there is competition from smuggling which does not recognize
tariff and non tariff barriers set up by India.
The only gainer under SAFTA is trade from Pakistan who was not very
well off with concessions from India only under SAPTA.
India has held its hand because Pakistan constantly refuses to give us
MFN status and restricts trade from India to just 700 items or so. The
SAFTA framework or the SAFTA notification makes a major break through
on the part of India to give unilateral concession to Pakistan without
reciprocal action on the part of the cranky neighbour in the West.
