Import and Export Schemes
Welcome friends. In the last lecture, we started with the Foreign Trade PromotionMeasures right. So, we try to understand, what is basically Trade Promotion. Tradepromotion, largely is sometimes also called as export promotion and it is basically, itcomprises a substantial part of the GDP of any country right.So, in the last lecture, we also discussed about what are the different processes, how tohow if you want to start an export and import business, how you can start, so what arethe guidelines and then, we also learned about how what are the problems that somebodyfaces while starting in you know business export import business.And then, lastly, we talked about; finally, we talked about how does you know how doesthe process happen that means, somebody when there is an importer and he tries toimport a good how when he gives an order, how does the exporter take the order andthen what is the entire process that happens and finally, how it goes to a customs checkand finally, goes to the product goes to the you know the importer and there is a financialtransaction which we discussed. Today, we will talk about we will start the lecture withimports right.So, as we have understood that exports and imports are the two sides of the coin. So,why import? First of all, let us talk about why import. So, what are the basic reasons forimporting right? Any company, for that imports for 3 reasons right.(Refer Slide Time: 01:43)So, what are the 3 reasons for which generally, we import? First reason is that we canbuy goods or services at a lower price from the foreign suppliers. So, the first reason, thefor you know for example, today if you look at the Chinese market, there is a lot ofdemand of Chinese products.The reason being that even things many of the products which were manufacturing inIndia, they have been stopped and people are have stopped manufacturing rather they aregone into trading. So, what they are doing is they are buying it from China, they aregoing and buying it from China and selling it in India.So, basically, it is all because of the low-price right. So, when foreign supplies can youknow supply at a low price, why should manufacturer domestic producer make it. Butalthough it does not look good because then, it effects the employment and other factors,but then that is a fact of life. The second point is that sometimes the goods or services areof higher quality right, then similar goods produced locally. So, if you are product in thelocal market is of inferior standard right, then in that case people go for an importprocess.For example, Swiss made watches are better quality and that is because of the standardof their mechanism. Metal gears are used; they are made by hand and can be serviced.Meaning that you can use a Swiss made watch for an entire lifetime right, even several.The components and link pins are made with stronger materials. Standard watches aregenerally made with plastic.If you look at a Swiss watch which is Switzerland, it comes from Switzerland and anyother standard watch, a normal watch, so the difference is that it is made of very goodcomponents although is if you look at the other side, the components that we make hereuse here are basically with plastic parts and that cannot be compared when you talk aboutthe longevity of the product.Some of the more import you know popular brands are these for example; but yes, thereis a cost attached to it, I am not denying that. But then, the point is if there is a demandfor such higher quality products in the market and in India, suppose or any other countryyou are unable to produce it, then automatically, there would be an importing right. Itcompletely depends on the demand. So, third thing is the goods and services needed intheir production processes are unavailable from local companies.Example, India was the world’s second largest importer of major arms in 14-18 andaccounted for 9.5 percent of the global total due to unavailability of production processesor technology. Many a times because of the lack of technology, we are unable to producesome of the components or some of the products in the domestic market. So, and thatcase you know because of the lack of the production process, we depend on imports ok.(Refer Slide Time: 04:51)There are 3 types of importers again. So, who are who are then? What they are doing?Importers those looking for any product around the world to import and sell such assports equipment, household items right. Second, importers those looking at foreignsourcing to get the highest quality products right.So, these people, they want to import and sell general products and these for the highquality products at the cheapest price. For instance, a small Utah-based company calledForEveryBody started out selling a variety of bath and body products. Soon, however, itbranched out into decorative products for the home, so it identified manufacturers inChina that could supply it with specific products for its stores.You can get several examples of this also right. So, many a times, when we do not gethigh quality products, we depend on other markets. Third point is those using foreignsourcing as part of their global supply chain and when it comes to the types of imports,basically what we deal with is we deal with consumer goods right or industrial goods.So, industrial goods are generally parts which are used for the you know in the industrialB2B market right. For example, which are directly not used by end consumer, but theyare used for by the manufacturers as a part of the process in the production process sothat some end product is manufactured maybe a consumer good product is made out of itright. So, this is consumer goods and this is the industrial goods right.(Refer Slide Time: 06:32)Now, when a you know, when somebody wants to import, let us say products, now howwould it import? So, what is the import procedure, let us look at it. So, first step is file abill of entry with business identification number. Now, what is bill of entry? So, bill ofentry is written here, if you can see.It is an account of goods entered at a custom house of imports and exports detailing themerchant, quantity of goods, their type and place of origin or destination that means, itcontains all the details about the products, who makes it and you know what kind ofproducts, you know the type and where it is originated, everything it is issued by thecustoms presenting the total assigned value and the corresponding duty charged on thecargo.So, this bill of entry this is the first step. So, file a bill of entry. So, what one wants ineverything. Then, the second step is to determine the rate of duty for clearance from thewarehouse right. So, what is the rate of duty being charged on a particular product? So,every product that the duty charge may be different right. Third step is to file therequisite documents with the custom department right. So, there are necessary documentswhich have to be shown right. Finally, submit the import report and receive permissionto import the goods.So, if anybody wants to import certain materials, be it a very important you knowworking process material, part of the production process or a final good; for example, alet us say a perfume or any luxury product or anything, for that there is an importprocess. So, these are the steps one has to follow right. Now, when one gets into import,there is one important intermediary called the broker.(Refer Slide Time: 08:25)Now, who is this import broker; what does he do? Let us talk about it. He is veryimportant. A person who acts as an intermediary between two parties involved incommercial and financial transactions.So, what is it saying? A broker is also known as a custom broker is one, who acts as anintermediary between two parties right. The import broker is a certified specialist; he is acertified specialist who obtains the required government permission. Because permissionis one is a very critical thing when it comes to export and import right. So, gettingpermissions from you know different places is a very troublesome thing. So, the brokercomes in handy here, he comes plays a vital role and other clearances before forwardingthe necessary documents to the carrier of the goods.The import broker also provides access to several suppliers or producers as well as helpscompanies during price negotiation, arranging transportation and insurance, logisticsupport, directing the return of the damage that means, reverse you know supply chain,return of damaged and rejected goods.So, in all these processes the import broker comes handy. Obviously, he charges a bit. Acustoms broker can help an importer minimize duties by how can he help the importer,let us see. Valuing the products in such a way that they qualify for more favorabletreatment, some products will get a favorable treatment.So, he helps in valuing this product so that they qualify for the favorable treatment.Qualifying for duty refunds right, so if there is a refund scheme, he helps you to get thatthrough drawback provisions right. So, as in India also we had I mean almost all theplaces, we have duty drawback schemes right. Then, differing duties by using bondedwarehouses and foreign trade zones. Finally, limiting liability by properly marking animports country of origin. So, a custom broker helps in the in the importing processthrough all these different measures ok.(Refer Slide Time: 10:43)Now, there are custom agencies. So, the role of the custom agencies. Customs reflect acountry’s import and export procedures and let us say restrictions right. So, everycountry, we have a custom agency, who check, who make, who ensure that the rightthings are coming into the country and nothing wrong is happening out there.So, who are they and what they are doing? The primary duties of a custom agency is theassessment and collection of all duties taxes and fees on the imported products. So, theyare there to collect the duties and taxes. The enforcement of customs and related loss andadministration of certain navigation laws and treaties.So, they also take care of the laws and regulations right. The national customs agenciesare increasingly involved in dealing with smuggling operations and preventing foreignterrorist attacks because they have been because they are one of the major checkpoints,they are able to find out what is being stolen into the country or outside the taken out ofthe country right. So, they try to filter out these things and they also help in preventingforeign terrorist attacks. Without proper documentation custom agencies will not releaseshipments right, so you need to have the right documents.So, the documents are of two types; those that determine whether customs will releasethe shipment and those that contain the information necessary for duty assessment anddata gathering purposes. So, how much tax would be levied; what kind of products theyare being you know moved, all these things the customs, the documents need to be there.So, at a minimum, the required documents would include an entry manifest, acommercial invoice and a packaging list. So, what are the items, who is making?(Refer Slide Time: 12:36)So, how what is the purpose? Everything will be detailed in there right. How does anexport import business plan look like now right? So, when we are talking about we havetalked about export, now import.So, when somebody wants to start a have a business plan, how would it look like? Adetailed business plan is an essential element in the implementation of a good tradestrategy. So, first it starts with the executive summary. So, when somebody wants tohave an export import business plan, so these are some of the key features. So, it startswith the executive summary which has the key elements of the export plan.So, what you are exporting; how much you are exporting, everything description of thebusiness and the target market the first step right. Second, the description of thecompany, the business history, the goals and objectives, the export team, the corecompetency of the team right.So, first you need to started with the executive summary; what is details of the plan, thenabout the company who is doing the you know export. Third, it helps in the marketingresearch, target countries and the market conditions right. Fourth, it helps in themarketing decisions. So, the marketing mix elements. So, what are the marketing mixelements?So, the marketing mix elements are basically like the four Ps of marketing we say. Theproduct, so price. What so, what is the product; what is the price; so, how it will be madeavailable? So, this marketing mix basically, it helps in the marketing decisions. Then, ithelps in legal decisions by making legal agreements and protections.It helps in manufacturing and operations through the location and capacity; personalstrategies like short term and long term need; financial decisions, funding and risk. So,what is the funding and what is the kind of risk involved in it and finally, theimplementation schedule, operational timeline, contingency plan and performancemilestone.So, an export import business plan, tomorrow if you are asked to make export importbusiness plan, remember that you need to understand these features. So, these 9important points, if one can explain; then, it becomes little clear. It is a, there is a clearexport import business plan right. So, this gives and helps also to people who may bethinking of getting into something some of sort of a business. Now, yes, one importantthing is we need to understand what are the key documents; when you are entering intothe such a business, what are the key documents?(Refer Slide Time: 15:00)So, there are some key documents which you should be aware of. So, first term is calleda proforma invoice. What is it? It is an invoice like a letter of intent right from theexporter to the importer. So, the exporter gives to the importer that outlines the sellingterms. What is the selling term? The price, the delivery, if the goods are actually shippedright. If the importer likes the terms and condition, it will send a purchase order so right.So, first is the letter of intent. Then, if it is yes, it goes for a yes; then, there is a purchaseorder right.An arrange for payment is done at that point, the exporter can issue a commercialinvoice. So, now, from here we move into a commercial invoice, where he now actuallysends a order right. Now, what is the commercial invoice? It is a bill for the goods fromthe buyer to the seller. So, the importer right from the importer to the exporter right. Itcontains a description of the good.So, what does the importer want; what does the buyer want actually; what is thedescription of the good? The address of the buyer and seller and delivery and paymentterms, many government use this form to assess duties. So, this is thecommercial invoice is used to assess the duties basically.The third another important document is the bill of lading. Now, what is bill of lading? Itis a receipt for goods delivered to the common carrier right as a means for transportation.So, the common carrier could be a ship or you know through shipping or through airwhatever, transportation a contract for the series rendered by the carrier and a documentof the title. So, it is a receipt of the goods delivered right.(Refer Slide Time: 16:55)Then, comes a consular invoice. Now, what is a consular invoice? It is sometimesrequired by countries as a means of monitoring the imports right. Government can usethe consular invoice to monitor prices of the imports and to generate revenue for theembassies that issue the consular invoice. So, the consular invoice is sometimes requiredby countries for these purposes the next important document is a certificate of origin.Now, these are very important documents if you are really thinking of or even you knowof an export import business. So, these documents have to be understood very deeply. Itshould be very clear with them. The certificate of origin indicates where the productsoriginated and is usually validated by an external source.So, somebody has to also validate right such as the chamber of commerce, it helpscountries determine the specific tariff schedule for the inputs. The next document is ashipper’s export; declaration is used by the exporters government right, the country tomonitor exports and to compile the trade statistics right.Another key document is called the export packing list. So, it itemizes the material ineach individual package. So, there are different the packages are being made and theyhas been shipped. So, what is there in the package, each individual package, it is writtendown. It indicates the type of package and it attached to the outside of the package right.So, it is there as a like a label outside the package. So, everybody can read and seeunderstand what is there inside. The shipper or freight forwarder and sometimes customofficial use the packaging list to determine the nature of the cargo and whether thecorrect cargo is being shipped right.(Refer Slide Time: 18:46)So, these are some of the documents which we talked off and these documents are veryimportant and they need to be understood, whenever one wants to get into a businessplan, export import business right. Now, from here we will move into some of theschemes in India right. For example, what is been followed in India. So, somepromotional measures and schemes which the government of India is doing forenhancing you know export promotion right or trade promotion right.So, various trade promotion measures and schemes are available for business firms tofacilitate their export and import operations ok. So, which comes under the basically isknown as the export import policy largely. So, what are the major foreign tradepromotion schemes and organizations, we will discuss. So, now, first we will talk aboutthe you know schemes and later on, the organizations. So, there are few schemes forexample, when it when you talk about export import and you know there are theseschemes one needs to be aware. So, first is the duty drawback scheme right.I will explain each one of them. Then, the export manufacturing under bond scheme;advanced license scheme; export of services; export finance; export promotion of capitalgoods; export processing zones and export-oriented units right. So, these are some kindof schemes which the government has been doing and it has been an always in a dynamicmode, it has been constantly changing and trying to upgrade right.(Refer Slide Time: 20:18).So, let us start with one by one. So, first is the duty drawback scheme. Now, what is thisduty drawbacks scheme? So, if you can see; if you can understand from the word itselfright drawback. So, it is a refund of certain duties, taxes and certain fees collected uponthe import importation of merchandise. Like for example, you pay a tax and then, youget a refund of the tax sometimes right, when you have paid more right. So, in that casesimilarly, we have a duty drawback in which the extra you know taxes are being orduties are being paid back to the one who has paid you right.So, when you have collected the merchandise and you have paid some duties or suppose,you are the let us say importer right or exporter whatever. So, then you need to you willbe paid back a part of the fund right, which you have paid extra. So, what is the whathappens here? It enables the exporter. So, the exporter, it helps the exporter to obtain arefund of the custom duty and excise duty that has chargeable on the imported materialright, used in the manufacturing of exported goods. So, suppose, I am an exporter and Iam exporting certain goods. To make those goods, I have imported certain productsright, some to add value to my to the product.So, when I imported those products. So, there was some charged you know on somecustoms duty and excise duty on me. So, now, by showing a proof of exports, after usingthese goods and exporting the final value-added product, when I show a proof of theseexports to the concerned authorities, I get back a kind of a refund right. So, it is done forbasically improving competitiveness of exports.So, many a times, there are certain products which are very much important and withoutit the production cannot happen right. So, first once the exporter pays whatever it has toand then, after you know making the final production, it can show the proof thedocuments and then get back the refunds ok.But some major drawbacks include of this drawback scheme. The refund of exciseduties paid on goods meant for exports, refund of custom duties paid on raw materialsand machines imported for the export production.So, there are some of the major drawbacks that means, this drawback does not mean,please understand not a weakness, this is a drawback means refund. So, these are kind ofa refund which you get right. So, do not confuse the word with drawback as you knowgeneral in English dictionary, we say drawback as a its a lacuna or weakness not that it isa refund right.So, some major duty refunds include this right. If customs or excise duty is paid for aportion of the import goods, suppose customs or excise duty is paid for a part of theimport goods, only that portion is eligible for duty drawbacks scheme right. Importgoods that you obtained without paying customs or excise, are not eligible. Obviously,what you have paid for, you will get back only that much right.(Refer Slide Time: 23:27)The Union Ministry of Commerce raised the duty drawback rates across all varieties oftextiles and apparel by up to 70 percent recently right. I think this is given to you. So,major support. Revised duty drawback rates existing and revised. So, gray cotton yarn.So, it was earlier it is earlier you know 1.7, now it is 1.2 right.Now, dyed cotton yarn, it is 1, earlier 1.3. Core spun 1.5, 1.8. So, it has you know it haschanged right. So, these are the revised rates. The revised duty draw back rates will leadto increase exports of textiles and other products in the value chain. For example, look atit. Gold is imported right and duty is paid, it is converted into jewel, jewelry not jewelsand jewelry right and exported at a higher value and the import duty is refunded.So, whatever you know you had paid that is refunded. The duty paid at the time ofimport is refunded which is called the duty drawback. So, I hope you are clear. It is givenon certain items in which you are using it as a part of your production system and then,then after doing a value addition, you are selling the final product, you get back on onlythat part of the metal which is an integral part on which you are eligible right. So, this iswhat it happens. The second part is export manufacturing under bond scheme.(Refer Slide Time: 25:02)Now, what is this scheme? This facility entitles forms to produce goods without paymentof exercise and other duties. What it is saying? Without payment of exercise and otherduties. The firms desirous of availing such facility have to give an undertaking or a bond,that is why bond scheme that is they are manufacturing goods for export purpose. Thegovernment tries to create scheme so that to encourage people to get into exporting right.Let us take this example. A leading Japanese automobile manufacture intends tomanufacture vehicles in India, they file an application for licensing a facility near let ussay Nagpur, Maharashtra. In fact, this is a real case, only the name has not been given toyou. So, an import requires inputs for production like airbags, gearboxes and capitalgoods. The duty on such imports is deferred which provides additional working capital.When the duty is not charged, so what happens? There is an additional extra money isthere with the producer.So, additional working capital support to the manufacturer. The manufacturer gets someadditional working capital right because it does not have to pay for the imports right. Themanufacturer exports 70 percent of the total produced vehicles. And deferred duty onthat portion is waived, while deferred custom duty and IGST are paid on the remaining30 percent of the vehicles at the time of their sale domestically across India. So, toencourage export, the government does all these schemes right.So, on the 70 percent, they are not paying; only on the remaining 30 percent, they arepaying right. The manufacturer benefits from the deferred duty on imported inputs andfrom reduced production cost due to duty free imports. So, this is a also an veryimportant scheme right. The third scheme and which would be maybe the last today forus, we will discuss is called the advanced advance license scheme.(Refer Slide Time: 27:05)Now, what is this? It is a scheme under which an exporter is allowed the duty free supplyof domestic as well as imported inputs. So, the government is trying to encourage toproduce more, required for the production of the exported goods right. So, duty freesupply of domestic as well as imported inputs.The advanced licenses are available for both type of exporters, those who export on aregular basis and those who do on a export on a ad-hoc basis sometimes they do. Theregular exporters can avail such license against the production programs. The firmsexporting intermittently sometimes only, can obtain these licenses against specificsexport orders right.Recently, the central government has withdrawn the advanced license scheme forexporting machine made gold jewelry, articles, coins and medallions. Under this scheme,exporters were given permission to import gold without paying import duty, but the goldimported cannot be sold or transferred. That is the only condition. You cannot sell it ortransfer right, but you can use it to make value added products right. So, today, we willwind up here.So, I hope you have understood a bit, what is how we started with why import and then,what are the processes that need to be kept in mind; what is an export; good exportbusiness plan, when you are exporting what things one should keep in mind and what arethe different schemes put forth by the government. So, that you know to in which theyare trying to encourage more export. Because obviously, we understand that the more theexport more the value of exports, the more is the surplus you know revenue with us.That means, we get more we have more money with us, we earn more and if you areimporting more and exporting less, then we are in a deficit case. So, any governmentwould try to been a surplus case right. So, we will continue from here with the otherdifferent schemes in the next lecture.So, thank you for today.