Loading
Notes
Study Reminders
Support
Text Version

Foreign Trade Organizations

Set your study reminders

We will email you at these times to remind you to study.
  • Monday

    -

    7am

    +

    Tuesday

    -

    7am

    +

    Wednesday

    -

    7am

    +

    Thursday

    -

    7am

    +

    Friday

    -

    7am

    +

    Saturday

    -

    7am

    +

    Sunday

    -

    7am

    +

Foreign Trade Organizations
Hi friends. Welcome to the class of International Business. Let us continue from wherewe had left in the last lecture. So, in the last lecture we had discussed about the ForeignTrade promotional measures, the schemes that are prevalent and here the Ministry ofCommerce plays a very vital role and it helps in the formulation of the different schemesand the guidelines along with the help of the DGFT, right.So, what are the some of the schemes and we had discussed are for example like the wehad discussed about the duty drawback scheme.(Refer Slide Time: 00:57)Then export manufacturing under bond scheme, advanced license scheme, export ofservices, export finance, export promotional capital goods, export processing zones and100 percent export oriented units.So, which majorly the government has made to help in boosting up the export businessfor from for the Indian exporters, right.(Refer Slide Time: 01:21)And along with this there were a few more measures. For example, like the ASIDEscheme the government had started to assist the for the development of exportinfrastructure and allied services among the states. Then the TIES which is called theTrade Infrastructure for Export Scheme, then there was an Market Access Initiativewhich is the MAI scheme right which helps basically in development of foreign marketsand try to promote the brands of the exporters. Then there is an Market DevelopmentAssistance again scheme which is called the MDA scheme.So, these were the different schemes provided by the Government of India incollaboration with the State, the Central and the State government's. They take up suchschemes maybe in different ratios for example somewhere there is an equal participationsomewhere.You know the government gives up around 20 percent of the total fund and the rest isborne by the states and in some different cases there are different aspects, right.(Refer Slide Time: 02:24)So, from here today we will talk about the Foreign Trade Organizations. What are theForeign Trade Organizations and what are the roles right.So, let us start with this the government of India has set up various institutions right inorder to facilitate the process of foreign trade in our country. So, when ever there is a youknow whenever you think of foreign trade, so there has to be some organizations. So,these organizations will facilitate the entire process.(Refer Slide Time: 02:33)So, the government has set up certain institutions right. The Ministry of Commerce andIndustry Administers, two departments largely the Department of Commerce and theDepartment for Promotion of Industry and Internal Trade formerly which was called asthis was formerly known as Department of Industrial Policy and Promotion.So, now it is called Department of Promotion of Industry and Internal Trade, right. So,these two departments are the apex departments. So, the first one the department ofcommerce in the Ministry of Commerce Government of India is the body responsible forthe country’s external trade and all jurisdiction linked with it, right. So, all rules andlegal you know connections, all the legal rules and anything that is connected withlegality is taken up by the Department of Commerce right for the external trade.The second one the Department for Promotion of Industry and Internal Trade isresponsible for the formulation and implementation of promotional and developmentalmeasures for growth of the industrial sector keeping in view the national priorities andsocio-economic objectives.So, these two major bodies you know are there, right. It is interested with formulatingand implementing the foreign trade policy responsibilities relating to multilateral andbilateral commercial relations, state trading export promotion measures and developmentand regulation of certain export oriented industries and commodities, right.So, these are the responsible of responsibilities of the Department of Commerce and theDepartment for Promotion of Industry and Internal Trade, right.(Refer Slide Time: 04:35)So, under these there are few more institutions which have been started. For example, thefirst one we will start with today is the Export Promotion Council. Now what is thisinstitution and what is its role?.The Export Promotion Councils are non-profit organizations registered under theCompanies Act 2013. This council performs both advisory and executive functions. Therole and functions of these councils are guided by the Foreign Trade Policy 15-20 ok.What is the basic objective of this export promotion council? It helps to promote anddevelop the country’s exports of particular products falling under this jurisdiction, right.What are the lists of products? So, they are basically Apparel Export Promotion Councilfor apparels, Carpet Export Promotion Council, Cashew Export Promotion Council ofIndia, the Cotton Textiles Export Promotional Council, Council for Leather Exports,Export Promotional Council for Handicrafts, Gem and Jewellery Export PromotionalCouncil and so on. So, there are some of the you know Export Promotional Councils inrelation to the different kinds of goods the government has made, right.So, it is basically a advisory you know creates has an advisory function, right. Thesecond is the Export Inspection Council, right.(Refer Slide Time: 06:01)So, what is this Export Inspection Council? It is the official export certification body. So,it is a export certification body which ensures quality and safety of the products beingexported from India.So, if you have to export who will certify it, right. Somebody has to certify that, right.So, this certification will be done by this Export Inspection Council. It was set up by theGovernment of India under Section 3 of the Export Quality Control and Inspection Act1963. The council is an apex body for controlling the activities related to quality controland pre-shipment. That means before you have shipped the goods to the buyer.Pre-shipment inspection of the commodities meant for the export it is located at Delhi.Now the export inspection council provides mandatory certification for various fooditems namely fish, fishery products, dairy, honey, egg products, meat and meat products,poultry, meat products, animal casing, gelatine, ossein and crushed bones while otherfood and non-food products are certified on voluntary basis.So, for some of the food related items it is compulsory, mandatory and for some others itmight be on a voluntary basis, right.(Refer Slide Time: 07:21)The third institution which is important in terms of the export-import business is theState Trading Corporations, right. So, what is this a huge number of local firms in Indiafind it very difficult to compete in that global market obviously because we do not have alack of we have a lack of knowledge, expertise, finance. In the meantime the presenttrade routes are not suitable for the promotion of exports, right. Some of the trade routesare not suitable.For example, we do not have share a very close relationship with certain countries. So,the boundaries through this when we go it is difficult and bringing about diversificationof trade with countries other than the European countries. So, this is a PremierInternational Trading Company which was established in May 1956.The main objective of the State Trading Corporation is to stimulate trade primarilyexport trade among different trading partners of the world. So, it tries to stimulate tradeby you know joining hands and trying to create partnership with different organizationsacross the world.The Government has set up many organizations, such as Metals and Mineral TradingCorporation right which is MMTC, Handloom and Handicraft Export Corporation,HHEC right. So, these organization arranges import export of mass consumption itemslike rice, wheat, edible oil, pulses, sugar etcetera from time to time as per the instructionof the government.The STC also imparts various types of equipment for the requirement of police,hospitals, sports, fishing and other departments of various state governments. So, it iscorporation which helps in partnering across different organizations across the world forexport purpose, right. The next is the Indian Institute of Foreign Trade which is aneducational institute right which was set up in 63 by the Government of India andregistered under the Societies Registration Act.(Refer Slide Time: 09:24)The prime objective of this act was to professionalize the country’s foreign trademanagement right. It was it was conferred the status of Deemed University in 2002, rightand it provides training in international trade, conduct researches in the areas ofinternational business and analyzing and disseminating data relating to the internationaltrade and investments, right.So, this is basically it has become; it has become largely institute, academic institutetoday and the purpose is also the same and it is it has been done to do research andeducate people on issues of foreign trade, right. Then you have another importantorganization in India which is called the Indian Institute of Packaging, right.(Refer Slide Time: 10:18)So, what is this Indian Institute of Packaging? Indian Institute of Packaging was set up asa National Institute jointly by the Ministry of Commerce, Government of India and thepackage Indian Packaging Industry and allied interests in1966.Why did this institute, what are the importance of this institute? So, it is a training cumresearch institute pertaining to packaging and testing. So, they teach the best methods ofpackaging and how to ensure that this package you know does not go wrong when ittravels long distances and all and it is headquartered at the principal laboratory is situatedat Mumbai and three regional you know laboratories are at Kolkata, Delhi and Chennai,right. It is in terms of packaging the most famous Institute, right. It caters to thepackaging needs with regard to both the domestic and export markets.The packaging industry also takes technical consultancy testing services on packagingdevelopments, training and educational programs, promotional award contests,information services and other allied activities.So, basically you know because if you understand whenever we are you know shipping aconsignment or something, it becomes very important that packaging does not mean onlywe have different kinds of packaging. So, the packaging is not only important in youknow saving the item from getting damaged, but also packaging include several otherthings like for example labeling.So, what is the different you know what should be containing in the outside informationand so that every you know according to the rules and regulations of various countries.So, this institute helps in educating you know the exporters on this basis right.(Refer Slide Time: 12:16)Next one is the India Trade Promotion Organization, right. So, the Indian TradePromotion Organization was set up on 1st of January 1992 under the companies act right1956 by again the Ministry of Commerce. So, as we see everything these are large, thiseverything entire trade businesses coming under the Ministry of Commerce, right.ITPO was formed by the merger of two agencies. Now earlier it was called they wereTrade Development authority and Trade Fair Authority. So, these two was merged toform the India Trade Promotion Organization. So, head office is at Pragati Maidan, NewDelhi. So, you must have seen if you have ever visited Delhi.So, there are lots of you know events going on in the Pragati Maidan like for example,trade fairs, promotions, events largely for in different sectors like handloom, handicraftsacross different right. So, this is a place whoever wants to do research and you know andthe understand the behavior of the exhibitors, organizers and all you can reach to ITPOand try to take permission and do your research out there also.It is a service organization and maintenance regular and close interaction with the trade,industry and government and support export organizations engaged in international tradefairs and exhibitions right. It supports the export organizations engaged in internationaltrade fairs and exhibitions. So, this is largely a promotional organization.So, what is the use? The ITPO serves the industry by organizing regular trade fairs andexhibitions both within and outside the country, right. So, it helps in technicalconsultancy, testing services on packaging developments, training and educationalprograms, promotional award contest, information service and also other allied activitiesright.(Refer Slide Time: 14:12)The next important organization is the ASSOCHAM right, the Associated Chambers ofCommerce and Industry of India right. So, ASSOCHAM is the apex trade association ofIndia right. So, the 2019 theme for it was new India aspiring for 5 trillion USD. So, youmust have you must be aware that our Prime Minister Narendra Modi has a dream ofmaking India a 5 trillion economy.So, here ASSOCHAM has its theme is the same, right. Now the goal of the organizationis to promote domestic and international trade and reduce the trade barriers whilefostering conducive environment for the growth of trade and industry of India. So,ASSOCHAM basically as the is the suggest the associated chambers of commerce andindustry.It helps in the reducing trade barriers and trying to promote domestic international tradeand formulate helps in the formulating guidelines also, right and creating a conduciveenvironment for the growth of trade and industry. It is one of the oldest organizationsright in the country and established in 1921.So, it has been a long time when it has been there, right. Head office is located in NewDelhi and the Regional offices are in Kolkata, Bangalore and Ahmedabad. Thegovernment of India has authorized the power for ASSOCHAM to issue certificate oforigin. Now you must have we have discussed in our last few lectures that certificate oforigin also is a very important criteria when it comes to international trade.While some nations they take pride some products when it for example, when you talkabout electronics from Japan or let us say you talk about Engineering from Germany. So,their certificate of origin or they know the nationality of a country becomes veryimportant within relation to certain products.So, ASSOCHAM issues certificates of origin recommended business visa and certify thecommercial invoices in order to achieve the target of 5 trillion economy. It is essential toincrease digital transactions of GST which has recently been started by the presentgovernment, the goods and services taxes and also increase Aadhar linked to payments todirect benefit transfer. So, this is some of the very essential functions which comes underthe ASSOCHAM.So, digital transactions, increasing digital transactions for example the government hasstarted up several initiatives right in order to improve digital transaction. So, the mainidea behind digital transactions could be for example like there would not be any youknow unnecessary you know we do not have to print loads of you know currencies andsecond is we do not have to then there can be there will be lot of transparency in thetransactions.So, ultimately it is good for any economy, right and the government has been trying todo that and also linking it through Aadhar. And all makes it easier for you know for youknow transfer of money, right so the because identity is clear and very much transparent.(Refer Slide Time: 17:26).The next organization which we will be discussing under important organization are theis the India Brand Equity Foundation right. So, this is a trust established by the Ministryof Commerce and Industry in 2003 with the objective of promoting and creatinginternational awareness of the made in India label in market overseas and to facilitatedissemination knowledge of Indian products and services.It is funded and completely owned by the Government of India, right and it isheadquartered in New Delhi. The IBEF works with a network of stakeholders, domesticand international both to promote the brand India.So, the whole objective of the government was to promote the you know national brandor the brand India, right. As we talk about the brand, Japan the brand Germany, the brandUSA, similarly they wanted to promote our country India right.IBEF regularly tracks government announcements in policy, foreign investment, macroeconomic indicators and business trends it is the branding, IBEF is the branding andcommunication partner for various trade exhibitions organized under the department ofAEGIS of the department of commerce, ok. So, it is largely a as a name itself suggest abrand equity foundation. It helps in the branding you know and promotion of thedifferent you know products.So the digital media and web technologies are integral part of its nation brand campaignsboth within India and overseas market. So, India Brand Equity Foundation is has a veryimportant role to play because whenever it comes to popularize the brand India, it is oneof those important organizations that helps in branding and promoting India rightwherever it finds an opportunity.The next is the Export Credit Guarantee Corporation of India Limited.The last is the Directorate General of Foreign Trade. So, the most important organizationI can easily say it is an attached office of the Ministry of Commerce and Industry and isheaded by the Director General of Foreign Trade.It is responsible for formulating and implementing the Foreign Trade Policy with themain objective of promoting India's exports. So, this is the body which in fact makesmost of the guidelines and rules right. It is again headquartered in New Delhi andmonitors the corresponding obligations through a network of 36 regional offices acrossIndia.All regional offices provide facilitations to exporters in regard to development ininternational trade such as that is WTO agreement, World Trade Organizationagreements rules of origin and anti-dumping issues etcetera to help promoters in theirimport and export decisions in an international dynamic environment.So, the Directorate General of Foreign Trade is the organization which takes into accountseveral you know issues. For example, what are the WTO, we are member of WTO, sowhat are the agreements we have with them and accordingly what should be the rules oforigin the anti-dumping issues etcetera. It tries to educate and make guidelinesaccordingly and this is the one of the most important organizations right which makeswhich takes helps the exporters to carry on the business smoothly.Now, before I wind up I would I thought I should share a very interesting you know casewhich recently happened in India.(Refer Slide Time: 25:36)The PNB scam. Now why I am saying this it is a part of the international trade. So, thatis why I brought it here and how this became a very big scam. This fraud called largelythe PNB fraud or the Nirav Modi scam largely. You must have heard how it happenedand what happened in there. So, you might be interested.So, what it say is this is a this fraud which happened how the trade is financed by banksin India. It is a case of that. So, some of the frequently used terms in import exportfinance are like for example a letter of undertaking, a foreign letter of credit. So, what isthis? What are the difference between these two? So, a letter of undertaking is a letter ofguarantee issued by a bank.So, these organizations which we had just discussed, they help in some of them help inissuing guarantee, right. So, issued by a bank on behalf of its customers to foreignbranches of other banks who offer credit to those customers. So, what happened a letterof undertaking is a letter of guarantee issued by a bank maybe because of theintervention of some of the you know that these apex organizations.So, the bank will issue a letter of guarantee on behalf of its customers to the foreignbranches of other banks, then they would offer credit to the customers and there is aforeign letter of credit which is a guarantee from a bank that a particular seller let us sayx based in a foreign country will receive a payment due from a particular buyer within aspecific time period.Now, what is the difference between this letter of undertaking and letter of credit? Let usunderstand the key difference is that a LoU, the Letter of Undertaking cannot bediscounted unlike FLC the Letter of Credit right, the Foreign Letter of Credit. A letter ofundertaking does not require the releasing of documents by the issuing bank.The credit risk exposure in LoU is to the issuing bank. So, the issuing bank in this casewas PNB which we will discuss and not to the buyer or the seller of the goods. So, theparty was Nirav Modi, his organization and the issuing bank was in this case PunjabNational Bank. So, what happened we will see.So, LoU and FLC are contingent liability from the accounting point of view of the bank,right because in both the conditions the bank has issued right on behalf of the customersa letter of guarantee or some kind of a guarantee, right. These contingent liabilities aredisclosed in the notes of the financial statements in the annual report.Now let us see what happened if you are aware Nirav Modi was one diamond merchantwho made a big scam by using the letter of undertaking from Punjab National Bank andtrying to and it gave it to some other you know bank in some other country and fromthere it the you know it got some important raw materials in form of diamonds and otherstones which was used for the manufacture of the final jewellery in India, right. So, thiswas a whole thing.(Refer Slide Time: 28:49)Now, there are few other things that you need to understand before you get into the PNBscam. For example, there are two types of accounts which are also important and whichyou should know what is that. One is a nostro account which is an account of a localbank. For example, a local bank here held with a foreign bank usually in the currency ofthe foreign banks country right.So, nostro account says that there is an account of a local bank held with a foreign bankright usually in the currency of the foreign banks country whichever country it is. Thereis another account called the vostro account. It is an account that a correspondent bankholds on behalf of another bank, right.So, now in case of PNB what happened you see the PNBs USD account right withStandard Chartered Bank in Hong Kong is a nostro account. The same account is avostro account for Standard Chartered Bank. Now you can you if you read it once againmaybe you will understand it little clearly, right.So, the same account is a nostro account for PNB and vostro account for StandardChartered Bank right. Another term which is very important which you must have heardduring that PNB scam was the SWIFT. Now what is that Society for WorldwideInterbank Financial Telecommunications. It is used as a standardized proprietarycommunications platform such as telex or WhatsApp to facilitate the transmission ofinformation including payment instructions among 11000 financial institutions in 200countries.The SWIFT neither holds funds on its own nor manages external client accounts, ok.Financial institutions will issue the LoUs and FLCs through the SWIFT platform. So,this was some of the you know terms which you need to understand before you get intothe scam. One more is there.(Refer Slide Time: 30:44)Let us see what is that. The Core Banking Solution. What is it? It is a networking of thebranches which enable the customers to use their accounts and avail of banking servicesfrom any branch of the bank in the CBS network regardless of where the customermaintains his or her account.The customer is no longer a customer of just one branch. He or she becomes the bankscustomer. In this case of you know PNB was using finacle software by developed byInfosys. So, let us see what happened here.(Refer Slide Time: 31:15)So, if you see this diagram. So, first n company Nirav company requested to PNB thatthey want money to import jewels from Hong Kong, ok. So, the Nirav Modi companyrequested to PNB that they want money to import jewels from Hong Kong right. So, itwent to PNB, the request went to PNB India. PNB India now issued a letter ofundertaking right so which is like a guarantee.So, this was this came to the Nirav Modi and company again n company right and thisletter of undertaking was submitted to the Allahabad bank in Hong Kong, right. So, herewhile this side on the other side what happened there were SWIFT transfer instructionwhich came from the PNB India directly to the Allahabad bank account right HongKong.So, now Allahabad Hong Kong which has a you know account of PNB there deposited itin the PNB account in Hong Kong branch of Allahabad bank, ok. So, they deposits here.So, now from here when it has deposited this you know request now the PNB from thePNB account in Hong Kong branch of Allahabad bank from there money was transferredto the Nirav Modi company here, right.Now, so that means what happened here the both the cases the buyer and the seller wereboth Nirav Modi's own companies right. So, because of this it was like you know Ibuying from myself and I selling to myself. It was a case of as good as that, right. So,because of this the whole scam happened and Punjab National Bank you know had avery bad time in solving this issue.Although they have now come out of it, but still it was a it happened to be a very bigscam. How the misutilization of letter of undertaking has and with SWIFT transfer hasled to such a big scam and now the rest is history. So, we do not talk about it, but why Ibrought it here is because when we are talking about international trade export andimport, we need to understand [FL] how by misutilizing certain functions, right orcertain instruments somebody could create a scam of such a high value right.So, I think it is very interesting and when you read more about it maybe you will learnbetter about this case. So, this is only for a class purpose. You can go deep into it andunderstand it better, right. So, this is all we have for today.So, thank you very much.