IIFT’s Monthly Newsletter on

National & International Trade

February 2011 Volume II, Issue I
Contents News Snippets
Ankush Mehta, MBA(IB), 1st year
News Snippets 1
Indian generics to be safe from seizure
WTO 2010: while passing through EU
A Recap 5
Pharmaceutical exporters can breathe easy as the European Union
The Rise & Rise in Gold has finally agreed to India‘s demand to amend its Customs
Prices 6 regulations to stop confiscation of drugs en route to African and
Latin American countries. Till the amendment is brought about, the
Siliguri: A Trade Center European Commission has promised that no further seizures would
Bigger than Delhi 8 take place at any European port.

Case History
India's generic exports rising at a
Editorial Team fast clip to Africa & Latin America
MNC companies holding patents to
Oojwal Manglik these drugs in Europe complain of
Abhijith Vasudevan violation Customs authorities in
Ankush Mehta some countries seize consignments
Shiv Kumar Gupta from India. India says drugs do not
have patents in India or destination
vyapar.iift@gmail.com countries Approaches WTO for
blash@iift.ac.in discussion on the issue

Textile companies gung ho on Indo-Japan

FTA
As India and Japan get closer to signing a free trade pact, textile and
clothing majors from both the countries are exploring opportunities

1
Top Japanese industrialists are slated to meet
Indian companies such as Future Group,
Raymond, Alok Industries, Arvind Mills,
Mafatlal and S Kumars. Encouraged by the
prospect of duty free trade between Asia's
second and third largest economies, Indian
companies are also eyeing Japan as a new, large
destination for their products and for importing
high-end fabrics into the local market
India and Japan have already announced that the
Comprehensive Economic Partnership
Agreement will come into effect soon after
being signed and the completion of necessary
procedures. The free trade agreement is likely to
significantly boost trade, which stood at around
$11 billion in 2009-10, between the two
countries. India, one of the largest producers and
consumers of textile products, exports more than
70% of total textile exports worth $25 billion to
the US and European markets. On the other
hand, Japan, one of the most technically
advanced countries with high end luxury
consumer market, imports more than $31 billion
of textile products, of which over 90% comes
from China, according to Japan Textile Import
& Export Association.
Implied volatility
Banks seek higher interest to commodities trade
control arbitrage by exporters Export populism in commodities
Banks want an increase in the rate of interest on
foreign currency loans to exporters for packag-
ing and export to prevent interest rate arbitrage.
The Reserve Bank of India has capped the rate
2
of interest on pre-shipment credit to ensure ex-
porters get funds at internationally competitive
rates.
One banker pointed out that there is a lag of
50-100 days before the exporter has to make
payment towards pre-shipment purchase. The
cheap money borrowed is lent out at higher
rates, getting them a good interest margin or
arbitrage. Pre-shipment credit is largely made
available as packing credit to enable him to
finance purchase/import of raw materials,
processing and packing of the goods meant for
exports.
Under the existing mechanism, an exporter can
avail a loan facility in most currencies including
US Dollar, Pound Sterling, Yen and Euro. The
packing credit loan can be extended for a period
of one year and the credit limit is decided on the
basis of the exporter‘s performance and track
record.
As per RBI guidelines, banks are required to
lend around 12% of their net bank credit
towards exports.
in
is a
phenomenon which is directly connected to the
country‘s backwardness profile. A mandi
operator claims higher place among his peer
group for being a supplier to an exporter and
exporter demands highest place of pride than his
domestic counterpart in social forums. These are expectations about future prices: the higher the
all ingrained in a false vanity that is often underlying uncertainty and hence the implied
attached to international trade. volatility of the underlying commodity.

In the controlled regime, the successful exporter Does volatility matter? Prices of derivative
had to manage the ‗babudom‘ to leverage the commodities that are observed today of
incentives and subsidies of the government. commodities which are traded in the major
However, market orientation brought about a global exchanges are determined by underlying
change in the profile of the exporters. The expectations and uncertainties about such
established players have moved out and the less expectations, pertinent to the market and the
established players have moved in. The moot commodity. Hence, implied volatility, as
point is whether one makes money by exporting reflected or inferred by the prices of derivative
commodities? contracts, is an important component of the
price discovery process and is a barometer as to
Free play of the market can be seen nowhere where markets might be headed.
more dominantly than in exportable
commodities like soybean de-oiled cake (DOC) Markets are failing under the pressure of
and coffee market. In both these commodities, oligopolistic powers. The companies that
one rarely finds a back to back parity. So, how process and ship agricultural commodities are
does one make money — thru positional calls? growing in size as they decrease in numbers.
lower interest & logistical cost or by sheer luck? Empirical evidence shows that a growing
disconnect between prices paid by the
Coffee and soybean are the largest traded consumers and prices received by the producers.
commodities in international exchanges. Implied International Commodity Agreements, Buffer
volatilities for these commodities have been Stocking and government intervention have
creeping up steadily over the course of past two failed in past.
decades and now appear a more permanent
feature in their markets than was the case in the In addition to seeking ways to increase stability
past. A detailed examination of the past in commodities market the government needs to
underscores just how volatile these markets have re-think that in a market oriented economy, how
become and how volatility has persisted. can one limit the exposure to commodity price
volatility and mitigate the detrimental effects of
Since the beginning of 2006, implied volatility commodity wild price swings. To quote
have frequently spiked to levels well beyond Friedman, ―governments never learn. Only
30% in these commodities, reaching well over people learn‖.
60% at times. The more divergent are traders‘

3
India’s exports at 33-mth high, December 2010 period, imports rose by 19% to
$ 247.1 billion.
surges 36% in Dec
―Normally a decline in imports could mean a
INDIA‘S exports posted a 36% growth in
reduction in industrial activity, but if import of
December 2010, the highest in 33 months,
capital goods are up, then there is no reason to
riding on successful forays by exporters into
worry. But one must find out why oil imports
new markets and demand revival in both the US
are down,‖ Mr Chacko said.
and EU. A dip in oil imports contracted overall
imports by 11% bringing down trade deficit to a
Maritime Agenda 2010-2020
three year low and relieving worries on current
account deficit. Launched
Strong growth in exports was recorded across The Minister of Shipping Shri G.K. Vasan
sectors in December particularly in engineering, launched the Maritime Agenda 2010-2020, a
electronics, man made fibres, yarns and drugs perspective plan of the Shipping Ministry for the
pushing exports to $22.5 billion. During the present decade. Launching the Maritime
April-December 2010 period, exports rose Agenda, the Minister talked about the goals set
29.5% to $164.7 billion. Diversification of for the sector.
India‘s export markets to countries in Latin
The Ministry envisages an estimated traffic of
America, Africa and South East Asia is one big
2495 MMT in all ports including the non-metro
reason for the encouraging figures.
ones. The total capacity of all these ports is
―Despite the rosy export numbers, it may be too
expected to be 3280 MMT. The total proposed
soon to withdraw support given to exporters as
investments in major and non-major ports by
the world economy, especially the European
2020 is expected to be approximately 287000
Union, still remain unstable‖ said K T Chacko,
crores and the total proposed investments in the
director, Indian Institute of Foreign Trade
shipping sector by 2020 – Rs. 165000 crores.
(IIFT).
The Maritime Agenda projects a total traffic of
―The economic crisis is not over. It is not yet
2494.95 million tonnes for all major and
time to withdraw sops,‖ he said.
non-major ports taken together and a capacity of
Imports declined by 11.1% in December 2010
3280.04 million tonnes. The proposed
to $25.1 billion with oil imports going down by
investments in ports by 2020 is expected to be
16% during the month. Other sectors that posted
119449.41 crore and in non-major ports it is
a decline include gold, fertiliser, vegetable oil,
167930.84 crore.
coal, chemicals and electronics. In the April-

4
 WTO: 2010 – A RECAP
Abhijith Vasudevan
MBA(IB), 1st year
In 2010, world trade recovered more strongly
than output from its worst decline in many
decades. Trade volume (measured by exports)
grew annually by nearly 6% on average between
2000 and 2007, before slowing to 2% in 2008
and then falling by a record 12% in 2009 in the
wake of the global financial crisis. By July
2010, world trade volume had recovered
roughly to its level of July 2008 and was close
to its pre-crisis peak in April of that year.
Notwithstanding signs of weaker growth in the
second half of the year, the WTO forecasts
world trade volume growth of 13.5% for 2010
as a whole.
Developed countries' merchandise exports
declined more than those of developing
countries in 2009, falling by 15% compared to
8% for developing countries, as households and
firms postponed purchases of consumer durables
and investment goods. Developed countries'
exports are expected to expand by 11.5% in
volume terms in 2010 while developing
countries and transition economies are expected
to see an increase of 16.5%. The rebound of
trade flows has been strongest among
developing countries in Asia.
The WTO Secretariat reported that during the
period 1 January — 30 June 2010, the number
of initiations of new anti-dumping investigations
5
showed a 29% decrease compared with the
corresponding period of 2009. The number of
new measures applied also decreased during the
first semester of 2010 when compared with the
first half of 2009.
The sectors most affected by new trade
restrictive measures in 2010 are base metals and
products, machinery and mechanical appliances,
and transport equipment. These sectors, along
with agriculture, were already relatively heavily
protected before the global financial crisis.
In Seoul, G20 Leaders expressed an unwavering
commitment to resist protectionism in all its
forms. They reaffirmed the extension of their
standstill commitments until the end of 2013 as
agreed in Toronto, committed to rollback any
new protectionist measures that may have
arisen, including export restrictions and WTO
inconsistent measures to stimulate exports, and
asked the WTO, OECD and UNCTAD to
continue monitoring the situation and to report
on a semi-annual basis.
The March 2010 stocktaking on the Doha
Development Agenda agreed to let work and
consultations be guided by a so-called cocktail
approach of a combination of meetings in small
groups, bilateral contacts, Negotiating Group
meetings and consultations of the Director-
General
Director-General Pascal Lamy announced at a
Trade Negotiations Committee meeting on 30
November 2010 an ―intensive work
programme‖ to finish the Doha Round by the
end of next year.
The number of regional trade agreements
(RTAs) continues to rise rapidly. By end of
2010, almost 200 RTAs that are in force had 
been notified to the WTO and about 100 more
are being negotiated. Since 2008, East Asia has
been the most active region notifying new
RTAs, with 19 agreements entering into force.
Europe is also active, with 15 new agreements,
as is South America with nine new agreements.
North and Central America have notified four
and six new agreements, respectively, and
Africa three new agreements since 2008.
The business environment for trade finance has
continued to improve since the middle of 2009.
Nevertheless, traders in low-income countries,
especially Africa, are still confronted with
significant difficulties in accessing trade finance
at affordable prices.
Three potential dangers to WTO members in
2011
 The first is that the last few months have
seen an increase in protectionist pressures
generated by global imbalances, at a time
when the political consensus in favour of
open trade and investment is already under
strain from stubbornly high levels of
unemployment in many countries.
 The second is the danger of a steady
accumulation over time of measures that
6
restrict or distort trade and investment.
Since the end of 2008, new trade
restrictions have built up to cover 1.9% of
total imports.
The third is the challenge of managing the
trade and investment impacts of stimulus
and bail-out measures taken in response to
the crisis. The effects of those measures,
on trade and competition, will be
examined by Members at a Special
Session of the TPRB scheduled for early
spring 2011.
The rise and rise in gold
prices
Shiv Kumar Gupta
MBA(IB), 1st year
Gold has been used throughout history as money
and has been a relative standard for currency
equivalents specific to economic regions or
countries. Of all the precious metals, gold has
been the most popular as an investment. Today,
like most commodities, the price of gold is
driven by supply and demand as well as
speculation. However unlike most other
commodities, saving and disposal plays a larger
role in affecting its price than its consumption.
Gold prices have been on the rise for two years
now and nobody knows when the rally will end.
Gold is a foul-weather friend. In times of war,
recession, bank failures, fall of the real estate
market and political turmoil, it always goes up.
During such periods, due to the devaluation of
paper currency, people feel comfortable
investing in assets that are very unlikely to lose
their value, and gold most definitely is one of
these assets. The same factors that affect
gold-economic trouble, weak dollar and
inflation- affect silver too. Looking around us, we
can see so many signs of instability right now.
This article will try to bring out the reasons for the estate, the demand for gold and other
rise in gold prices.
The main reasons behind the bull-run have been
the European Sovereign debt issues and
quantitative easing in the U.S. Also increasing
investment demand in Asia with lacking new
supply has pushed the price to record levels. As
more institutions and hedge funds are starting to
invest in gold the lack of new supply might start
causing problems in the future. Big institutions
are buying from the same market as central
banks and as the IMF can only sell 403.3 tonne
per annum it is likely that some of the big
players have to start using open markets to buy
gold. A weak dollar boosts gold‘s appeal as an
7
alternative asset and makes dollar priced com-
modities cheaper for holder of other currencies.
The economic crisis from late 2008 boosted
gold, which investors bought as a safe haven
asset. Gold is also bought as a hedge against
inflation, which erodes the value of paper assets.
Another common factor influencing rising gold
prices is the success of the real estate market.
When there are low or negative returns on real
commodities typically is expected to increase.
The issue with quantitative easing is that the
money is not going where it should be. It should
go down to small and medium size businesses to
help them to get loans more easily and this way
create more new jobs. Currently the money is
just going from central banks to commercial
banks and it is only benefitting stock markets
and other investment institutions. This keeps
investors happy but is not solving any of the
issues which are causing the current situation.
On August 15, 1971, the United States
unilaterally terminated convertibility of the
dollar to gold. After this event gold became just Siliguri: A Trade Center
like any other commodity which could be traded
and also became subjected to speculation like Bigger than Delhi
other commodities, especially through the use of Ashish Agarwal
futures contracts and derivatives. Since gold has
MBA(IB), 1st year
always been looked upon as a safe investment
people increasingly started to invest in gold to Reading the heading would make you wonder
get good return on their investments. Other and put you in a dilemma whether this is a hoax
reason that can be attributed to the rise in pricesor does this have substance behind it. Well the
is the increasing incomes. Higher incomes allow news is that it is true. This small city, the gentle
people to make investments in stocks or gold. giant of the east is surely a trading hub bigger in
terms of daily trading value and volume when
Over the years there has been a negative
compared to the capital city Delhi. Going further
correlation between the sensex and the gold
ahead Siliguri is now considered as one of the
prices. Whenever there was fall in the stock
fastest growing in the country.
market people invested in gold to get better
returns. But as we can see from the graph that Strategic Location
after 2008 both price of gold and the sensex
Siliguri is located what is popularly known as
have been rising. The rise in gold prices can be
the ―The Siliguri Corridor‖, or the Chicken's
attributed to increase in demand from the point
Neck, as it is sometimes called, is the only
of investments. After the sub-prime crises there
land-link between the 7-Sister states (Arunachal
has been significant volatility in the stock
Pradesh, Assam, Meghalaya, Manipur,
market. The sensex had plummeted from 20,873
Mizoram, Nagaland, and Tripura) of North
on January 8, 2008 to 8701 on October 24,
Eastern India and the rest of the country. As this
2008. To hedge their risks, investors switched to
is only piece of land that separates Nepal and
gold for stable returns. The demand has led to
Bangladesh the importance in terms of
the sharp increase in prices of the precious
international trade also becomes vital. The Silk
yellow metal. The stock market has done well in
Route of India i.e. trade route between India and
2010 but analysts say that the prices of gold will
China is accessible only after crossing Siliguri
be on the rise as the US dollar is expected to
Nathula and Jelepla. Thus making it important
remain weak for some more time. Continuing
for international trade between India and other
concerns about debt problems in Europe will
countries and also among other countries.
also fuel prices.
Economy Of Siliguri
Siliguri is described as the gateway to the North

8
 Industries of Siliguri
The industry of Siliguri is based on the 5 T‘s:-

 Tea
 Timber
 Tourism
 Transport
 Trade

West Bengal's Government has set up an IT

Park— something like a Special Economic Zone
(SEZ) where one can get huge tracks of land just
set apart for IT industries. Cost of living and
hiring is cheaper and there is plenty of potential
for infrastructure growth and development in
East of India, Bhutan, Nepal & Bangladesh. The Siliguri.
strategic location of the city makes it a base for
essential supplies to the region. Siliguri has
gradually developed as a profitable centre for a
variety of businesses. As a central hub, many
national companies and organizations have set
up their offices here.

Due to the unprecedented trading boom the city

has seen it has become the second biggest and
i m p o r t a n t c i t y o f W e s t B e n g a l . Fruits Of Progress
The Siliguri corridor accounts for about 59 per
cent of exports from the eastern zone of the  Opening of shopping and entertainment
country. It has come up as a strong Platform to malls like COSMOS, ORBIT & City Centre
further the growth of the North Eastern states. has affected a change in lifestyle.

Large number of retail jewelers has

Explains TCA Ranganathan, chairman and 
managing director, Exim Bank, ―The region opened showrooms in Siliguri: Tanishq, P.C.
occupies a share of 5 per cent in the country‘s Chandra, M. P. Jewellers, Senco Gold,
export that makes up an amount of Rs 42,000 Damas.
crore.  The city recently also witnessed the arrival

9
 of its first set of multiplexes - agreements. The opening of the pass is expected
CINEMAX,INOX at ORBIT and Big to bolster the economy of the region and play a
Cinemas. key role in the growing Sino-Indian trade.

 The rapidly growing city also has
showrooms of numerous automobile
companies such as Maruti Suzuki, Honda Siel,
Toyota Kirloskar, Ford, Tata, JCB, Mahindra
& Mahindra, Hyundai,Skoda, General Motors,
Fiat, Mahindra Renault, Chevourlet, Eicher,
Ashok Leyland, Sonalika.
It is estimated that Sino-Indian trade would
increase by nearly 15–20% within two years of
Nathu La's opening. Trade volumes through the
pass are projected to grow to Rs. 206 crore (US$
44.6 million) by 2007, and Rs. 12,203 crore
(US$ 2.6 billion) by 2015. The pass offers
Chinese companies access to the port of Kolkata
(Calcutta), situated about 1,100 km (700 mi)
from Lhasa, for transshipments to and from
Tibet. Siliguri due to its strategic position stands
to gain immensely from the opening of the
Nathula pass.

Siliguri Corridor As a Future Free

Trade Zone
It is hoped that if Chicken‘s Neck has to become
a free trade zone it would be able to lift trade
restrictions between Nepal, Bangladesh and
Bhutan. India, however having great trade
Opening of Nathula Pass: Future relations with Nepal has still got on going issues
with Bangladesh but if this is to become a
Prospects
reality the region will see huge trade national as
Nathu La is a mountain pass in the Himalayas. It well as international.
is located on the Indo–China border connecting
the Indian state of Sikkim with the Tibet With Boons Come the Bane
Autonomous Region of the People's Republic of Siliguri‘s Strategic Location is also the reason
China. The pass, at 4,310 m(14,140 ft) for its set of problems. Chicken‘s Neck, or the
above mean sea level, forms part of an offshoot Siliguri Corridor has also been a known area for
of the ancient Silk Road Sealed by India after criminal activity. It is a popular area for rebels
the 1962 Sino-Indian War, it was re-opened in and insurgents to make illegal crossings and
2006 following numerous bilateral trade many people fleeing their dire situations take on

10
the Siliguri Corridor in the hope to find a better
life elsewhere. And together with illegal
crossings, comes smuggling.
Siliguri Corridor has been patrolled by four
recognized military and police forces: The
Assam Rifles, The West Bengal Police, The
Indian Army and the Border Security Force.
With so many countries and factions vying for
control over one tiny area, it is no surprise that
the Siliguri Corridor has become a politically
charged subject in the region.
Conclusion
Siliguri has all the potential of becoming one of
the best cities in India and is a example for other
North Eastern cities to emulate. The city has
indeed established itself on the map of India and
with the ever growing trade possibly the world
map too.
11
About IIFT
Indian Institute of Foreign Trade (IIFT) is
India‘s nodal institution of excellence in the
field of International Trade and Business. Since
its inception in 1963, IIFT has kept pace with
the extremely dynamic Global business
environment by focusing on International Trade
and Logistics-related issues. The rigorous,
extremely dynamic and up-to-date course
curriculum stands testimony to this fact.
Supplementing the classroom, IIFT organizes
several events and discussions on currently
relevant issues in the field of Trade and
Logistics, which are graced by pre-eminent
professionals, industry veterans and
academicians, alike. Our students have
maintained and sustained IIFT‘s rich legacy by
successfully exhibiting their skills time and
again in various Live Projects and Competitions.
The institution has groomed international
business managers for over 40 years and boasts
alumni base spread over geographies and
business verticals