India-China Foreign Trade Policy

Chirag K Sardhara

Roll No: 38

Instruments of Trade Policy
‡ Tariffs ‡ Non-Tariff Barriers
± Subsidies ± Quotas ± Voluntary Export Restraints ± Local Content Requirements ± Administrative Rules ± Consumer Safety ± Antidumping Policies

4% 2008 1.64% 3 .92% 1. robust growth in merchandise exports From US$ 63 billion in 2003-04 to US $ 185 billion in 2008-09.83% 1.India s Foreign Trade In the last five years. Share of global trade (WTO estimates): 2003 Merchandise trade Commercial Services exports Goods & Services Trade 0.45% 2.8% 0.

0 13.0 14.29 91.4 22.India s Foreign Trade :Exports & Imports (Figures in US$ billion) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (April-Oct¶09)* Export Actual Target Export 75 100 125 160 175 (Revised) 83.8 24.26 162.6 111.76 146.17 185.09 126.7 33.9 287.3 4 .8 23.05 % Imports Growth 30.90 185.52 149.77 % Growth 42.4 27.5 29.60 235.53 103.

623 14.789 (US $ 2008-09**(US $ Billion) 108.1 +13.8 5 .5 -25..2 -31.5 -39..5 -8.13 2008-09@ 18.608 Increase(+) / Decrease (-) + 48.9 -28.Sept.254 163.941 12.5 -13.221 17.909 14. October November December January 2009 February March April¶ 08 to March¶ 09 Month April 2009 May June July August September 2007-08* Billion) 73.916 185.059 13.6 Increase(+) / Decrease (-) -35.675 12.368 12.889 15.625 14.759 15.687 19.030 17..4 -19.1 -3.295 2009-10 11.289 13.7 -13.869 11.Impact on Indian Exports (Figures in US$ billion) Period April.6 -21.909 11.181 19.368 13.163 13.907 14.558 14.131 11.460 18.6 -13.

(-26.8%).1%). incl.8%). Carpets (-29. Electronic Goods (-32. Floor Covering (-39. Tea (-37. Cotton Yarn /Fabrics /Made-ups (-31. Oil-meals (.5%).2%).8%). Spices (-27.42.5% (in $ terms) and 18.DECLINE IN EXPORTS Impact on Indian exports: April .2%). Leather and Leather Manf. Employment intensive sectors have been severely affected. Plastics & Linoleum (-23.9%) Iron-ore (-29. Gems & Jewellery (-28%). Basic Chemicals (-26. Petroleum Products (-43.5%). Cashew (-27.September 2009 exports show a decline of 28.8%). Handicrafts (-29.6% (in Rupee terms) vis-à-vis last year. Engineering Goods (-32.2%).1%). Jute Mfg.6%). 6 .5%).9%).

‡ High Interest Rates ‡ Non-availability of trade credit ‡ Withdrawal of GSP Benefits by US on certain products such as Gems and Jewellery items. ‡ Global Economic Slowdown and Recession in Developed Economies during 2008-09 and its impact. ‡ Ban on exports of certain food products since 2007. Bangladesh etc. 7 . ‡ High Incentives provided by some of the countries like China.REASONS FOR EXPORT DECLINE Major Hurdles faced by Indian Exporters: ‡ Unprecedented Rupee Appreciation by about 12% in the year 2007-08. certain leather products etc.

Foreign Trade Policy 2009-14 New Initiatives Strategies ‡ ‡ ‡ ‡ ‡ Stable Policy environment Fiscal incentives Diversification of export markets Procedural rationalization Institutional changes 8 .

Foreign Trade Policy Components and schemes ‡ Import / Exports controls Restrictions removed over the next 10 years. ‡ Schemes for Duty Exemption/Remission Principle .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) 9 . Purpose: Procure inputs and capital goods without the component of Central Indirect Taxes & Levies -DFIA Scheme(Duty Free Import Authorisation) -Duty Entitlement Passbook Scheme (DEPB) . removing almost all the Quantitative Restrictions.Goods and Services are to be exported and not the Taxes and Levies.

‡Technological Upgradation -Export Promotion Capital goods Scheme (EPCG) -Status Holders Incentive Scrip (SHIS) ‡Deemed Exports -Supply of goods manufactured by Domestic Units to certain authorisation holders / recognised projects which are otherwise entitled for Duty Free Imports. Software Technology Parks (STPS) and Bio-Technology Parks (BTPS) ‡Special Economic Zones . ‡Export Oriented Units (EOUS). Electronics Hardware Technology Parks (EHTPS).

11 . ‡ IIP figures for May. two wheelers. ‡ Rate of decline in export growth is somewhat reducing. commercial vehicles. cement. intermediate goods etc have started looking up. and it had been projected at a higher level of 6. which indicates that while the impact of global recession is still continuing on our exports.5% for the Year 2009. with due credit to Stimulus Measures announced by the Government of India and the RBI. the stimulus packages have started showing their impact in arresting the steep decline in exports. 2009 onwards show that certain industrial sectors like steel.4%.Impact Assessment ‡ GDP growth figures for India for 2008 is 5.

. with more than 70% of the Chinese labor force engaged in agriculture. 's population. in USA . Only 10% of China's land is suitable for cultivation. the average farm worker controls less than one acre of land (India 2 acres on average.Focusing on China China constitutes more than one-fifth of the world population.In surface area. only Russia and Canada are larger.100 acres). Thus.

so it must employ institutions usually associated with capitalism to prepare it for a higher stage of socialism. ‡ Special enterprise zones begun (1980 in south of country) Primary stage of socialism idea of professor Li Yining a Marxian rationale for a wide range of market reforms and ownership arrangements argued that China did not achieve a high level of capitalist development before its socialist revolution. ‡ The imperialist rule came to an end in the later stage of the century. ‡ Communist rule was imposed in the late 1970 s. (Same reasoning used by Lenin in the 1920s to justify his New Economic Policy in Russia) .‡ The Chinese empire was the only giant of the ancient world to survive into the twentieth century.

Foreign Direct Investment ‡ ‡ ‡ Foreign-capital Enterprises Joint Venture Companies Stock Exchanges 2 types of Indices  A-Shares PRC Citizens  B-Shares Foreign Exchanges 1. Shenzen B-Share 2. Shanghai 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 critical ‡ Meetings with Government Officials ‡ Annual Reports .

) ‡ Last 10 years: Government released control of most businesses ‡ Private Sector booming .Chinese Trade Policy ‡ Interest rates & exchange are centrally determined by the People s Bank of China which is controlled by the Ministry of Finance. ‡ The Big 4 Banks allocate 80% of all loans in China. Agricultural Bank.(Bank of China. Industrial and Commercial Bank. ‡ The corporate income tax is theoretically 33%. ‡ Tax breaks offered for investment in the west and north-east and in high-technology industries.(A 15% rate applies in special economic zones. and a 24% reduced rate applies in 14 coastal open cities.) ‡ There is also a considerable amount of tax evasion that occurs. Construction Bank.

Three clusters for Chinese transformation: Beijing.. among others (also the originator of SARS). and the area is gearing up for 2008 Summer Olympics. but also garner 73% of China¶s foreign direct investment and creates 30% of the nation¶s GDP. and the city has become world-class in the last decade.5% of China¶s land and 1. top universities are located here. IBM and WalMart.! . ‡ These three areas represent 7. Shanghai and Guangzhou ‡ The Guangdong Region: A key manufacturing base for China. Honda. ‡ The Beijing Region: Motorola (with more FDI than any other MNC) focuses efforts here.25% of its population. whose investors include Intel. ‡ The Shanghai Region: 250 of the Fortune 500 invest here.

3 per cent increase year on year« ‡ A WTO report released on October 10 this year said that China has become the fourth largest trade body in the world following the United States. an 18. ‡ The fact is China's exports increased by 19.1 billion. ‡ The rapid growth in China's trade volume is directly attributable to the improved trade environment following its WTO entry.4 per cent in the first three quarters of the year [2002].?? ‡ ´Galvanized by its WTO admission.What WTO Entry Meant to China.9 per cent year on year in the first three quarters of the year 2002.. European Union and Japan. China's macroeconomic situation has improved remarkably. Its total trade volume during that period was US$445.µ China Daily . Its gross domestic product (GDP) grew by 7.

789 of the 4000 types of business permits and authorizations are slated for elimination by the end of 2003. including pensions.WTO Impacts Continued ‡ Chinese deregulation should streamline regulations and simplify administrative procedures. ‡ Reform of state-controlled banking«the removal of China¶s ³safety net´ practice of covering firm by state-owned banks (which will hopefully create opportunities for U. . unemployment and health benefits.S. ‡ China¶s government will be required to redirect its efforts to focus on current and growing social issues. safety and health measures. and other Western financial institutions). This is also being driven by the extreme economic stratification between China¶s East and West (³Go West´ initiative).

60% now.China¶s economic Westernization is being accelerated by international trade policy. ‡ Reforms of state-run monopolies expected to accelerate in the next three years. perhaps 75% by 2011). licensing) eased. . particularly after its entry into the World Trade Organization (WTO). ‡ Increases in jointly-owned enterprises (9% in 1990. with new antimonopoly laws driving restructuring of China¶s service industries (such as telecommunications). ‡ Nontariff barriers (quotas. ‡ A five year process begun in November 2001. ‡ Average tariffs on products gradually dropped below 10% (versus 44% in 1991).

41/sqm .4% 36. 66.7% 55.5/sqm Decrease & Decreasing«.Present Scenario ‡ World Merchandise Trade: India $ 217 billion 1.4% 56.5% $157 VHS Recorder Communicati $19 on Equipment Glass Windshields $27. 2001 $165 $136 $70 $12 $18.7% (3rd place) Commodity DVD Player Fax Machine Price.8% 32. 1997 $491 $314 Price.5% (18th place) China $ 956 billion 6.

. ‡ From banking habits to government policy. Ban on new vehicle registration in the country as a measure to counter the growing traffic & pollution levels . 70% in South Korea & 65% in India.China lacks the infrastructure of modern consumer finance and is years possible decades away from building it to the standards of the developed world ‡ The outstanding consumer credit stands at about 13% of the GDP(Mc Kinsey Study. as compared to 48% in Malaysia. there are many reasons why China is unlikely to increase consumption .The Mint (Today) ‡ An Observation: The unpredictable and covert economic reforms implemented time & again by China are proving to be beneficial for the economy . while at the same time causing a slight discomfort for the global trade community. Eg.2009).

Managerial Implications ‡ Trade barriers act as a constraint on firm s strategy to efficiently and globally disperse productive ‡ May be useful to move some production activities in the protected 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 encourage free-trade and not laissez-faire policies .

´ -China Council for the Promotion of International Trade (CCPIT) & China Chamber of International Commerce (CCOIC) .‡ ³China always attaches great importance to the protection of intellectual property rights.

.!!! ..!! Thank You & Mi Hau.That·s All Folks.