Trade Policy Review of the Year : Daily Current Affairs

Relevance: GS-2:Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests; / GS-3:Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment; Effects of liberalization on the economy.

Key Phrases: Harmonized System of Nomenclature (HSN), MEIS, RoDTEP, DGFT, Service Export from India Scheme (SEIS), Foreign Trade Policy, GST, Service Authorisation Code (SAC).

Why in News?

Government is implementing a revised HSN from Jan 1, which is expected to boost trade. In this light it’s imperative to look at the trade policy decisions taken in the year passing by.

Keypoints:

This year, the demand for goods in the developed countries helped boost the exports growth despite the second wave of the Covid-19 pandemic, severe container shortages, high commodity prices, soaring ocean transportation charges, and other supply side disruptions.
Towards the year end, the container rentals and freight rates eased up somewhat as the export momentum also slowed.
The year started with discontinuation of the Merchandise Exports from India Scheme (MEIS) and introduction of the Refund of Duties and Taxes on Export Products (RoDTEP) Scheme.

Remission of Duties and Taxes on Export Products (RoDTEP)

It is applicable with effect from January 1, 2021, formed to replace the existing MEIS.
With RoDTEP exporters will be compensated for the non-creditable duty/tax costs (such as Electricity Tax, Stamp duty, Mandi Fee, Tax on fuel, etc.) that are embedded in the export goods. It is compatible with the WTO mandate.

MEIS was devised to incentivise exporters in offsetting infrastructural inefficiencies and the associated costs.

It was considered a subsidy and pronounced as a violation of the World Trade Organisation (WTO) rules, by its Dispute Settlement Body in 2019.
The Subsidies and Countervailing Measures (SCM) Agreement of the WTO prohibits a government especially countries above a certain specific threshold of development, from providing financial benefits to exporters in the form of incentives.

Further the Director General of Foreign Trade (DGFT) disenabled the module for filing of MEIS applications till September to ensure a level of reserves imports, to promote establishment of a particular industry and prevention of sudden increases in imports from causing serious injury to domestic producers or to relieve producers who have suffered such injury.
Pre-import registration requirements were imposed on imports of coal, semiconductor chips and nonferrous metals. Import duties were raised on many items and imports at lower duty rates.
After release of allocation by the Finance Ministry, the DGFT allowed filing the applications imposing certain ceilings on entitlements and restricting the overall grant to the extent of allocations, but in December many exporters found that they could not file the applications as the allocations had run out. Hopefully, more allocations will come through and the DGFT will allow filing the MEIS applications in the next year.
Under the Service Exports from India Scheme (SEIS), the rates for exports during 2019-20 were notified with certain ceilings and applications were allowed till the allocations lasted.
The government extended the Foreign Trade Policy 2015-20 (FTP), initially till end-September this year and later till the end of March next year.
- The principles of restriction were amended in the FTP to include exports of foodstuffs or other essential products for preventing or relieving critical shortages.
- Imports and exports necessary for the application of standards or regulations for the classification, grading or marketing of commodities in international trade, imports of fisheries products imported in any form, imports to safeguard country’s external financial position and under the preferential/free trade agreements were made more difficult.
Overall the government turned more protectionist, although the government did make some progress in trade negotiations with the United Arab Emirates, the United Kingdom, and Australia, etc.
The government removed the import restrictions, lowered the import duties, and imposed export curbs on a number of items required to deal with the delta variant of Covid and ensure enough availability of medicines, injections etc. within the country.
The exports of vaccines were also restricted keeping in view the need to vaccinate most adults within a short period of time. The Customs duties and tax rates under the goods and services tax (GST) laws were reduced for Covid-19 related items to ease the financial burden on the people at large.
The DGFT, the Customs, and the GST administrations brought more functions and facilities under the electronic platforms making it less necessary for the traders to interface with the administrators.
The government issued a guidance note about the changes in the Harmonized System of Nomenclature (HSN) that will come into effect from the beginning of 2022.

Harmonized System of Nomenclature (HSN), was conceived and developed by the World Customs Organization (WCO) with an aim of classifying goods from all over the world in a systematic and logical manner.

It is a six-digit uniform code that classifies more than 5,000 products and is accepted worldwide.
These set of defined rules are used for taxation purposes in identifying the rate of tax applicable to a product in a country.
It is also used to determine the quantum of product exported or imported.
It is a crucial feature to analyse the movement of goods across the World.
HSN is adopted in more than 200 countries, covering a staggering 98 per cent of goods in the world.
India has already been using HSN system since 1986 in the Central Excise and Customs regime.

Like HSN Codes for goods, we have the Service Authorisation Code (SAC) for services.

Conclusion:

Harmonising HSN is expected to avoid classification disputes and reduce tax leakages. Further it can be reduced by merging rates and products. It’s high time that GST Council takes a call over it.

Source: Business-Standard

Mains Question:

Q. Timely steps taken by government helped India’s trade to rebound sharply despite the pandemic impact. Comment. (150 Words).