Final Project of Economics

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CHAPTER - 1. QUOTA

1.1 INTRODUCTION:

A quota direct restriction on the total quantity of a good or service that may be

imported during a specified period. is a direct restriction on the total quantity of a good or

service that may be imported during a specified period. Quotas restrict total supply and

therefore increase the domestic price of the good or service on which they are imposed.

Quotas generally specify that an exporting country’s share of a domestic market may not

exceed a certain limit.

In some cases, quotas are set to raise the domestic price to a particular level. Congressrequires the Department of Agriculture, for example, to impose quotas on imported sugar

to keep the wholesale price in the United States above 22 cents per pound. The world

price is typically less than 10 cents per pound.

A quota restricting the quantity of a particular good imported into an economy shifts the

supply curve to the left, as in Figure 17.10, “The Impact of Protectionist Policies”. It

raises price and reduces quantity.

An important distinction between quotas and tariffs is that quotas do not increase costs to

foreign producers; tariffs do. In the short run, a tariff will reduce the profits of foreign

exporters of a good or service. A quota, however, raises price but not costs of production

and thus may increase profits. Because the quota imposes a limit on quantity, any profits

it creates in other countries will not induce the entry of new firms that ordinarily

eliminates profits in perfect competition. By definition, entry of new foreign firms to earn

the profits available in the United States is blocked by the quota.

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1.2 DEFINITION :

A government-imposed trade restriction that limits the number, or in certain cases the

value, of goods and services that can be imported or exported during a particular time

period. Quotas are used in international trade to help regulate the volume of trade

between countries. They are sometimes imposed on specific goods and services to reduce

imports, thereby increasing domestic production. In theory, this helps protect domestic

production by restricting foreign competition.

Quotas are different than tariffs (or customs), which places a tax on imports or

exports in and out of a country. Both quotas and tariffs are protective measures imposed

by governments to try to control trade between countries. The U.S. Customs and Border

Protection Agency, a federal law enforcement agency of the U.S. Department of

Homeland Security, is in charge of regulating international trade, collecting customs and

enforcing U.S. trade regulations. Smuggling - the illegal transfer of goods into a country -

is a negative side effect of quotas and tariffs.

1.3 TYPES OF QUOTAS

a) Absolute Quotas

Absolute quotas limit the quantity of certain goods that may enter the commerce of the

United States in a specific period, usually a year. When an absolute quota is filled, further

entries are prohibited during the remainder of the quota period. Some quotas are

worldwide while others are allocated to specific foreign countries. Certain absolute

quotas are invariably filled at or shortly after the opening of the quota period. For this

reason, an absolute quota is officially opened at a specified time on the first workday of

the quota period so that all importers may have an equal opportunity for the simultaneous presentation of entries.

If the quantity of quota merchandise covered by entries presented at the opening of the

quota period exceeds the quota, the commodity is released on a pro rata basis (i.e., the

ratio between the quota quantity and the total quantity offered for entry).

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If not filled at the official opening of the quota period, the quota is thereafter

administered on a "first-come, first-served" basis, that is, in the order that each

entry/entry summary is presented.

Imports in excess of a specified quota may be held for the opening of the next quota

period by placing it in a foreign trade zone or by entering it into a bonded warehouse, or

it may be exported or destroyed under Customs supervision. No importer may offer for

entry a quantity in excess of the quota.

b) Tariff-Rate Quotas

Tariff-rate quotas permit a specified quantity of imported merchandise to be entered at

a reduced rate of Customs duty during the quota period. There is no limitation on the

amount of the quota product that may be imported into the United States at any time, but

quantities entered during the quota period in excess of the quota quantity for that period

are charged a higher duty rate.

Most of the tariff-rate quotas were proclaimed by the President under agreements

negotiated under the Trade Agreements Act.

Duties at the reduced rates provided for in the President's proclamation and the HTSUS

are assessed on shipments entered under the quota. When the Commissioner of Customs

determines that a quota is almost filled, Customs may require the deposit of estimated

duties at the over-quota duty rates as of a specified date and to report the time of official

acceptance of each entry/entry summary.

When an official determination is made of the date and time the quota is filled, Customs

field officers are authorized to make the required adjustments in the duty rates on that

portion of the merchandise entitled to quota preference.

1.4 Tariff and Quota:

Protection to domestic import-competing industries is made either through a tariff or a

quota. A tariff has an immediate advantage for governments in that it will automatically

generate tariff revenue (assuming the tariff is not prohibitive). Quotas may or may not

generate revenue depending on how the quota is administered. If a quota is administered

by selling quota tickets (i.e., import rights) then a quota will generate government

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revenue, however, if the quota is administered on a first-come, first served basis, or if

quota tickets are given away, then no revenue is collected. Tariff collection involves

product identification, collection and processing of fees. Quota administration will also

involve product identification and some method of keeping track, or counting, the

product as it enters the country in multiple ports of entry. Tariffs types include ad

valorem, specific, compound and alternative tariffs.

The most important distinction between the two policies, however, is the protective effect

the policy has on the import competing industries. In one sense, quotas are more

protective of the domestic industry because they limit the extent of import competition to

a fixed maximum quantity. The quota provides an upper bound to the foreign competition

the domestic industries will face. In contrast, tariffs simply raise the price, but do not

limit the degree of competition or trade volume to any particular level. In the original

GATT, a preference for the application of tariffs rather than quotas was introduced as a

guiding principle. Tariffs allowed for more market flexibility and were less protective

over time. With a quota in place, it is very difficult to discern the degree to which a

market is protected since it can be difficult to measure how far the quota is below the free

trade import level. In situations where market changes cause a decrease in imports, a

tariff is more protective than a quota. This occurs if domestic demand falls, domestic

supply rises, the world price rises, or some combination of these changes occurs. A tariff

rate quota (TRQ) combines two policy instruments that nations historically have used to

restrict such imports: quotas and tariffs.

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CHAPTER – 2. IMPORT QUOTA

2.1 INTRODUCTION:

Import quotas are a form of protectionism. An import quota fixes the quantity of a

particular good that foreign producers may bring into a country over a specific period,

usually a year. The U.S. government imposes quotas to protect domestic industries from

foreign competition. Import quotas are usually justified as a means of protecting workers

who otherwise might be laid off. They also can raise prices for the consumer by reducing

the amount of cheaper, foreign-made goods imported and thus reducing competition for

domestic industries of the same goods.

The General Agreement on Tariffs and Trade (GATT) (61 Stat. A3, T.I.A.S. No. 1700,

55 U.N.T.S. 187), which was opened for signatures on October 30, 1947, is the principal

international multilateral agreement regulating world trade. GATT members were

required to sign the Protocol of Provisions Application of the General Agreement on

Tariffs and Trades (61 Stat. A2051, T.I.A.S. No. 1700, 55 U.N.T.S. 308). The Protocol of

Provisions set forth the rules governing GATT and it also governs import quotas. This

agreement became effective January 1, 1948, and the United States is still bound by it.

GATT has been renegotiated seven times since its inception; the most recent version

became effective July 1, 1995, with 123 signatories.

Import quotas once played a much greater role in global trade, but the 1995 renegotiation

of GATT has made it increasingly difficult for a country to introduce them. Nations can

no longer impose temporary quotas to offset surges in imports from foreign markets.

Furthermore, an import quota that is introduced to protect a domestic industry from

foreign imports is limited to at least the average import of the same goods over the last

three years. In addition, the 1995 GATT agreement identifies the country of an import's

origin in order to prevent countries from exporting goods to another nation through a

third nation that does not have the same import quotas. GATT also requires that all

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import quota trade barriers be converted into tariff equivalents. Therefore, although a

nation cannot seek to deter trade by imposing arbitrary import quotas, it may increase the

tariffs associated with a particular import.

In the United States, the decade from the mid-1980s to the mid-1990s saw import quotas

placed on textiles, agricultural products, automobiles, sugar, beef, bananas, and even

under-wear—among other things. In a single session of Congress in 1985, more than

three hundred protectionist bills were introduced as U.S. industries began voicing

concern over foreign competition.

Many U.S. companies headquartered in the United States rely on manufacturing facilities

outside of the country to produce their goods. Because of import quotas, some of these

companies cannot get their own products back into the United States. While such

companies lobby Congress to change what they consider to be an unfair practice, their

opposition argues that this is the price to be paid for giving away U.S. jobs to foreign

countries.

Nearly every country restricts imports of foreign goods. For example, in 1996—even

after the new version of GATT went into effect—Vietnam restricted the amount of

cement, fertilizer, and fuel and the number of automobiles and motorcycles it would

import. The import quotas of foreign countries can adversely affect U.S. industries that

try to sell their goods abroad. The U.S. economy has suffered because of foreign import

quotas on canned fruit, cigarettes, leather, insurance, and computers. In a market that has

become overcrowded with U.S. entertainment, the European Communities have chosen

to enforce import quotas on U.S.-made films and television in an effort to encourage

Europe's own industries to become more competitive.

Import quotas are foreign trade policies undertaken by domestic governments that are

intended to "protect" domestic production by restricting foreign competition. In general, a

quota is simply a quantity restriction placed on a good, service, or activity. For example,

employers often face hiring quotas for different demographic groups and sales

representatives often have quotas for sales activities.

Import quotas are then merely legal restrictions on the quantities of imports from

the foreign sector that are imposed by the domestic government.

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The goal of import quotas is to increase the limit the availability of imports in the

domestic economy and thus encourage domestic consumers to purchase domestic

production.

2.2 MEANING:

An import quota is a limit on the quantity of a good that can be produced abroad and

sold domestically. It is a type of protectionist trade restriction that sets a physical limit on

the quantity of a good that can be imported into a country in a given period of time. If a

quota is put on a good, less of it is imported. Quotas, like other trade restrictions, are

used to benefit the producers of a good in a domestic economy at the expense of all

consumers of the good in that economy.

2.3 Policy of Import Quotas

The impositions of import quotas on foreign imports, as well as other foreign trade

policies, are commonly justified for at least five of reasons.

• Domestic Employment: Because foreign imports are produced in other countries

by foreign workers, decreasing imports and increasing domestic production also

increases domestic employment.

• Low Foreign Wages: Restricting imports produced by foreign workers who

receive lower wages "levels the competitive playing field" compared to domestic

goods produced by higher paid domestic workers.

• Infant Industry: If foreign imports compete with a relatively young domestic

industry that is not mature enough nor large enough to benefit from economies of

scale, then import quotas protect the "infant industry" while it matures and

develops.

• Unfair Trade: The foreign imports might be sold at lower prices in the domestic

economy because foreign producers engage in unfair trade practices, such as

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"dumping" imports at prices below production cost. Import quotas seek to prevent

foreign producers such activity.

• National Security: Import quotas can also discourage imports and encourage

domestic production of goods that are deemed critical to the security of the

national economy.

While import quotas and other foreign trade policies can be beneficial to the aggregate

domestic economy they tend to be most beneficial, and thus most commonly promoted

by, domestic firms facing competition from foreign imports. Domestic firms benefit with

higher sales, greater profits, and more income to resource owners. However, by

increasing domestic prices and restricting accessing to imports, foreign trade policies also

tend to be harmful to domestic consumers.

2.4 TYPES OF IMPORT QUOTA

There are five important types of import quotas, including import licensing.

a) TARIFF QUOTA: A Tariff quota combines the features of tariff as well as of quota.

Under a tariff quota, imports of a commodity up to specified volume are allowed duty

free or at a special low rate, but any imports in excess of this limit are subject to duly/ a

higher rate of duly.

b) UNILATERAL QUOTA: In the case of unilateral quota, a country unilaterally fixes

a ceiling on the quantity of import of the commodity concern.

c) BILATERAL QUOTA: A bilateral quota results from negotiation between the

importing country and a particular supplier country, or between the importing country

and export groups within the supplier country.

d) MIXING QUOTA : Under the mixing quota, producers are obliged to utilized an

domestic raw material up to a certain proportion in the production of finished products.

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e) IMPORT LICENSING : Quota regulation are generally administrated by means of

import licensing. Under the import licensing system, prospective importers are obliged to

obtain an import license which is necessary to obtain the Foreign exchange to pay for the

imports. In a large number of countries, import licensing has become a very powerful

device for controlling the quantity of import commodities of aggregate import.

2.5 Goals

The primary goal of import quotas is to reduce imports and increase domestic production

of a good, service, or activity, thus "protect" domestic production by restricting foreign

competition. As the quantity of importing the good is restricted, the price of the imported

good increases thus encourages consumers to purchase more domestic products. In

general, a quota is simply a legal quantity restriction placed on a good imported that is

imposed by the domestic government.

2.6 Effects

Because the import quota prevents domestic consumers from buying a imported good, the

supply of the good is no longer perfectly elastic at the world price. Instead, as long as the

price of the good is above the world price, the license holders import as much as they are

permitted, and the total supply of the good equals the domestic supply plus the quota

amount. The price of the good adjusts to balance supply (domestic plus imported) and

demand. The quota causes the price of the good to rise above the world price. The

imported quantity demanded falls and the domestic quantity supplied rises. Thus, the

import quota reduces the imports.

Because the quota raises the domestic price above the world price, domestic sellers are

better off, and domestic buyers are worse off. In addition, the license holders are better

off because they make a profit from buying at the world price and selling at the higher

domestic price. Thus, import quotas decrease consumer surplus while increasing producer

surplus and license-holder surplus.

While import quotas and other foreign trade policies can be beneficial to the aggregate

domestic economy they tend to be most beneficial, and thus most commonly promoted

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by, domestic firms facing competition from foreign imports. Domestic firms benefit with

higher sales, greater profits, and more income to resource owners. However, by

increasing domestic prices and restricting accessing to imports, foreign trade policies also

tend to be harmful to domestic consumers.

2.7 Import quotas vs tariffs :

Both tariffs and import quotas reduce quantity of imports, raise domestic price of good,

decrease welfare of domestic consumers, increase welfare of domestic producers, and

cause deadweight loss. However, a quota can potentially cause an even larger deadweight

loss, depending on the mechanism used to allocate the import licenses. The difference

between these tariff and import quota is that tariff raises revenue for the government,

whereas import quota generates surplus for firms that get the license to import.

For a firm that gets a license to import, profit per unit equals domestic price (at which

imported good is sold) minus world price (at which good is bought) (minus any other

costs). Total profit equals profit per unit times quantity sold.

Government may charge fees for import license. If the government sets the import license

fee equal to difference between domestic price and world price, the import quota works

exactly like a tariff. The entire profit of the firm with an import license is paid to the

government. Thus government revenue is the same under such an import quota and atariff. Also, consumer surplus and producer surplus are the same under such an import

quota and a tariff.

So why do countries use import quotas instead of always using a tariff?

When an import quota is used, it allows a country to be sure of the amount of the good

imported from the foreign country. When there is a tariff, if the supply curve of the

foreign country is unknown, the quantity of the good imported may not be predictable.

If world supply in the home country is upward-sloping and less elastic than domestic

demand (as may be the case when the home country is the United States) then the

incidence of the tariff may fall on producers, and the price paid domestically may not rise

by much. Then if the tariff is supposed to make price of the good rise to allow domestic

producers to sell at a higher price, the tariff may not have much of the desired effect. A

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quota may do more to raise price. However in competitive markets there is always some

tariff that raises the price as high as the quota does.

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CHAPTER – 3. IMPORT QUOTA OF UREA IN INDIA

3.1 UREA IMPORT RULES :

• The government last week allowed private companies to import urea for

preparation of complex fertilizers

• Used in agriculture. Till now, such companies could only import urea for

industrial use, in preparation of chemicals.

• For agricultural purposes, private companies used to source urea from imports

made by government canalising agents, such as Indian Potash Ltd and state

trading houses MMTC and STC. Two Indian companies, Coromondal

International and Zara Industries, are allowed to import urea for agricultural

purposes. Now, these companies can directly import without involving canalizing

agents, official sources said.

• However, the permission is given with a rider that the urea cannot be sold directly

in the market. The imported urea is to be used only to make the NPK complex

fertilizer, which these companies can then sell.

• Further, say the rules, strict monitoring will be done for usage of imported urea in

manufacturing of the fertilizer. A company does not get a subsidy if its uses

indigenously manufactured urea in preparation of complex fertilizers.

• India produces about 22 million tons (mt) of urea in a year and consumes a little

more than 30 mt. In 2010, the government had increased the retail price of urea by

10 per cent to Rs 5,310 per tonne. This is still the current price.

• Meanwhile, the ministry of chemicals and fertilizers has sought to exempt urea

from the proposed Goods and Services Tax (GST), and to remove customs dutyon import of plant and machinery for fertilizer projects. A ministry report on the

duty structure on fertilizer and its inputs says the government distributes urea

much below the cost of import or production. Taxes and duties are levied on the

maximum retail price fixed by the government, which covers only 25-40 per cent

of the cost. The inputs for urea production are, however, taxed at full cost,

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resulting in tax incidence on the inputs far in excess of that on the finished

fertilizer.

• Thus, under the proposed GST, the input tax credit will far exceed the tax payable

on fertilizer, meaning the input credits will be far more than what could ever be

availed on the outputs. This would block large amounts of input tax credit of

fertilizer companies with the government on a recurring basis, even if there was

provision of periodic cash refund. Currently, there are no provisions for refund of

unadjusted credits in GST, except for refunds on exports.

• Hence, goes the argument, the sector (meaning, urea) should be exempt from

GST.

• Also, it notes, a number of crucial inputs for urea manufacturing like natural gas,

electricity generation and petroleum products are out of the GST ambit. Besides,

the GST model seeks to exempt the food, health and educational sectors

3.2 PROCEDURE FOR IMPORT OF UREA IN INDIA

Presently, urea is the only fertilizer under the statutory price and movement control of

the Government of India. Urea is being imported to bridge the gap between its demand

and indigenous availability in the country.

The procedure for import of urea by the Department has three components:

a) Assessment of import requirement: The requirement of urea imports is assessed

by GOI in relation to the estimated demand, indigenous production, availability of

stocks and pipeline requirement.

b) Contracting of Imports

Based on the estimates of imports, designated canalising agents are authorised by

the Department of Fertilizers (DOF) to arrange for the imports.

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• The total brokerage commission due to Indian broker under the Charter Party

Agreement is deducted from the first stage payment and is paid to the broker direct in

Indian rupees converted at the exchange rate prevailing at that time. However,

brokerage commission on demurrage, if any, is deducted from the second stage

payment to the vessel owner and is paid to the broker at the time of release of balance

freight.

• The Settlement of dispatch / demurrage with ship owner is done by DOF on the basis

of the lay time calculations given the Transchart at the time of settlement of 10%

balance freight.

• The Settlement of dispatch/ demurrage with the Handling agency is made on the

advice of shipping cell in DOF and after seeking necessary approval.

• The demurrage on vessels on account of pre-berthing detention and detention before

commencement of the discharge at the ports is borne by the DOF.

3.3 Fertilizer Policy

For sustained agricultural growth and to promote balanced nutrient application, it isimperative that fertilizers are made available to farmers at affordable prices. With this

objective, urea being the only controlled fertilizer, is sold at statutory notified uniform

sale price, and decontrolled Phosphate and Potassic fertilizes are sold at indicative

maximum retail prices (MRPs). The problems faced by the manufactures in earning a

reasonable return on their investment with reference to controlled prices, are mitigated by

providing support under the New Pricing Scheme for Urea units and the concession

Scheme for decontrolled Phosphate and Potassic fertilizers. The statutorily notified sale

price and indicative MRP is generally less than the cost of production of the irrespective

manufacturing unit. The difference between the cost of production and the selling

price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of

both indigenous and imported fertilizers are fixed uniformly, financial support is also

given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

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implementation in major States. The companies are reimbursed buffer stocking expenses

on following parameters. The company operating the buffer stock will be entitled to

Inventory Carrying Cost (ICC) at a rate 1 percentage point less than the PLR of SBI as

notified from time to time. This rate would be applicable at4650 per MT (MRP less than

the dealer’s margin i.e.4830-180) for the quantity and the duration for which the stock is

carried as buffer. In case of cooperatives, it will be at4630 per MT as dealers margin in

this case is200 per MT.

The company will be paid warehousing and insurance charges at the rate of23 per

tonne per month on the quantity carried as buffer.

Since the material will be moved in two stages i.e. from the plant to the buffer

stocking point and then on to consumption points, additional handling charges at

the rate of30 per MT will be paid to the Fertilizer Company on the quantity sold

from the buffer stock.

In addition, freight from the buffer stocking warehouse to the block in case of

movement outside the district in which buffer stocking go-down is located, will

also be paid to the company, in accordance with the provisions under the Uniform

policy for freight subsidy announced by the Government with effect from 1st

April, 2008.

•

Formulation of policy for existing urea beyond Stage-III of New Pricing SchemeA Group of Minister (GoM) constituted to review the fertilizer policy has decided in the

meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri

Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for

introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable

recommendations.

• Concession scheme/nutrient based subsidy policy for decontrolled phosphatic &

potassic fertilizers

Government of India decontrolled Phosphatic and Potassic (P&K) fertilizers with effect

from 25th August 1992 on the recommendations of Joint Parliamentary Committee.

Consequent upon the decontrol, the prices of the Phosphatic & Potassic fertilizers

registered a sharp increase in the market, which exercised an adverse impact on the

demand and consumption of the same. It led to an imbalance in the usage of the nutrients

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of N, P & K (Nitrogen, Phosphate and Potash) and the productivity of the soil. Keeping

in view the adverse impact of the decontrol of the P&K fertilizers, Department of

Agriculture & Cooperation introduced Concession Scheme for decontrolled Phosphatic &

Potassic (P&K) fertilizers on ad-hoc basis w.e.f. 1.10.1992, which has been allowed to

continue by the Government of India upto 31.3.2010 with changed parameters from time

to time. Then the Government introduced Nutrient Based Subsidy Policy w.e.f. 1.4.2010

(w.e.f. 1.5.2010 for SSP) in continuation of the erstwhile Concession Scheme for

decontrolled P & K fertilizers.

The basic purpose of the Concession Scheme and Nutrient Based Subsidy Policy has

been to provide fertilizers to the farmers at the subsidized prices. Initially, the ad-hoc

Concession Scheme was introduced for subsidy on DAP, MOP, NPK Complex fertilizers.

This scheme was also extended to SSP from 1993-94. Concession was disbursed to the

manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on

the grants provided by Department of Agriculture & Cooperation. Subsequently, DAC

started releasing payment of concession to the fertilizer companies based on the

certificate of sales issued by the State Governments on 100% basis. The Government

introduced the system of releasing 80% 'On Account' payment of concession in 1997-98

to the fertilizer companies month-wise, which was finally settled based on the certificate

of sales issued by the State Government. During 1997-98, Department of Agriculture &

Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for

DAP/NPK/MOP.

The responsibility of indicating MRP in respect of SSP rested with the State

Governments. The Special Freight Subsidy Reimbursement Scheme was also introduced

in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States,

which continued upto 31.3.2008. Based on the cost price study of DAP and MOP

conducted by Bureau of Industrial Costs & Prices (BICP - now called Tariff

Commission), Department of Agriculture & Cooperation started announcing rates of

concession based on the cost plus approach on quarterly basis w.e.f. 1.4.1999. The total

delivered cost of fertilizers being invariably higher than the MRP indicated by the

Government, the difference in the delivered price of fertilizers at the farm gate and the

MRP was compensated by the Government as subsidy to the manufacturers/importers for

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input/fertilizer prices for Concession Scheme was derived on the basis of an outlier

methodology.

The Buffer Stocking Scheme was allowed to continue with 3.5 Lakh MTs for DAP and 1

Lakh MTs for MOP as buffer. Modifications in certain elements of the Concession

Scheme were also carried out with effect from 1.4.2009 to adjust parameters of

concession scheme to International pricing dynamics and rationalize 'N' pricing group-

wise as well as payment system. Certain changes were effected in the existing policy for

P &K Fertilizers. Accordingly, w.e.f. 1.4.2009 final rates of concession were worked out

on monthly basis, taking into account the average international price of the month

preceding the last month or the actual weighted average C&F landed price at the Indian

ports for the current month, whichever lower with respect to DAP and MOP. In case of

raw materials/ inputs for complex fertilizers, there was a lag of one month. From

1.12.2008, payment of concession has been made to the manufacturers/importers of the

Decontrolled fertilizers (except SSP) on the basis of arrival/ receipt of fertilizers and

certificate of receipt by the State Government/statutory auditor of the company subject to

final settlement on the basis of sale of the quantity.

The MRPs of the P&K fertilizers, which has been indicated by the Government/State

Government, has been constant since 2002 till 31.3.2010. The MRPs of the NPK

complexes were reduced w.e.f. 18.6.2008. In order to enhance the basket of fertilizers in

the Concession Scheme, Mono- Ammonium Phosphate (MAP) was included into the

Concession Scheme w.e.f. 1.4.2007, Triple Super Phosphate (TSP) was inducted into the

Concession Scheme w.e.f. 1.4.2008 and Ammonium Sulphate (AS) manufactured by M/s

FACT and M/s GSFC was inducted w.e.f. 1.7.2008. The rates of concession during 2009-

10 under the Concession Scheme for decontrolled P & K fertilizers (except SSP) were as

per Annexure-X.

(A) Nutrient Based Subsidy Policy for decontrolled Phosphatic & Potassic fertilizers

In the implementation of Concession Scheme, it has been experienced that no investment

has taken place in last decade. The subsidy outgo increased exponentially by 530%

during 2004 to 2009 with about 90% of the increase due to rise in the international prices

of fertilizers and inputs. Agricultural productivity did not register increase in

commensurate with the increase in the subsidy bill. The MRP of the fertilizers remained

22



constant from 2002 onwards. A Group of Ministers (GoM) constituted to look into all

aspects of the fertilizer regime, recommended that Nutrient Based Subsidy (NBS) may be

introduced based on the contents of the nutrients in the subsidized fertilizers. The Hon'ble

Finance Minister in its Budget Speech 2009 announced for introduction of Nutrient

Based Subsidy Policy for Phosphatic & Potassic fertilizers with the objective of ensuring

Nation's food security, improving agricultural productivity and ensuring the balanced

application of fertilizers. The Government introduced the Nutrient Based Subsidy (NBS)

Policy w.e.f. 1.4.2010 in continuation of the erstwhile Concession Scheme for

decontrolled P & K fertilizers (w.e.f. 1.5.2010 for SSP). The details of Nutrient Based

Subsidy Policy are as under:

NBS is applicable for Di Ammonium Phosphate (DAP, 18-46-0), Muriate of

Potash (MOP), Mono Ammonium Phosphate (MAP, 11-52-0), Triple Super

Phosphate (TSP, 0-46-0), 12 grades of complex fertilizers and Ammonium

Sulphate (AS - (Caprolactum grade by GSFC and FACT), which were covered

under the earlier Concession Scheme for Phosphatic and Potassic (P&K)

fertilizers up to 31st March 2010 and Single Super Phosphate (SSP). Primary

nutrients, namely Nitrogen 'N', Phosphate 'P' and Potash 'K' and nutrient Sulphur

'S' contained in the fertilizers mentioned above are eligible for NBS.

Any variant of the fertilizers mentioned above with secondary and micro-nutrients

(except Sulphur 'S'), as provided for under FCO, is also eligible for subsidy. The

secondary and micro-nutrients (except 'S') in such fertilizers attracts a separate per

tonne subsidy to encourage their application along with primary nutrients.

An Inter-Ministerial Committee (IMC) has been constituted with Secretary

(Fertilizers) as Chairperson and Joint Secretary level representatives of

Department of Agriculture & Cooperation (DAC), Department of Expenditure

(DOE), Planning Commission and Department of Agricultural Research and

Education (DARE). This Committee recommends per nutrient subsidy for 'N', 'P',

'K' and 'S' before the start of the financial year for decision by the Government

(Department of Fertilizers). The IMC also recommends a per tonne additional

subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and

micro-nutrients. The Committee considers and recommends inclusion of new

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Manufacturers of customized fertilizers and mixture fertilizers are eligible to

source subsidized fertilizers from the manufacturers/ importers after their receipt

in the districts as inputs for manufacturing customized fertilizers and mixture

fertilizers for agricultural purpose. There is no separate subsidy on sale of

customized fertilizers and mixture fertilizers.

A separate additional subsidy is provided to the indigenous manufacturers

producing complex fertilizers using Naphtha based captive Ammonia to

compensate for the higher cost of production of 'N'. However, this will be for a

maximum period of two years during which the units will have to convert to gas

or use imported Ammonia. The quantum of additional subsidy will be finalized by

Department of Fertilizers in consultation with DOE, based on study and

recommendations by the Tariff Commission.

The NBS is being released through the industry during the first phase. The

payment of NBS to the manufacturers/ importers of DAP/MOP/Complex

Fertilizers/ MAP/TSP, SSP and AS is released as per the procedure notified by the

Department

3.4 Handling of Imported Urea by Handling Agencies at Indian Ports

a) Handling of Imports:

• On arrival of vessels at the nominated Indian ports, urea imports are handled by

agencies appointed by GOI every year on contract. The handling agencies are also

responsible for undertaking the distribution in accordance with the allocations made

for each crop season under the Essential Commodities Act (ECA), 1955 by the

Department of Agriculture and Cooperation (DAC) and the movement orders issued

individually in the case of each shipment by DOF.

• Prequalification of the handling agencies is made by the DOF as per the procedure

outlined at Part I, of Annexure ‘B’. The prequalification is for a period of three years.

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Currently, there are 22 pre-qualified agencies whose details are at Part II, in

Annexure ‘B’.

• The DOF invites tenders from pre-qualified handling agents for the handling of urea

vessels at the ports, bagging, standardisation, transportation, distribution and

marketing of imported urea in the various States/UTs within the country on an annual

basis.

b) Inland Transportation & Delivery of Imported Urea

This is payable in two stages:

• 75% inland freight is adjusted by the handling agency at the time of establishment

of the irrevocable LC. (The detailed procedure for establishment of Letter of Credit

towards the cost of Cargo is at Annexure ‘C’.

• The balance 25% of the inland freight is reimbursed on submission of Debit Note

by handling agents after completing the actual movement of the cargo.

• Miscellaneous expenses reimbursable to the handling agencies

• The expenses reimbursed on actuals by the DOF to the handling agencies as per the

Handling & Distribution Contract are :

(I) Cargo related berth hire charges, priority ousting priority berthing charges, as payable

by the charterers/consignees on their agents.

(ii) Turnover tax.

(iii) Additional ICC on stock-flow basis for the quantities handled during the financial

year but which were not covered by the ECA allocation or remained unsold.

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It is mandatory for the canalising agency to submit the balance 2% bill within 30

days from the date of drawls of 98% advance payment failing which canalising agency is

liable to pay interest at the commercial rate of interest from the 31st day till the date of

submission of the certificates.

Part – II

II. The documents required for ocean freight payment

Advance 90% freight payment:

a) Transchart Authorisation confirming date and time of arrival of vessel.

b) Copy of bill of lading

c) Copy of Debit Note

d) Copy of important provision of C/P Agreement

e) Sailing advice

f) Copy of purchase contract.

Balance 10% freight:

I) Transchart authorization

ii) Copy of debit note

iii) Copy of bill of lading

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iv) Charter party agreement

v) Statement of facts at load port

vi) Notice of readiness

vii) Port trust authorization certificate

viii) Exchange control copy of bill of entry

ix) Time sheets.

The owners are to confirm the receipt of funds within 10 days from the remittance of

initial and final payments.

o Annexure ‘B’

Procedure for Prequalification of Handling Agencies

Part – IAgencies are pre-qualified by the DOF on the basis of response to national

advertisement for a period of 3 years. The criteria for pre-qualification as it is in force

currently are :

i) The bidder should have experience of handling 1 lakh MTs of imported bulk urea in

any of the Indian ports during any of the preceding five calendar years.

ii) It should have experience of transporting and marketing mass consumption articles of

the value of at leat Rs. 50 crores in a year.

iii) It should have a sound financial background and should be able to organise credit

facilities of at least Rs.25 crores with any of the scheduled Indian banks. It would be an

29



added qualification if the average credit facilities availed of during the last three years is

not less than Rs.25 crores.

The supporting documents which are required to be furnished alongwith the

application for pre-qualification are documentary evidence of the bulk cargo handled

during last 5 years, marketing of mass consumption goods, copies of the sales tax

assessment orders and audited accounts for the last three years, bank solvency certificate

for minimum Rs.25 crores, evidence of cash credit limits extended, income tax

assessment orders and list of clients to verify the authenticity.

Part – II

List of pre-qualified handling agencies for 1998-2001:

Public Sector

1. Fertilizers & Chemicals Travancore Ltd.

2. Hindustan Fertilizer Corpn. Ltd.

3. Madras Fertilizers Ltd.

4. Rashtriya Chemicals & Fertilizers Ltd.

5. Pyrites, Phosphates & Chemicals Ltd.

6. Paradeep Phosphates Ltd.

Cooperative Societies

1. Indian Farmers Fertilizers Cooperative Ltd.

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b) The Terms of Trade Effect :

As a result of the fixing of import quotas, the terms of trade of a country change. The new

terms of trade may be either more or less favourable to the country importing the quota.

The terms of trade are generally improved by a quota, to the extent that the foreign offer

curve is elastic. If the foreign exporters of the commodity are well-organised and the

offer curve is less elastic, the terms of trade may move against the country imposing

quota. But, if the foreign offer curve is more elastic, the terms of trade may move

favourably to the country imposing the quota. To illustrate the point, we may follow

Kindleberger, in drawing.

In, OE is the curve of England, exporting cloth. OP is the offer curve of Portugal,

exporting wine. Under free trade, OA represents the terms of trade. Now, if we assume

that England limits her imports of Portuguese wine to OB, the terms of trade would

change. The new terms of trade between English cloth and Portuguese wine may be OA

or OA or any price in between, depending upon the degree of elasticity of the offer

curve of Portuguese wine. Obviously, OA is favourable to England while OA terms of

trade are unfavourable to it.

c) The Balance of Payments Effect :

It has been argued that import quotas can also serve as a useful means for safeguarding

the balance of trade. By restricting imports, quotas seek to eliminate deficit and influence

the balance of payments situation favourably. Further, it is usually assumed that

administrative reduction of imports, through import quotas, would be a less harmful

measure for correcting disequilibrium in the balance of payments than such

microeconomic measures like deflation or devaluation.

Moreover, there is a greater expansive income effect of quotas, considered important for

underdeveloped countries which usually suffer from balance of payment difficulties

resulting from domestic inflation. Due to import quotas, the marginal propensity to

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import becomes zero after the quota limit is reached, which thus, reduces leakages and

increase the value of income multipliers in the country.

d) Other Miscellaneous Effects :

Another important effect of quotas is that they have a protective effect. By limiting

imports to a fixed amount, irrespective of supply and demand conditions or prices in the

domestic or foreign markets, import quotas may tend to be absolutely protective. They

stimulate home production.

Further, import quotas raise domestic prices, causing reduction in overall consumption.

This is the consumption effect of quotas. They tend to discourage consumption of

imported goods as also domestic consumption of goods involving foreign raw materials,

since the prices of these goods rise due to the artificial scarcity created by import

restriction.

Another effect of quota is found to be the redistribution effect. When prices rise, there is

redistribution of income from consumers to producers. The domestic producers' receipts

increase when prices of goods rise and the consumers' surplus in these goods decreases.

Hence, there is a redistribution effect.

All these effects, viz., protective, consumption and redistribution effects, can be depicted

in a partial equilibrium diagram originated by Kind leberger.

In, OP3 is the equilibrium price, equating domestic demand (DD) and is supply (SS) in a

closed economy. If, however, the country imports and we assume that OP1 is the price

settled, then OM4 demand is satisfied by OM1 domestic supply and M1M4 import of

goods. If we assume that the foreign supply of imports is perfectly elastic, and an import

quota is fixed upto M2M3 the foreign offer price remains unaffected but the home price

of the commodity would rise from OP1 to OP2 assuming it to be equal to a tariff

imposition of P1P2.. This rise in price (P1P2) is the price effect of quota (same as tariff)

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3.6 ) Department of CommerceImport:: Region-wise

Dated: 12/10/2012Values in Rs. Lacs

S.No. Region 2010-2011 %Share 2011-2012 %Share %Growth

1. EU Countries 20,277,858.17 12.0453 28,018,188.98 11.9457 38.17

2. European Free TradeAssociatipn (EFTA)

11,710,036.77 6.9559 15,930,490.16 6.7920 36.04

3. Other European Countries 397,773.53 0.2363 522,089.15 0.2226 31.25

4. Southern African CustomsUnion (SACU)

3,332,619.55 1.9796 4,820,016.08 2.0550 44.63

5. Other South African Countries 2,393,877.82 1.4220 3,317,538.61 1.4144 38.58

6. West Africa 5,850,465.63 3.4752 8,675,167.92 3.6987 48.28

7. Central Africa 20,738.87 0.0123 24,670.27 0.0105 18.96

8. East Africa 263,464.81 0.1565 259,907.63 0.1108 -1.35

9. North Africa 2,684,391.39 1.5946 3,583,065.11 1.5277 33.48

10. North America 10,587,063.45 6.2888 14,371,341.45 6.1273 35.74

11. Latin America 5,930,700.37 3.5229 7,690,336.91 3.2788 29.67

12. East Asia (Oceania) 5,307,109.82 3.1525 7,654,490.62 3.2635 44.23

13. ASEAN 13,943,932.60 8.2829 20,297,531.59 8.6540 45.57

14. West Asia- GCC 34,109,397.73 20.2614 48,146,460.19 20.5275 41.15

15. Other West Asia 11,292,108.45 6.7077 18,131,326.02 7.7304 60.57

16. NE Asia 34,663,157.46 20.5903 47,263,385.72 20.1510 36.35

17. South Asia 988,783.92 0.5873 1,247,351.38 0.5318 26.15

18. CARs Countries 87,928.11 0.0522 121,250.29 0.0517 37.90

19. Other CIS Countries 2,493,216.50 1.4810 3,913,101.34 1.6684 56.95

20. Unspecified 2,012,070.63 1.1952 558,615.00 0.2382 -72.24

India's Total Import 168,346,695.57 234,546,324.45 39.32

3.7 Imports of goods and services (% of GDP) in India

The Imports of goods and services (% of GDP) in India was last reported at 29.85 in

2011, according to a World Bank report published in 2012. Imports of goods and services

represent the value of all goods and other market services received from the rest of the

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CHAPTER – 4. FINDING & CONCLUSION

4.1 CONCLUSION :

A tariff on imports is the most commonly used trade policy tool. In this chapter, we

have studied the effect of tariffs on consumers and producers in both Importing and

exporting countries. We have looked at several different cases.

First, we assumed that the importing country is so small that it does not affect the world

price of the imported good. In that case, the price faced by consumers and producers in

the importing country will rise by the full amount of the tariff. With a rise in the

consumer price, there is a drop in consumer Surplus; and with a rise in the producer price,

there is a gain in producer surplus. In addition, the government collects revenue from the

tariff. When we add together all these effects—the drop in consumer surplus, gain in

producer surplus, and government revenue collected—we still get a net loss for the

Importing country. We have referred to that loss as the deadweight loss resulting from the

tariff.

The fact that a small importing country always has a net loss from a tariff explains why

most economists oppose the use of tariffs. Still, this result leaves open the question of

why tariffs are used. One reason that tariffs are used, despite their deadweight loss, is that

they are an easy way for governments to raise revenue, especially in developing

countries. A second reason is politics: the government might care more about protecting

firms than avoiding losses for consumers. A third reason is that the small-country

assumption may not hold in practice: countries may be large enough importers of a

product so that a tariff will affect its world price. In this large-country case, the decrease

in imports demanded due to the tariff causes foreign exporters to lower their prices. Of

course, consumer and producer prices in the importing country still go up, since these

prices include the tariff, but they rise by less than the full amount of the tariff. We have

shown that if we add up the drop in consumer surplus, gain in producer surplus, and

government revenue collected, it is possible for a small tariff to generate welfare gains

for the importing country.

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4.2) BIBLOGRAPHY:

Through Books :-

Through Internet:-

http://en.wikipedia.org/wiki/Quota

http://en.wikipedia.org/wiki/Import_quota

http://www.fert.gov.in/importexport/procedure_import_urea_india.asp







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