Managing Imports

By

Deepankar Sinha, PhD, IIT-KGPProfessor and Head – Research,

Indian Institute of Foreign Trade,Kolkata Campus

• Will Import Strategy be same as Export Strategy?

Purchasing Crimson Rose Import Strategy

• If I buy a rose it should be CRIMSON;and from Israel

Roses from Israel

• Israel’s average of 300 sunny days a year and relativelywarm winter temperatures, especially in the NegevDesert, are excellent for growing summer flowers.

• High-technology know-how is fuelling Israel’s ascendancyin the cut-flower industry, where export accounts for 90percent of growers’ crops of peonies, anemones and otherspecies.

Crimson Roses

• Only 15 minutes from Beit Shemesh, on a tiny moshavcalled Sdot Micha,

thousands of crimson and yellow roses and redanemones grow in neat, muddy rows under the watchful eyes of Beni Sharoni and his employee, a farm worker from Thailand.

(http://www.israel21c.org/business-is-blooming-for-israeli-flowers/)

Moshav• Moshav (Hebrew: בשומ ,plural םיבשומ moshavim, lit.

settlement, village) is a type of Israeli town orsettlement,

• in particular a type of cooperative agriculturalcommunity of individual farms pioneered by theLabour Zionists during the second wave of aliyah

• Aliyah (US /ˌæ.lɪ.ˈɑː/, UK /ˌɑː.li.ˈɑː/; Hebrew: הילע aliyah, "ascent") is theimmigration of Jews from the diaspora to the Land of Israel (Eretz Israel inHebrew) - https://en.wikipedia.org/wiki/Aliyah

Petal Colour • Color spectra were obtained with a USB2000+ fiber

optic spectrometer (Ocean Optics, Inc., Dunedin, FL)under the following conditions:• each sampling session, calibration was done with a

white standard; the angle of measurements was fixedat 45° relative to petal surface; the probe was shieldedto all ambient light, with the only light provided by adeuterium tungsten halogen source (DT-MINI-2-GS).• Spectra-Suite software was used to process spectra

measurements (Ocean Optics, Inc., Dunedin, FL, USA).

Test Labs

• Botanical Garden of the Central Institute of Medicinal and Aromatic Plants (CIMAP) and National Botanical Research Institute (NBRI) at Lucknow, India.

• SGS

Price Quoted by Beni Sharoni

1$12$3, INCO4 TERM, Named5 Place, HS Code1

<HS, Price, Currency,, INCO term, Named Place>

<06024000, 1$, FOB, Israel>

My Strategic Considerations• Right Product what to buy??

• Right Time when to buy??

• Right Place Where to buy??

• Right Pricehow much to pay ??

• Right Practices [ Demurrages, Delays, Penalties, Discounts, TLC / TCO]

• The 5R framework

SpecificationsProcessing Type: Fresh Cut FlowersType: RoseVariety: Carpet RosePart: FlowerColour: CrimsonSize (cm):60-80cmPetals: 5cm-7cmPlace of Origin: IsraelBrand Name: FocusModel Number: RoseProduct name: Big CrimsonFlower Net Weight: Rose 0.8 Kg

Shipping Service: FOBFlower Quality: GradeStem Length: 70-80+ CmsDelivery Time: 1- 2 DaysBud Size: 5.0+7.0Selling Type: Plant FlasksModes of Transportation: by airOther Information: ContactPackaging & DeliveryPackaging Details: BOXES 100*40*40CM IN SIZE fresh Crimson rose petals Delivery Detail: Shipped in 2 days after payment

My actions

• Know my seller

• Know my seller’s country – PESTLE - C1

• Know my country – PESTLE-C2

• Example

• MAP : PESTLE-C 1 PESTLE-C2

Know My Country: Regulatory [ L ]• Product Compliance

Prohibitive Item SCOMET [SPECIAL CHEMICALS ORGANISMS MATERIAL EQUIPMENT & TECHNOLOGY]

Restrictive LicenseSanitary & Phyto-Sanitary

• Clearances / Notifications: Customs (IPR), RBI, Other Bodies• Import Regulation: Documentation

Anti-Dumping n CVDDuty Rates: Basic / MFN / Agreement – Treaty

• Incentive Schemes• Currency Exchange Rate

Import incentives

• Incentives given for making exportable goods.Incentives for import of:a. Inputs – Components & Raw materialsb. Capital goods: export promotion of Capital Goods [EPCG]

For a:Pay duty & get draw back after meeting export obligations(EO)Or Take Advance Authorization for not paying duty but meeting EO.

EO: Based on SION – Standard Input Output Norm

For b:EO: Export 6 times of duty rebate under EPCG in 6 years time.

Know My Country: Infrastructure [T]

• Ports : Water / Land / Air / Rail / Pipeline - Tanks• Dry Ports : ICD / CFS• Water or Road or Air or Rail or Pipeline Restrictions• Transport Carriers• Material handling• Warehousing• Logistics Skill – CHA/ FF / 3PL

Know My Country: Cost [E]

• Landing Cost: THC / D-P / DeM / DaM / RC / SUR-CHARGES• Logistics Cost: P-G / W-H / M-H / TRANSPORT• Agency Cost: D-O / SERVICE / CONTINGENCY• TOLL Charges• STATE ENTRY COST• Misc. Cost

∑ TOTAL COST

Know My Country: Political & Social• Beliefs & Taboos

Name / NomenclatureSymbolsColourMonth, Day & Time

• Holidays• Strike & Bundhs• Policy / Rules / Regulations: Variations• Jurispudence

Know My Country: Competence

• LPI• EDBI• TEI

Know My Sellers’ Country: Regulatory [L]• Product Compliance

Prohibitive ItemRestrictive LicensePhyto-Sanitary

• Clearances / Notifications: Customs (IPR), Bank, Other Bodies• Export Regulation: Documentation

Anti-DumpingDuty Rates: Basic / MFN / Agreement – Treaty

• Incentive Schemes• Currency Exchange Rate

Know My Sellers’ Country: Infrastructure [T]

• Ports : Water / Land / Air / Rail / Pipeline - Tanks• Dry Ports : ICD / CFS• Water or Road or Air or Rail or Pipeline Restrictions• Transport Carriers• Material handling• Warehousing• Logistics Skill – CHA/ FF / 3PL

Know My Sellers’ Country: Cost [E]

• Landing Cost: THC / D-P / DeM / DaM / RC / SUR-CHARGES• Logistics Cost: P-G / W-H / M-H / TRANSPORT• Agency Cost: B-L or AWB / SERVICE / CONTINGENCY• TOLL Charges• STATE ENTRY- EXIT COST• Misc. Cost

∑ TOTAL COST

Know My Seller’s Country: Political & Social

• Beliefs & TaboosName / NomenclatureSymbolsColourMonth, Day & Time

• Holidays• Strike & Bundhs• Policy / Rules / Regulations: Variations• Jurispudence

Know My Seller’s Country: Competence

• LPI• EDBI• TEI

My Risks

• Wrong Product

• Incorrect quantity

• Incorrect payment

• Inordinate delay

<Variations in 5Rs>

Customs Duty

• 3 Flavors

– Basic Duty

–MFN

– FTA / CEPA / CECA

Customs Duty Rate - Example

CATEGORY VALUE for HS Code: 84452030

Duty Difference

BASIC RATE 7.5 1010000 *0.075 = 75750.00

0

MFN 5 1010000 *0.05 = 50500.00

- 25250

ASEAN – INDIA RTA

0 0 - 75750.00

CECA(Comprehensive Economic Cooperation Agreement Preferential Tariff) / CEPA

No Preference - -

CECA - RoO NA NA NA

Customs Duty Calculations : issues

Assessable Value (A/V)

• If CIF import then CIF value = A/V, unless Customs doubts the CIFdeclaration – here Customs will determine the CIF value by Deductiveor Residual method

• Else if FOB:

Exercise 1

• Calculate A/Value of a Machine imported by Air• Factory price at Shanghai, China-Rs.1 00,000/-• Packing Charges- Rs.10000/-• Inland Freight up to AirPort in China- Rs. 20000/-• Air Freight- Rs. 50000/-• Insurance- Not known

Exercise 1 (Solution) •FOB Price= •Rs. 100000/- + 10000/- + 20000/- = Rs. 130000/-

•Airfreight = •20% of FOB value i.e. Rs. 26000/- or actual Rs. 50000/- w/ever is less; So Rs. 26000/-

•Insurance= •1.125% of FOB value of Rs. 130000/- =Rs. 1462.50

•So CIF Value= Rs. 157462.50•Therefore, Assessable Value = Rs. 157462.50 plus 1%( Landing charges)

For DDP• A/V for calculation of Customs Duty should be less

than DDP

• But there is notional value (%) for post import-portinland cost – up to place of delivery

• Customs generally applies deductive method cases tocase basis.

• To avoid delay Courier companies pay duty on DDPvalue

• But they levy the same from buyer in place of seller.They should collet from the seller.

DAP & DDP

• At PORT = A/V :

[EXPORTER COUNTRY COST (FOB)+ FREIGHT BEFORE REACHING INDIA + INSURANCE]

• DDP: At DOORSTEP : [EXPORTER COUNTRY COST (FOB)+ FREIGHT BEFORE REACHING INDIA + INSURANCE+ DOMESTICS TRANSPORTATION N OTHER COST]

• DDP: SHOULD BE BASED ON [EXPORTER COUNTRY COST (FOB)+ FREIGHT BEFORE REACHING INDIA + INSURANCE]

• Import duty Calculation in India – An illustration

Particulars Duty ( BCD-10%; CESS-3%; IGST @ 28%; Compensation cess-15%) Amt (in Rs.)

(A) Assessable Value 100

(B) BCD @ 10% 10

(C ) Social Welfare CESS( 3% OF BCD) 0.30

(D) A/Value for IGST 100+10+0.30= 110.30

( E) IGST @28% 30.884

(F) Value for Compensation Cess 110.30

(G) Compensation Cess @ 15% 16.545

(H) Total Duty 57.729

34

Calculation of duties on imports

National Academy of Customs, Indirect Taxes and Narcotics (NACIN)

• Impact of ADD/ SG on IGST• Regarding Imports which are hit by Anti Dumping duty (ADD) and safeguard duty

they will also be included for determination of value as per sub section 8b and 10b of section 3 as per above amendment.

• Further any other sum chargeable under any law is also be included fordetermination of value as per sub section 8b and 10 b of section 3 as per aboveamendment ,except the exclusions made in the said sub sections.

35

ADD/ Safeguard

National Academy of Customs, Indirect Taxes and Narcotics (NACIN)

• Assessable Value= Rs.100/-• BCD- 10%; SWC= 10%; IGST – 28%; Compensation Cess- 15%• ADD- Rs. 25/-• Determine:• Value for IGST Purpose?• Value for Compensation Cess?• Social Welfare Surcharge(SWC)?• IGST Amount?• Compensation Cess?• Whether SWC on ADD amount?

36

Calculate the Duty in following example

National Academy of Customs, Indirect Taxes and Narcotics (NACIN)

Particulars Duty ( BCD-10%; CESS-3%; IGST @ 28%; Compensation cess-15%) Amt (in Rs.)

(A) Assessable Value 100

(B) BCD @ 10% 10

(C ) SWC ( 10% OF BCD) 1

(D) A/Value for IGST 100+10+1 + 25= 136

( E) IGST @28% 38.08

(F) A/ Value for Compensation Cess 136

(G) Compensation Cess @ 15% 20.04

(H) Total Duty 94.48

37

Calculation of duties on imports

National Academy of Customs, Indirect Taxes and Narcotics (NACIN)

• Section 2(62) of CGST Act, 2017• “input tax” in relation to a registered person includes integrated

tax charged on import of goods

• Section 2(g) of GST(Compensation to States) Act, 2017• “input tax” in relation to a taxable person, means(ii) cesscharged on import of goods and includes the cess payableon reverse charge basis;

• Proviso to Section 11(2) of GST(Compensation to States) Act, 2017• Provided that the input tax credit in respect of cess onsupply of goods and services leviable under section 8, shallbe utilised only towards payment of said cess on supply ofgoods and services leviable under the said section.

38

Input Tax Credit

National Academy of Customs, Indirect Taxes and Narcotics (NACIN)

Additional GST on Ocean Freight : Imports• Two contentions arise here:

i. In CIF imports buyer has not engaged the shippingline: the service provider and service recipient bothare outside the territory of India.

ii. No tax on such service can be collected even onreverse charge mechanism.

iii. In FOB, Buyer is already paying IGST where Freight isincluded: a case of double taxation

New Rules• Change in Incentive Schemes

• Remission of Duties or Taxes On Export Product (RoDTEP) which will replace MEIS starting 1st January 2021.

• ITC is provided to set off tax paid on the purchase of raw materials, consumables, goods or services that were used in the manufacturing of goods or services. This helps in avoiding double taxation and the cascading effect of taxes.

• By adopting to RoDTEP scheme, Indian exporters will be able to meet the international standards for exports as affordable testing and certification will be made available to exporters within the country instead of relying on international organizations.

• RoDTEP would cover central and state indirect taxes, which are not currently reimbursed thereby complying with WTO rules.

CAROTAR - Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020

• Origin of goods – Responsibility of FF / Importer

• Important for Preferential Duty Treatment

• Goods Category

Ø Wholly obtained Goods: Live Animals (01) with products milk, egg, wool etc; Harvested vegetables (06-14); Minerals (25 -26)

Ø Manufactured:ü Ingredients & raw materials : Originating from country of export

ü Ingredients & raw materials : Non-Originating from country of export

Non-Originating from country of export

• Country of Origin

• If sufficient value addition takes place in country of export

• Value addition: Sale price above Cost (value) of all materials needed for manufacture

• Above : Depends on FTA

• PROOF of value Addition: Tariff heading of FG different from all Non-Originating materials

• different from: At 4 Digit or more depending upon the agreement

Non-Originating from country of export

• Value addition: Sale price (Ex-Works) above Cost (value) of all materials needed for manufacture

• Value addition: 1. Expressed as ad valorem percentage say 40% of cost of production2. Maximum Allowance of Non-Originating materials ; i.e., MinImum Domestic

Content as per FTA3. Example: 40% of cost of production: Cost of Non-Originating materials < 40% of

EXW

o Example: 1. Mango Jam: Chap 20 different from Ingredients - Mango (08) & Sugar (17)o 2. ExW PRICE > Cost of Ingredients by say 40%o Direct Transport Rule: Transshipment allowed without any operation on goods other

than logistics Operation

Non-Originating from country of export• Accessories, Spares, Tools & Packaging:

1. if supplied with goods follows the same rules of origin

2. Cases & containers can avail Preferential duty if :

I. If specifically designed for productsII. Suitable for long-term useIII. Are presented and normally sold with that goods or products

Non-Originating from country of export• Split Consignments

1. Components & assemblies one product imported in installments

2. An originating product sent to a 3rd country for an exhibition may be re-exported to a partner country while continuing to benefit from preferential treatment.

Non-Originating from country of export• Tolerances

1. Exception rules: de minims rule

a. Allows insignificant quantity of inputs or materials which do not satisfy the criterial of relevant origin rule; say 2% alcohol mixed with other ingredients: 2percent may not meet the criteria of CoO but may be exempted.

b. The maximum quantity of such materials that can be used is defined by weight, or volume or value.

Non-Originating from country of export• Cumulation

1. Originating from partner 3rd country (of India) produced in Exporting country

FTAs

01

1. Free Trade Agreements (FTAs)

1.1

1.2

1.3

1.4

Trade agreements are integral part of a country’s trade policy. Countries have been engaged in trade with each other since ages. Traces of traded goods found in excavations across the world have provided useful insights for conceptualizing ancient history. In medieval period, trade was the prime motivating factor for navigators to explore unchartered territories.

In modern times, particularly after World War-II, countries collaborated and created the General Agreement on Tariffs and Trade (GATT) on a multilateral platform, which even today acts as a guiding document for finalizing trade deals. Art XXIV of GATT enables WTO members to enter into free trade agreements, in which they offer each other tariff and non-tariff concessions on a reciprocal and mutually beneficial basis. As per WTO’s statistics, there are 305 regional trade agreements in force as on date, and majority of the world international takes place under these agreements.

So far, India has entered into 15 free trade agreements, and one unilateral DFTP (Duty Free Tariff Preference) Scheme. The earliest agreement is the treaty on trade with Nepal signed in 1950, which has been subsequently reviewed from time to time. ASEAN-India FTA, Agreement on SAFTA, India-Japan CEPA and India-South Korea CEPA are among the most widely used trade agreements of India.

Trade agreements vary in degree of spread and depth, depending upon the nature of markets engaged in negotiations and their respective priorities. While Preferential Trade Agreements (PTAs) could be limited to ‘margin of preference’, i.e. partial exemption of duties on certain tariff lines, comprehensive agreements go deep into tariff concessions providing almost full exemption of customs duties on majority of tariff lines, in addition to touching upon a host of other areas such as sanitary and phytosanitary measures, technical barriers to trade, quantitative restrictions, import licensing, intellectual property rights, trade facilitation, trade remedies, trade in services, investments etc.

Disclaimer: This document is only for reference and should NOT be construed as legal advice or counsel.

India’s Trade Agreements

(As on Sept 2020)

Bilateral Agreements Regional Agreements

Unilateral DFTP Scheme(34 LDCs) (2008)

1. India-Sri LankaFTA (2000)

6. India-ThailandEHS (2004)

2. India-JapanCEPA (2011)

7. India-ChilePTA (2007)

3. India-KoreaCEPA (2010)

8. India-Afghanistan(2013)

4. India-MalaysiaCECA (2011)

9. India-SingaporeCECA (2005)

5. India-NepalTrade Treaty(1950)

10. India-BhutanAgreement onTrade & Transit(2016)

Afghanistan,Bangladesh, Benin,Burkina Faso,Burundi,Cambodia, CentralAfrican Republic,Chad, Comoros,Eritrea, Ethiopia,Gambia, Guinea,Guinea Bissau,Haiti, Lao PDR,

Lesotho, Liberia,Madagascar,Malawi, Mali,Mozambique,Myanmar, Niger,Rwanda, Senegal,Somalia, Sudan,Timor Leste, Togo,Uganda, Tanzania,Yemen, Zambia

1. India-ASEAN(2010)

BruneiDarussalam,Cambodia,Indonesia, LaoPDR, Malaysia,Myanmar,Philippines,Thailand,Singapore,Vietnam

2. Asia Paci!cTrade Agreement(APTA) (1975)

Thailand,Bangladesh,China, Republicof Korea, SriLanka

3. Agreement ofSouth Asian FreeTrade Area(SAFTA) (2006)

Bangladesh, Bhutan,Maldives, Nepal,Pakistan, Sir Lanka,Afghanistan

4. India-MERCOSUR(2009)

Argentina, Brazil,Paraguay, Uruguay

5. Global System ofTrade Preference(1989)

47 DevelopingCountries

02

2. Finalization and operationalization of FTAs

2.1

3.1 3.2

2.2

Department of Commerce is the nodal point in the Government of India to negotiate and finalize trade agreements. Line Ministries viz. M/Agriculture, M/Electronics and IT, D/Fertilizers, D/Heavy Industry, D/Telecommunications etc. also participate in the deliberations, depending upon the areas under negotiations. Central Board of Indirect Taxes and Customs (CBIC), being the main implementation body, plays a crucial role in trade negotiations on

Under a trade agreement, duty concessions are required to be extended only to such imported goods which are ‘made in’ the exporting country. Each FTA contains a set of rules of origin, which prescribe the criteria that must be fulfilled for goods to attain ‘originating status’ in the exporting country. Such criteria are generally based on factors such as domestic value addition and substantial transformation in the course of manufacturing/processing. For instance, the originating criteria finalized under a trade agreement could be domestic value addition of minimum 35% plus substantial transformation through Change in Tariff Sub-Heading (CTSH).

Disclaimer: This document is only for reference and should NOT be construed as legal advice or counsel.

The goods imported under a trade agreement are required to be covered under a ‘Certificate Of Origin’ (COO) issued by the designated authority of the exporting country. The COO contains details of goods covered and originating criterion fulfilled.

CTH: Change in Tariff Heading (4-digit level); CTSH: Change in Tariff Sub Heading (6-digit level);

NOM: Non-Originating Material; PSR: Product Specific Rules

issues such as tariff concessions, rules of origin, customs facilitation and IPR.

Once a trade agreement is finalized, CBIC issues notifications for implementing tariff concessions and rules of origin, under section 25 of the Customs Act and section 5 of the Customs Tariff Act respectively, in order to incorporate the commitments undertaken in domestic legislation.

3. Rules of origin and Originating criteria

Illustration – Different types oforiginating criterion

ASEAN-India FTA

SAFTA

ISLFTA

India-Malaysia CECA

India-Singapore

Indo-Nepal

35% + CTSH

NOM 60% + CTH, PSR, 10%≤relaxation to LDC, 5% to SL

NOM 65% + CTH≤

[35% + CTSH] or PSR

[35% + CTSH] or PSR

NOM 70% + CTH≤Aluminum wire rod (CTH 7604) from China can be drawn into Wire (CTH 7605) in Sri Lanka, for export to India under India-Sri Lanka FTA, provided cost of Wire rod is less than 65% of value of final goods.

Example: Rule – NOM ≤ 65% + change at 4 digit

FTA - ROO

06

9.2

9.3

9.4

The importer is guided on the relevant queries

that he/she needs to pose to an exporter. For

instance, if supplier claims goods to be Wholly

Obtained, it is prudent to check the rule on

‘Wholly Obtained’ and if it is covered. Confirm if inputs like preservatives etc. are also originating.

Some Agreements allow certain percentage

of use (by value or weight) of non-originating

elements even when goods are claimed to be

wholly obtained. If a supplier/producer claims

that goods have non-originating components

but meets the originating criteria, it is advised

to check if the claimed originating criteria applies

to that specific tariff heading. An importer should ask these questions to ensure that the

claim is valid and to diminish chances of erroneous

claim.

Knowledge of this process helps the importer to

identify any issue at an early stage and where

required, the same could be addressed even

before goods are imported. This will, therefore,

bring transparency and enable an importer

to independently assess authenticity of the

origin claim made by an exporter. CAROTAR,

2020 do not require an importer to seek cost

details, which may be business confidential.

It is to be noted that in case of identical goods

from same exporter, while the compilation of

information needs to be done for each bill of

entry, the process of making inquiries with

the exporter need not be duplicated, unless

there is any change in the process of manufacturing.

In case of identical goods from same exporter, the process of making inquiries with the exporter need not be repeated for each bill of entry, unless there is any change in the process of manufacturing.

‘

,

Knowledge of this process helps the importer to identify any issue at an early stage. This will enable an importer to independently assess authenticity of the origin claim made by an exporter.

‘

,

Disclaimer: This document is only for reference and should NOT be construed as legal advice or counsel.

CAROTAR, 2020- Key Features:

• The extent of information expected to be possessed by an importer is defined.

• Importer is required to keep origin related information specific to each BE for minimum

five years from date of filing B/E.

• Mandates inclusion of specific origin related information in B/E.

• Provides for scenario wherein verification from exporting country can be initiated.

• Sets timelines for receiving information from verifying authorities where same is not provided

in Trade Agreements.

• Sets timelines for finalising decision based on information received from importer/verifying

authorities.

• Action which may be taken on import of identical goods, when it is determined that goods do not

meet originating criteria.

•Q & A