Daily Financial News Analysis – 22nd June’20

Table of Contents

Chinese Goods

India is looking to plug loopholes as it seeks to reduce import dependence on China.
Things that have come under government’s scanner
- The routing of Chinese goods to India through their common trade partners.
- Inversion in duty structures.
- Exploitation of ambiguities in origin rules.
Especially on the radar are the trade arrangements with South Asian countries under the
- South Asian Free Trade Area (SAFTA)
- Asean group
- Bilateral pacts with Singapore, Japan, South Korea and Sri Lanka, with a focus to plug gaps that aid imports from China
India suspects China is routing goods through these countries, taking advantage of the trade pacts.
The only operational trade agreement linking India and China — the Asia Pacific Trade Agreement, or APTA (formerly Bangkok Agreement) — is also under scrutiny.
- South Korea, Bangladesh, Laos and Sri Lanka are also members of this grouping.

Most of India’s exports to China have been of primary goods and raw materials including petroleum products, organic chemicals, iron ore, cotton and plastic raw materials.
While imports have been mainly intermediate and finished goods such as telecom instruments, electronic components, consumer electronics, active pharmaceutical ingredients and machinery.
While correcting the inverted duty structure in dual-use products such as steel may be difficult, experts suggested empowering customs officials to detain unnecessary imports but paying demurrage in cases where import substitution is key, could be helpful.

Focus Areas for PM

Prime Minister Narendra Modi on Saturday met with the ministers and top officials from infrastructure and commerce ministries, to discuss ways to boost local manufacturing and exports amid continuing tensions with China.
Improving ease of doing business
Export-focused manufacturing policy
How to encourage states to compete with each other to attract investment
The government is reassessing ways and means to encourage substitution of goods imported from the neighbour.
The government has asked industry to submit a detailed list of imports from China across essential and non-essential categories.
India has barred Chinese firms from supplying critical communications infrastructure such as 4G equipment to state-run telecom companies and could even extend that to cover private telecom players.
Non-fiscal measures that could be undertaken to give an impetus to manufacturing and exports, including reducing turnaround time at ports, roping states to improve infrastructure, self-certification and power, among others.
Among other non-fiscal measures being discussed right now are labour, ease of doing business, cost of doing business and coordinating the efforts of the Centre and states in a bid to attract more investment.
Industry: logistical and infrastructure bottlenecks remain, and hold back India’s progress.

ICT Goods

The European Union, Japan and Taiwan have asked the World Trade Organisation (WTO) to set up an adjudication panel over India’s customs duties on imports of certain information and communications technology (ICT) products, including mobile phones, taking the dispute up a notch.
The requests will come up at the WTO next week.
The dispute is crucial for India.
Losing it will directly benefit China, from where India imported telecom equipment parts worth $3.4 billion and mobile phones worth $665.21 million in the April-February period of 2019-20.
While China is involved in consultations on the issue with India, it has not asked for a panel.
“China can always join the dispute later as a third party,” said an official aware of the matter.
India levied 10% customs duty on mobile phones and some other ICT products for the first time in July 2017 and increased it to 15% that year.
The duties were further increased to 20% despite opposition from a number of WTO members.
India expected to take further measures in line with its plan to become self-reliant and lower its dependence on China for key supplies including electronics and pharmaceuticals.
The EU, US, China, Singapore, Chinese Taipei, Canada, Japan and Thailand initiated consultations with India on the matter, saying that the move affected them substantially.
India had blocked the EU’s request for a panel in February but can’t do so a second time, another official said.
The EU initiated dispute proceedings last year alleging that levies exceeded what had been pledged in India’s tariff schedule at the WTO for products including electronic transformers, telephone sets, particularly cell phones, transmission apparatus for radio or television broadcasting and electronic integrated circuits, television cameras, digital cameras and video camera recorders.
It said India has bound the ad valorem duty rate for these products at zero but the duty rate applied is up to 20% which “adversely affect exports of goods” from the EU to India”.
India has argued that most of the items identified by the EU and others were not covered under the Information Technology Agreement as these did not exist in 1996 and the tariff lines were not included in the agreement.
“If India loses this dispute the main beneficiary will be China though it has not raised the dispute because most of the ICT goods especially mobile phones are imported from there,” said an expert on WTO issues.
If a panel is established then the three disputes are likely to get combined.

Norms for Employment Zones may be Eased to Woo Foreign Investors

India is looking to relax conditions for its own Shenzhen-style national employment zones in a fresh push to make these more attractive to foreign investors, especially those looking to set manufacturing outside of China.
Flexibility in investment, employment generation and labour laws with lower minimum area are some of the relaxations under consideration in these coastal zones.
NITI Aayog’s project appraisal and management division had given its go ahead to the proposal in 2018 but the project did not move forward as states were finding it difficult to procure such huge parcels of land.
The shipping ministry had proposed developing 14 mega national employment zones in the country in the coastal states entailing an investment of ₹1 lakh crore.
It is estimated that the project, once rolled out, could generate as many as 10 million jobs over the next five years.
As per the existing plan, states are expected to provide 2,000 acres of contiguous land for setting up such zones.

CII on EoDB

Industry body CII has identified measures in key areas for improving India’s ease of doing business scenario that can help the country achieve self-reliance.
MSMEs need a special helping hand, and should be exempted from approvals and inspections for three years under state laws while following all rules.
Self-certification route can be used for approvals for MSMEs with good track record, it has suggested.
It also sought effective implementation of online single window system, simplifying property registration and acquisition of land, expediting compliances for labour regulations and synchronised joint inspections.
The chamber called for simplifying property registration and suggested that industry should be permitted to buy land directly from farmers with deemed approval after 30 days.
Observing that enforcing contracts is a challenge due to insufficient commercial courts and infrastructure, CII suggested major digital reforms such as virtual court proceedings, e-filing, and work from home to speed up court deliberations.