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The US-China trade war has taken a new shape after Trump administration evinced interests for re-joining the TPP (Trans-Pacific Partnership). Seemed to have been flattened by Chinese bellicose and domestic lobby by US farmers, Trump administration is likely to shift pressure on China by joining TPP. Joining TPP will help USA unleash bigger pressure on China, jointly with other member countries of the region, who are incidentally the major trading partners of China.
Originally, TPP was a 12 nations Pacific Rim trade block, comprising USA, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Together the block accounts for 40 per cent of global trade. China is an export-based economy. Trade accounts for 37 per cent of its GDP. China depends substantially on TPP for its exports, which account for 49 per cent of China’s global trade. The Trump’s administration warning by imposing high tariffs on steel and aluminum and bringing US $100 billion worth of goods in the high tariff net seemed to have little impact on China’s dumping goods in USA. China fumed to retaliate on the same velocity, arguing that its steel export accounted for barely 1.1 percent of USA’s total steel import in 2017.
To sully the Chinese obstinacy, Trump asked his administration to reinvent the scope for re-joining TPP, if the terms are renegotiated. Seemingly, he thought that 8 member countries of TPP (out of 12 members), who are largely dependent on imports from China and bear the brunt of large trade deficit with China, will vie for USA’s support to dampen the Chinese exports.
The 8 member countries of TPP, accounting for the concentration of China’s exports, are USA, Japan, Vietnam, Singapore, Malaysia, Australia, Mexico, and Canada. They accounted for 97 per cent of China’s exports to TPP in 2015. China’s substantial exports to these countries created big trade deficits of these countries.
Against these backdrops, can USA bring a major jolt to China after rejoining TPP? Can it play a lead role for trade diversion? Presumably, it can dampen China’s exports to these countries by supplanting after reaping the benefits of tariff concessions within the trade block.
It was observed that the major component of China’s basket of exports to these 8 member countries were electric and mechanical machinery and equipment. Nearly one-fourth of Chinese exports to Japan relate to electrical machineries and equipment. In case of Vietnam, the share was 35 percent in 2015.
This means that to wean away the Chinese predominance in these countries, USA has to supplant Chinese exports of electrical and mechanical machinery by offering competitive pricing after reaping the benefits of low or no tariff in the region.
Besides tariff advantages, TPP provides exemption from non-tariff barriers to its member countries, which are imposed in case of imports from China. USA and Canada imposed TBT (technical barriers to trade) to several home electrical appliances imported from China. USA also imposes TBTs on children products (such as toys) imported from China. Textile products from China are subject to TBT by Canada. Japan imposes technical barriers on imports of furniture and construction machineries from China.
TPP, without USA, would have unleashed more space for China to flex its muscle. Now, with USA rejoining, TPP will impart a big burden on China’s exports. This is because USA is the main export destination for some TPP member countries, which are diagonally major importers of Chinese goods. For example, USA is the main export destination for Japan, Vietnam and Singapore, accounting for 20, 19 and 6 percent of their exports respectively. And USA, Japan, Vietnam and Singapore are among the top ten importers of Chinese goods. Together, they accounted for 29.5 percent of Chinese exports in 2016. This means that in the export-import balancing, USA has much power to influence these countries to buy more from USA.
Against this backdrop, it is likely that USA will exert more pressures on these four nations in TPP region to reduce their imports from China and buy American goods.
India is not a member of TPP. Threats of adverse impact loomed large as four TPP members, viz, USA, Singapore, Malaysia and Vietnam, are the major trading partners of India. They account for one-fifth of India’s global export. Given this, analysts raised an alarm on trade diversion. They feared that the rise in intra-regional trade in TPP due to tariff preferential and curbing the non-tariff barriers would squeeze India’s exports to these countries.
The biggest trade diversion feared for India’s exports was textile products. Textile is the single major item of India’s export in its total exports to the world. It accounts for 10-11 percent of India’s world export. USA alone accounts for 40 percent of India’s total export of textiles. With the duty preferences granted by USA to TPP members, concerns were raised on India’s export of textiles to USA. Vietnam would have been the main obstacle to India’s export of textile to USA. Vietnam is the second biggest exporter of readymade garments to USA (after China). It accounts for 12 percent of USA imports of garment. The surge in Vietnam competitiveness due to duty preference will deter India’s export of garments to USA, trade analysts feared.
But, there is a catch. In TPP, the duty preference for textile trade is governed by yarn forward rule. Under the rule, it is mandatory for the TPP members exporting textiles to procure yarn, fabric and other inputs from any or combination of TPP partner countries. At present, Vietnam procures yarn and fabrics mainly from China. Given the existing structure of logistics and low-cost procurement of yarn and fabrics from China versus TPP rules, it will not be an easy task for the Vietnamese exporters to divert procurement from China to domestic market or to any other TPP member countries. Further, none of the TPP members is globally known for manufacturers of yarn and fabrics.
Nevertheless, in the cross-fire of US-China trade war and USA returning to TPP, India should have a relook at its trade pattern. India is already under US lens for its trade surplus with USA. It has already alleged that India’s export subsidies as non-compliant to WTO after achieving the threshold of per capita income of US $ 1000 per annum.
Archives
With the crisis in the textile industry becoming more acute on account of the heavy accumulation of stocks, the Southern India Mill-owners’ Association to-day [April 24] directed its 175 member-mills in Madras, Kerala, Mysore, Andhra and Pondicherry to curtail their production by 33-1/3 per cent “until the position improves”. The member-mills will forthwith suspend production for two days in a week but will pay lay-off wages to their workers for the period of closure. The general body of the Association which met here [Coimbatore] to-day [April 24] under the Chairmanship of Mr. K. Sundaram, resolved also to close the mills for a day on April 27 as a token of protest against the high incidence of taxation imposed by the Union Government. The Association requested the Indian Cotton Mills Federation to press the Government of India to enact legislation for curtailment of yarn and cloth production on an all India basis to avoid regional imbalance. It decided to request the Reserve Bank of India to liberalise credit facilities for textile mills as well as yarn trade. The Association urged the Madras Government to license immediately the installation of 12,000 power looms allotted to this State to facilitate the consumption of yarn in the State to a great extent. The Association requested the Union Government to ban the installation of additional spindles for the present. Mr. K. Sundaram, Chairman of the SIMA, told Pressmen that the object of the two-day closure in a week was to keep the level of production at 60,000 bales a month which was considered “normal stocking”. The unsold and physical stocks with the member-mills which were of the order of 35,000 bales and 55,500 bales respectively at the end of February this year had mounted to 51,500 bales and 75,800 bales of 180 kg. each respectively on April 15. The value of the physical stock on hand to-day [April 24] was estimated at 12.3 crores. Asked how long he expected the two-day-a-week closure to last, Mr. Sundaram replied: “It all depends on how the market reacts.”
Tina Edwin
Women owned a little over 1.23 crore units in India’s informal sector but three-quarters of such units were engaged in retail trade or in making either garments, tobacco products or textiles.
Almost all these units were tiny enterprises and were more likely to be run from home and did not hire any workers. A significant number of these units depended on work given out on contract basis.
Women-run enterprises accounted for about one-fifth of the estimated 6.3 crore units in the informal sector, a detailed report of the National Sample Survey Organisation on India’s informal sectors, excluding agriculture and construction units titled Operational Characteristics of Unincorporated Non-Agricultural Enterprises (Excluding Construction) in India released recently show. The survey was carried out between July 2015 and June 2016.
Manufacturing units
Significantly, businesses run by women were mostly concentrated in the manufacturing sector and their presence in services other than trade was tiny. Women owned 45 per cent of the units in manufacturing but just 8.7 per cent of the units engaged in trade and 7.4 per cent of the units in services. In all, there were 1.97 crore units in manufacturing, 2.3 crore units in trade and 2.07 crore units in services in the informal sector.
Of the 1.23 crore units owned by women, 33.32 lakh or 27 per cent were engaged in manufacturing garments, which essentially means they were running small tailoring units.
Another 28.56 lakh units or 23.1 per cent were engaged in making tobacco products and 13.49 lakh units or 10.9 per cent units were engaged in making textiles. Retail trade accounted for 19.62 lakh units or 16 per cent of the units owned by women. Women-run enterprises also had significant presence in education, manufacture of food products and wood-based products as well as in food service, NSSO data showed.
The NSSO report also revealed women-run enterprises dominated certain activities. For instance, manufacture of tobacco products. Of the 32.75 lakh units making tobacco products, 87.2 per cent were owned by women. This is so because tobacco making comprise beedi rolling, an activity that is mostly done by women in the few States.
Chemicals-making
Another activity with significant presence of women-run enterprise include the relatively small category manufacturing chemicals and chemical products. Of the 1.73 lakh units, 68 per cent were owned by women.
Similarly, in manufacture of paper and paper products, women-run enterprises accounted for 62.9 per cent of the 1.07 lakh units. In manufacture of apparels, women-run enterprise accounted for 59.4 per cent of the 56.10 lakh units and in manufacture of textiles, women accounted for 51.8 per cent of the 26.03 lakh units.
Retail trade
In trade, women presence was mostly seen in retail trade but proportion of enterprises run by them was less than a tenth of all such enterprises — only 9.8 per cent of the two crore units. Retail trade is the largest activity category in the informal sector — almost every third enterprise was engaged in retail trade, which includes small kirana stores selling daily necessities.
The report also showed that States such as Telangana and West Bengal had relatively higher proportion of women-run enterprises compared to many other States. Over 37 per cent of the enterprise in Telangana and early 33 per cent of those in West Bengal were run by women.
The Industrial Fabrics Association International (IFAI) is pleased to announce an agreement with Business Co-ordination House (BCH) to provide representation of IFAI in India.
“We believe BCH is uniquely positioned to help IFAI expand the opportunities for our organization with the emerging Indian market for technical textiles.” Said Mary Hennessy, President and CEO of IFAI. “One of the primary benefits IFAI members seek is the opportunity to network and collaborate with others in the industry. This strategic relationship will expand those possibilities for our members.”
“IFAI can not only provide an open door to the Indian companies who are reciprocally seeking active partnerships overseas in the field of technical textiles but can also be an active answer to the information and knowledge seeking pattern of the Indian industry.” Said Samir Gupta, Managing Director of BCH.
Garment makers, the country’s main export earners, yesterday sought full waiver of source tax on export receipts for three years as a helping hand as they look to hit $50 billion in shipments by 2021.
At present, the tax authority collects 0.70 percent tax on total export proceeds from major export items, including garment.
The amount of source tax collection from apparel shipment would not be more than Tk 2,000-2,500 crore on export receipts of $30 billion, said Siddiqur Rahman, president of the Bangladesh Garment Manufacturers and Exporters Association.
“This is not a big amount,” he said in a meeting with high officials of the National Board of Revenue ahead of formulation of tax measures for fiscal 2018-19.
The government plans to frame a budget of more than Tk 400,000 crore for the next fiscal year. There would be no big impact if the source tax is not collected from garment exporters considering the sector’s contribution to direct and indirect job creation, he added.
o, please waive the tax,” he added.
The plea from garment exporters comes at a time when apparel shipments are on the rise.
Garment shipments rose 9 percent year-on-year to $22.83 billion in the first nine months of the fiscal year, according to data from the Export Promotion Bureau.
The tax collector does not maintain sector-wise corporate tax collection data.
Yet, three taxmen said source tax collected from export proceeds of garments is roughly the amount of income tax the government gets from the apparel sector.
The apparel makers enjoy a reduced corporate tax rate of 12 percent.
“And many firms submit income tax returns in a way that their total tax does not exceed the source tax collected from export proceeds,” said a senior official of the NBR seeking to remain unnamed. The BGMEA president also demanded a reduction of corporate tax to 10 percent for all exporters. At the meeting, cloth merchants and some apparel makers got into an argument on the misuse of the bonded warehouse privilege.
The cloth merchants said a section of garment exporters, including non-existent firms, are importing fabrics duty-free and are selling them in the domestic market. “This hurts importers and producers who make cloth for the domestic market,” said Md Shamsul Alam of the Bangladesh Cloth Merchant Association.
But the BGMEA president said the leaked items are bought by cloth merchants. The domestic weaving industry is suffering for the leakage of goods from bonded warehouses and the smuggling through borders, said the Bangladesh Specialised Textiles Mills and Powerloom Industries Association. In response, Rahman said the BGMEA would examine the status of bonded warehouse licence-holding firms in the apparel sector and requested the revenue board to cancel the licences of non-existent firms to prevent misuse. The Bangladesh Knitwear Manufacturers and Exporters Association demanded fixation of tax at 0.50 percent only on cutting and making instead of the source tax on export proceeds.
The Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh called for a reduction of tax on technical assistance and royalty fees. It also demanded duty-free benefit for importing fire and electrical items to ensure fire safety at factories. NBR Chairman Md Mosharraf Hossain Bhuiyan said the board would try to provide the same benefit to all exporters to encourage shipment in both volume and value.
The President of Garment Manufacturers and Wholesale Association of Telangana, Pavan Bansal, on Monday said that the recent rise in diesel prices was affecting the garment industries all over the country. Speaking to ANI, Bansal said, “Diesel rates have increased more than Rs. 10 in the last four years. This will impact the garment industry negatively raising the product of the price of the materials. It will lead to huge losses for the traders.” He added that diesel was an important commodity for the industries as it was more affordable than petrol.
Highlighting the importance of the fuel, Bansal further said, “Diesel is used in several industries on a daily basis, whether it is garment or manufacturing industry. Our materials come from all over India. We send garment materials to neighbouring states like Karnataka, Andhra Pradesh, Maharashtra and Tamil Nadu. We also sell the materials in local areas.” He also criticised the increase of Goods and Services Tax (GST) on raw products as it was becoming an additional burden on the traders. Meanwhile, Petrol prices have hit Rs 74.40 a litre, while diesel rates touched Rs 65.65, the highest ever since May 2014 in Delhi, according to Indian Oil Corporation (IOC).
In Kolkata, Mumbai and Chennai too, petrol prices climbed to new highs of Rs 77.10, Rs 82.25 and Rs 77.19 respectively. Diesel prices in the three cities touched record highs of Rs. 65.65, Rs. 68.35, Rs. 69.91 and Rs. 69.27 respectively. The sudden hike in prices of diesel and petrol, along with a rise in crude oil prices, was due to the ongoing supply cut of oil by the Organisation of the Petroleum Exporting Countries (OPEC), coupled with a strong global demand for crude.
In a bid to transform Gujarat from a fabric manufacturing hub to apparel manufacturing hub, textile players are organising a three-day expo ‘Farm to Fashion’ from May 4 in Ahmedabad.
Local manufacturers will display their offerings to buyers from across the country and abroad. Players say instead of selling cotton and fabrics, the idea is to encourage production of garments within the state.
“The idea is to support entire value chain, from farmers to garment manufacturers. Gujarat is the largest producer of cotton in the country so logically we should also be the largest producer and exporter of garments. Ironically, we export cotton and fabrics to competitors like Bangladesh and lose out on apparels. We want players to start garmenting within the state,” said Shailesh Patwari, president of Gujarat Chamber of Commerce and Industry (GCCI), which along with Maskati Kapad Market Mahajan is organizing the expo next month.
Relative lower productivity in cotton and garments combined with Free Trade Agreements (FTA) has resulted in Indian garments becoming uncompetitive to competitors like Bangladesh, Vietnam and Indonesia. A ‘White Paper’ conducting SWOT analysis of textile sector in the country will be prepared at the end of the event, which will also act as an input to modify the Textile Policy of the country.
Till the ecosystem for garment exports is set up, efforts to increase the exports of fabric will continue. Major export houses from Delhi, Bengaluru, Mumbai and other major hubs will also participate to promote the sales of fabrics. “Of late Gujarat has witnessed tremendous growth in the capacity in the production of fabrics. We have invited buyers from the country and outside to give a boost to the sales,” said Gaurang Bhagat, president of Maskati Kapad Market Mahajan.
Madhya Pradesh, Arunachal Pradesh, Sikkim and Meghalaya join in
In keeping with its plan to roll out the e-way bill system for the intra-State transport of goods in a phased manner, the GST Council on Monday announced the third phase, from April 25, in which the system will become applicable for Arunachal Pradesh, Madhya Pradesh, Meghalaya, Sikkim, and Puducherry.
While the e-way bill system is applicable across the country for the inter-State transport of goods, it is so far applicable for intra-State transport in Andhra Pradesh, Bihar, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Kerala, Telangana, Tripura, Uttarakhand, and Uttar Pradesh.
E-way bills are getting generated successfully and till April 22, 2018 more than 1.84 crore e-way bills have been successfully generated which includes more than 22 lakh e-way bills for the intra-State movement of goods,” the government said in a release.
“With the roll-out of e-way bill system in these States/union territory, it is expected that trade and industry will be further facilitated insofar as the transport of goods is concerned, thereby eventually paving the way for a nation-wide single e-waybill system,” the government added.
We are supplying to merchant exporter and charging 0.1 per cent IGST. Our ITC is accumulated. Can we file refund application on the grounds of inverted tax structure?
Yes. You can do so under Section (3) (ii) of CGST Act, 2017 read with rule 89 of the CGST Rules, 2017 and in accordance with CBEC Circular no.24/24/2017-GST dated December 21, 2017.
Your write-up, “IGST rules change again for export” (Business Standard, February 19, 2018),mentions notification no. 3/2018 GST dated January 23, 2018. But I could not find the stipulation regarding export without IGST payment under Advance Authorisation in the said notification. Please advise.
The notification 3/2018-Central Tax dated January 3, 2018 is available in the CBEC website at this link: http://www.cbec.gov.in/resources//htdocs-cbec/gst/Notification-3-2018-central_tax-English_New.pdf. It amends several provisions of the CGST Rules, 2017. Please see Rule 96 (10) of the same. It says, among other things, that the persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the supplier has availed the benefit of the notification 79/2017-Customs dated October 13, 2017. My write-up dealt with the implications of this change, besides other changes. So, you may not find in the notification the same words that I have used.
I understand that EPCG/Advance Authorisation issued will be governed by policyunder which it was issued. The obligation has been fulfilled and request for redemption is submitted with Joint DGFT, or yet to be submitted, and there is changein procedure as is in case of Para 5.10(d) of HBP-I. Is it obligatory for exporter to follow the changed procedure?
Yes. You have to follow the procedures applicable on the date you operate the procedures. Please see Public notice no. 43/2015-20 dated December 5, 2017 and Para 1.01 of the HBP.
Our item to be imported under advance authorisation — flat-rolled products of stainless steel covered under ITC(HS) Codes: 7219 or 7220 — was already issued. It was placed in Appendix-4J on October 18, 2017. Please clarify whether extension in export obligation period will be done in terms of Para 4.42 (d) or 4.42 (e).
Para 4.42 (d) of HBP says, “Extension in export obligation period for Authorisations issued under Appendix-4J (issued under FTP 2015-20) shall be allowed for a period not more than the half of the stipulated export obligation period.” This provision is specific to advance authorisations issued under Appendix-4J. In your case, the authorisation was not issued under Appendix-4J. So, in my opinion, you need not seek extension in export obligation period under Para 4.42 (d) of HBP and the authorities should consider the request for extension in export obligation period under Para 4.42 (e) of HBP.
Can we clear samples supplied free of cost without GST payment?
Yes. But as per Section 17(5)(h) of CGST Act, 2017, input tax credit shall not be available for the same. You have to reverse the credit taken.
Slow GST refunds continue to hurt exporters (who are entitled to complete refunds as exports are zero rated) in certain sectors, despite government claims.
The government claims that corrective measures taken in October to speed up refunds have alleviated the distress in the case of working capital-intensive sectors, but the impact on the ground appears to have been uneven.
Here, too, there seem to be two factors at work. First, the higher the working capital to sales ratio, the more the disruption in the sector concerned. Second, it appears that sectors with a long domestic value chain have been impacted more by delayed refunds than those where the inputs are imported.
Two factors
An RBI paper “Working Capital constraints and exports: Evidence from the GST roll-out” (February 12, 2018) concedes that exports in October registered a de-growth of 1.2 per cent largely on account of the refunds delays. The 30.5 per cent growth in November exports is attributed not just to the base effect (demonetisation) but also to improvement on the refunds front. While exports were up 9 per cent in 2017-18, some sectors seem to have fared worse than the others. “The export contributing sectors with high working capital/sales ratio were hit the most due to these liquidity constraints,” the paper says.
Hence, sectors such as textiles, tea, gems and jewellery and electronic goods with high working capital to sales ratios (34 per cent, 41 per cent, 45 per cent and 61 per cent) registered negative growth in March-October 2017, to take only a few examples, according to the paper.
Biswajit Dhar, Professor of Economics, Jawaharlal Nehru University, explains: “It appears that GST refunds have hurt sectors with a long domestic value chain such as garments. It may not have impacted sectors such as pharma and gems and where the raw material is essentially imported.”
Exporters claim that risk-averse banks are reluctant to extend credit to small exporters in particular. Ajay Sahai, CEO, Federation of Indian Export Organisations, says that for SMEs, a substantial portion of the refunds are stuck. Unlike the bigger players, who have access to the domestic market, these companies solely depend on exports, he says.
Exporters can claim refunds on the taxes paid on both inputs and the finished goods. IGST refunds are held up by the mismatch between the information in the shipping bills and the information filled in the GSTR forms. Mohan Lavi, an independent chartered accountant, explains: “The export general manifest should not be treated as a document for taxation purposes. The authorities are making a mistake here, as a result of which refunds are held up.”
Even as tax authorities have set up help desks, there are localised reports of corruption. Forms in English pose a challenge to small industry, in particular. Small players lack the wherewithal to employ professionals.
Union Commerce Secretary Rita Teotia said: “We have had dedicated sessions of the GST Council primarily looking at refund bottlenecks. We have also examined the software glitches. There has been some improvement in the refunds. States must also begin the process of refunds.”
Overview of sectors
Leather: A sector with a large presence of small players is unable to afford professionals to sort out GST-related concerns. Israr Ahmed Mecca, Regional Chairman (South), Council for Leather Exports (CLE), states that “Exporters of finished leather, which accounts for 15 per cent of total exports, have been hit by refund delays.” Raw material attracts a higher tax rate (which ranges from 5 per cent to 28 per cent in the value chain), which can worsen the impact of refund delays.
Siddiq Ahmed, who handles finance for a small shoe manufacturer, says the company was unable to handle orders of 35,000 pairs of shoes, though the initial liquidity crunch had eased. Banks, in the context of the recent scams, are tightening export credit, further affecting the exporters.
Mecca states that “Exports grew 1.48 per cent ($4,388 million) between April and December 2017 as opposed to $4,324 million for the same period in 2016 due to a revival of demand in the EU.” “But the growth would have been more if not for the challenges we faced last year,” Mecca adds.
Gems and jewellery: GST roll-out has streamlined retail financial operations. Even as the tax rate on gold jewellery is fixed at a higher rate than the earlier regime, there is a greater possibility of increase in organised jewellery retailing, say industry spokespersons.
India’s exports include cut and polished diamonds, coloured gem stones, gold jewellery and coins to the US, the UAE, Russia, Hong Kong, Singapore and China.
According to data from the the Gems and Jewellery Export Promotion Council (GJEPC), net exports of gems and jewellery in April-February 2017-18 stood at ?1,97,553 crore, 9.15 per cent lower than ?2,17,443 crore reported for the same period in the previous year. Pharma: “Date expired” drugs are returned by the retailer to the company, and GST is expected to be paid at every stage, says DG Shah with the Indian Pharmaceutical Alliance, a platform for large domestic drug companies.
The industry had made a representation to the Government that “date expired” medicines being returned to the company should not be treated as a sale. And though there is an in-principle agreement, it has not translated into action on the ground, he says.
According to Shah, the estimated impact of this entire problem on the industry is about ?500 crore. On the export front too, there are delays in getting credits and other export entitlements, he says. Working capital is blocked due to refund delays on duties paid on goods brought in for re-export, he points out.
