On March 31, 2023, India announced and notified its Foreign Trade Policy, 2023 (“FTP“). The new FTP has set its sights on an export target of USD 2 trillion in goods and services by 2030 and has introduced various initiatives to support its export mission.
ELP has published a detailed analysis of the Foreign Trade Policy, 2023 (available here). In addition, some trade-focussed questions arise under the new FTP, particularly from the perspective of international trade regulation, such as trade remedies, sanctions, and export control.
Greater availability of trade data and statistics will allow companies improved access to import data for addressing grievances caused by unfair trade: The FTP furthers the Central Government’s aim for ‘better collection, compilation and wide dissemination of Trade Data and Statistics.’[1] While the previous iteration of the FTP only contained a provision relating to the dissemination of trade data through the DGCI&S[2], the new FTP identifies three official platforms through which trade data and statistics can be made available for policymakers, researchers, exporters and importers: (i) Department of Commerce’s Portal, (ii) DGCI&S Portal, and (iii) NIRYAT Portal.[3] Notably, Section 135AA was inserted into the Customs Act, 1962, as part of the Budget 2022-23[4], to penalize the publication of trade data and statistics.[5] In the context of trade remedial investigations, the consistent practice of the Directorate General of Trade Remedies (“DGTR”) has been to rely on DGCI&S or DG Systems data.[6] This amendment will, among other things, likely alleviate any difficulties arising out of the lack of reliable import data being readily available, particularly for trade remedial applications.
India’s continued attention to trade with specific countries: Much like the previous iteration of the FTP[7], this version also contains provisions which allow the DGFT to issue notifications to ‘promote and regulate trade and strengthen economic ties with neighbouring countries.’[8] In the past, the Central Government has emphasized trade relations with its neighbours as being ‘a special focus area for the government.’[9] In line with this goal, India has often made special provisions for trade with its neighbouring countries. For example, in 2022, despite its ban on export of wheat, it allowed for the export of wheat to its neighbouring countries, such as Bangladesh, Sri Lanka and Nepal to meet their ‘food security needs’.[10] Currently, India provides preferential market access to all the Least Developed Countries of SAARC.[11] It is also a party to the South Asian Free Trade Area[12] and has bilateral trade agreements with Nepal[13], Bhutan[14], and Sri Lanka[15]. It also provides preferential duty rates to imports from Afghanistan under a Preferential Trade Agreement.[16] The retention of this provision in the current FTP indicates the Central Government’s intention to continue such trade engagement with its neighbouring countries.
Notably, the provision allows the DGFT to issue notifications to regulate trade with neighbouring countries. India must be mindful of its commitments under the WTO (such as compliance with the most-favoured nation principle and the national treatment principle) and the confines of the exceptions provided under Articles XX and XXI of the General Agreement on Tariffs and Trade (GATT), while promoting or regulating trade with neighbouring countries as envisaged under the FTP.
District Export Hubs may be scrutinized from a subsidy perspective: The Central Government has introduced the concept of developing districts as export hubs in Chapter 3 of the new FTP.[17] Under this scheme, specific districts shall constitute a District Export Promotion Committee, which will prepare and implement district-specific Export Action Plans.[18] These Export Action Plans will contain a comprehensive plan for the export growth of selected priority products/services from each district.[19] These may also include the support required by the local industry in boosting manufacturing and exports.[20]
Depending on the kind of support provided to the local industry towards encouraging such exports, it may be relevant to assess whether the support envisaged under this endeavour is compliant with India’s obligations at the multilateral level, particularly the Agreement on Subsidies and Countervailing Measures. This is important to prevent potential retaliation from trading partners in the form of countervailing measures, which would be counterproductive to the Central Government’s aim to boost exports.
Self-Declaration of SION can impact how foreign investigating agencies perceive Indian programs on import tax exemptions/repatriation: Under the new FTP, an exporter of products for which SION Norms have been notified, may self-ratify ‘additional inputs’ without the intervention of the Norms Committees.[21] Notably, exporters may not alter the quantity or value of an input specified in a norm, but may include an additional input to their export product, and seek Advance Authorization for the same.[22]
It is pertinent to note that trade remedial frameworks in several countries require the exporting country’s government to have in place a reasonable and effective system to confirm which inputs, and in what amounts, are consumed in the production of the exported products.[23] It is yet to be seen how the present amendment is likely to impact countries’ assessment of the countervailability of India’s Advance Authorization Program.
The Amnesty Scheme on Export Obligation Default will have subsidy calculation implications: The Government has introduced a one-time Amnesty Scheme, under which pending cases of default in Export Obligation and Advance Authorization can be regularized by paying the exempted customs duty. The maximum interest is capped at 100%, and no interest is payable on the portion of Additional Customs Duty and Special Additional Customs Duty. This option would be available to exporters till September 30, 2023.[24] In the context of anti-subsidy investigations, ordinarily, when an export obligation has not been met by an exporter under the EPCG or Advance Authorization Scheme, the exemption of duties is considered to be an interest-free loan to the exporter, and only the waiver of interest on a loan is calculated as the countervailable benefit being extended to the exporter. However, when the export obligation has been met by the exporter, the exemption of duties is treated as ‘revenue foregone” by the government in the form of a grant.
It would be interesting to see how the FTP’s above-discussed one-time waiver of payment of penalty and reduction of interest would be factored into the calculation of benefit in any potential anti-subsidy investigations against Indian exporters that utilized this amnesty within the period investigated as well as the average useful life benefit period for non-recurring benefits.
Settlement of Trade in Indian Rupee (INR): India has taken into account the impact of the geopolitical disruptions on international trade in the FTP and has permitted trade settlements to be made in INR.[25] Notably, given the sanctions on Russia by the western countries in light of the Russia-Ukraine war, India has been undertaking Rupee-Ruble trade with Russia. Recently, India and Malaysia also agreed to settle trade in INR.
FTP Implications on Export Controls: The new FTP has consolidated the existing provisions on export control in India under Chapter 10. While most of the laws and regulations remain the same, Chapter 10 now provides exporters with easy access to an overarching framework for export control in India. This is likely to simplify the export control law in India and encourage strategic exports of dual-use items to important trading partners. Notably, India and the United States of America announced a Memorandum of Understanding on semiconductor supply chain and innovation partnership in March 2023.[26] The Memorandum of Understanding aims to promote cooperation between the two countries in the semiconductor sector and build a more diverse and resilient supply chain for semiconductors. In order for Indian exporters to make the best of such opportunities, it is important for India to maintain its robust export control laws.
Additionally, the FTP has also introduced the Voluntary Self Disclosure scheme,[27] which allows exporters to make a self-disclosure request in case they fail to comply with Indian export control law. Upon discovering the said violation, the exporter may file a self-disclosure request with the Directorate General of Foreign Trade along with the supporting documents. This is an important amendment since this will allow exporters to protect themselves from stricter penalties, in the event they fail to comply with export control laws. Further, the self-disclosure program allows greater transparency and outreach amongst exporters.
We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:
Sanjay Notani, Partner – SanjayNotani@elp-in.com
Ambarish Sathianathan, Partner – AmbarishSathianathan@elp-in.com
Naghm Ghei, Principal Associate – NaghmGhei@elp-in.com
Divyashree Suri, Associate – divyashreesuri@elp-in.com
References:
[1] Para. 1.20, Foreign Trade Policy 2023.
[2] Para. 1.36, Foreign Trade Policy 2015-20.
[3] Para. 1.20, Foreign Trade Policy 2023.
[4] Section 95, Finance Act 2022.
[5] Section 135AA, Customs Act 1962.
[6] Para. 3.20, Manual of Operating Practices for Trade Remedy Investigations, available at < https://www.dgtr.gov.in/sites/default/files/MANUAL%20OF%20SOP.pdf> last accessed April 1, 2023.
[7] Para. 2.21, Foreign Trade Policy 2015-20.
[8] Para. 2.22, Foreign Trade Policy 2023.
[9] Directorate General of Foreign Trade, “Foreign Trade Policy Statement 2017 – Mid Term Review” available at <https://content.dgft.gov.in/Website/ftpst17-051217%20(3).pdf> last accessed April 1, 2023.
[10] Notification No. 06/2015-20 dated May 13, 2022.
[11] Agreement on SAARC Preferential Trading Arrangement.
[12] Agreement on South Asian Free Trade Area.
[13] India-Nepal Trade Treaty.
[14] Agreement of Trade, Commerce and Transit between the Government of the Republic of India and the Royal Government of Bhutan.
[15] India-Sri Lanka Free Trade Agreement.
[16] India-Afghanistan Preferential Trade Agreement.
[17] Chapter 3, Foreign Trade Policy 2023.
[18] Para. 3.1, Foreign Trade Policy 2023.
[19] Para. 3.2, Foreign Trade Policy 2023.
[20] Para. 3.2, Foreign Trade Policy 2023.
[21] Para. 4.06(i), Foreign Trade Policy 2023.
[22] Para. 4.06(i), Foreign Trade Policy 2023.
[23] See, for example, 19 CFR 351.519(a)(4).
[24] Public Notice No. 2/2023 dated April 1, 2023.
[25] Para. 2.52, Foreign Trade Policy 2023.
[26] Joint Statement of India – US Commercial Dialogue held on March 10, 2023, available at < https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1905747 > last accessed April 3, 2023.
[27] Para. 10.11, Foreign Trade Policy, 2023.
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