GUJARAT MARITIME UNIVERSITY

LL.M. BATCH (INTERNATIONAL TRADE LAW) – 2019-2020

SUBJECT – INDIA AND FOREIGN TRADE

ASSIGNMENT

SUBMITTED BY

RUDRA RAVAL

LL.M – INTERNATIONAL TRADE LAW

GMU 1920-1211

SUBMITTED TO

MS. SHYAMALI KUMAR

DATE

10TH APRIL, 2020

1
 TABLE OF CONTENT

Sr. No Particulars Pg. No

1 Question 1 3

2 Question 2 8

3 Question 3 13

4 Question 4 15

5 Question 5 17

2
Q-1 Write a detailed note on the New Industrial Policy, 1991.

The New Industrial Policy of 1991(NIP) comes at the center of economic reforms that launched
during the early 1990s. All the later reforms measures were derived out of the new industrial
policy. The Policy has brought comprehensive changes in economic regulation in the country. As
the name suggest, these reform measures were made in different areas related to the industrial
sector. The industrial Policies pursued till 1990 enable India to develop a vast a diversified
industrial structure. But the industrial growth was not rapid enough to generate sufficient
employment, to reduce regional disparities and to alleviate poverty.

It was felt that government controls and regulations had put shackles on the growth of different
segment of Indian Industry. Lack of adequate competition resulted in inadequate emphasis on the
reduction of costs, up-gradation of technology and improvement of quality standards.

It is to reorient and accelerate industrial development with emphasis on the productivity, growth
and quality improvement to achieve international competitiveness that the Industrial Policy of
1991 was announced. As part of the policy, the role of public sector has been redefined. A
dedicated reforms policy for the public sector including disinvestment programme were launched
under the NIP 1991. Private sector has given welcome in major industries that were previously
reserved for the public sector.

The industrial Policy Statement of 1991 stated that “the Government will continue to pursue a
sound policy framework encompassing encouragement of entrepreneurship, development of
indigenous technology through investment in research and development, bringing in new
technology, dismantling of the regulatory system, development of the capital markets and
increased competitiveness for the benefit of common man”. It further added that “the spread of
industrialisation to backward areas of the country will be actively promoted through appropriate
incentives, institutions and infrastructure investments”.

Similarly, foreign investment has given welcome under the policy. But the most important
reform measure of the new industrial policy was that it ended the practice of industrial licensing
in India. Industrial licensing represented red tapism.

3
Because of the large scale changes, the Industrial Policy of 1991 or the new industrial policy
represents a major change from the early policy of 1956.

The new policy contained policy directions for reforms and thus for LPG (Liberalisation,
Privatisation and Globalisation). It enlarged the scope of private sector participation to almost all
industrial sectors except three (modified). Simultaneously, the policy has given welcome to
foreign investment and foreign technology. Since 1991, the country’s policy on foreign
investment is gradually evolving through the introduction of liberalization measures in a phase
wise manner.

Perhaps, the most welcome change under the new industrial policy was the abolition of the
practice of industrial licensing. The1991 policy has limited industrial licensing to less than
fifteen sectors. It means that to start an industry, one has to go for license and waiting only in the
case of these few selected industries. This has ended the era of license raj or red tapism in the
country. The 1991 industrial policy contained the root of the liberalization, privatization and
globalization drive made in the country in the later period. The policy has brought changes in the
following aspects of industrial regulation:

1. Industrial delicensing

2. Deregulation of the industrial sector

3. Public sector policy (dereservation and reform of PSEs)

4. Foreign investment policy and foreign technology policy.

5. Abolition of MRTP Act

1. Industrial delicensing policy or the end of red tapism:

i. All areas of industrial activity excluding areas of security and strategic importance are thrown
open to private investments.

4
ii. Industrial licensing has been abolished for all industries including those (a) which either
strategic and environmental concerns dominate or the import content is exceptionally high
(Annexure II) and (b) which are reserved (836 items, reduced to 749 by 2001- 02) for small
industry manufacturing.

iii. Industrial licensing is not needed in location other than cities having a population of more
than one million, as per the 1991 census.

iv. Industrial licensing is not required not only for new units but also for new products, as also
substantial expansion and change of the location for existing units.

v. Phased Manufacturing Programmes (PMP) have been abolished for all new industries and
subsequently for all industrial projects. Under a PMP, a concerned enterprise has to
progressively replace imported materials, parts, and components with materials, parts and
components produced in house or by other Indian firms. The PMPs accompanied industrial
licences in a wide range of industries involving assembly of parts and components (notably the
vehicle, machinery and electronics industries) prior to IP, 1991.

vi. Re-endorsement scheme is applicable only (a) for industries where licensing is compulsory
and (b) within cities having a population of more than one million, for all those industries. Re-
endorsement scheme was introduced in 1982. As per the scheme, all those industrial units, which
had utilised 94 per cent of the licenced capacity over the previous five years, were allowed to
expand their production by one-third thereof, without licence. In 1986, the scheme was further
liberalised by reducing the cut-off limit to 80 per cent capacity utilisation.

vii. All industrial units, which have obtained licence for an item covered under Annexure II of IP
1991 prior to July 25,1991, have to obtain Carry on Business (C.O.B.) licence.

viii. All entrepreneurs, who initiate new industrial units and indulge in substantial expansions in
delicenced industries, are required to file Industrial Entrepreneurs Memorandum (IEM). IEM has
to be obtained from and submitted (6 copies) to Secretariat of Industrial Approvals (SIA) in the
department of Industrial Policy and Promotion, Ministry if Industry as per the Industries
Development and Regulation (IDR) Act 1951, along with a crossed demand draft for Rs1000/-.

5
ix. For licensing, application has to be obtained from and submitted to (with 8 spare copies) the
Secretariat of Industrial Approvals under IDR Act, 1951 along with a crossed demand draft of Rs
2500/-.

x. All the industrial undertakings are required to submit monthly production returns to concerned
technical authorities (e.g. Textile Commissioner, etc.) and a copy to concerned- administrative
ministry or department.

xi. An Investment Promotion and Project Monitoring Cell is set up in the Department of
Industrial Policy and Promotion, Ministry of Industry to provide information to entrepreneurs
and to monitor progress of implementation of various projects.

2. Dereservation of the industrial sector– Previously, the public sector has given reservation
especially in the capital goods and key industries. Under industrial deregulation, most of the
industrial sectors was opened to the private sector as well. Previously, most of the industrial
sectors were reserved to the public sector. Under the new industrial policy, only three sectors-
atomic energy, mining and railways will continue as reserved for public sector. All other sectors
have been opened for private sector participation.

3. Reforms related to the Public sector enterprises: Reforms in the public sector were aimed
at enhancing efficiency and competitiveness of the sector. The government identified strategic
and priority areas for the public sector to concentrate. Similarly, loss making PSUs were sold to
the private sector. The government has adopted disinvestment policy for the restructuring of the
public sector in the country. At the same time autonomy has been given to PSU boards for
efficient functioning.

Portfolio of public sector investments will be reviewed with a view to focus its investments in
strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector is
being retained, there would be no bar for areas of exclusivity to be opened up to the private
sector selectively. Similarly, the public sector will also be allowed entry in areas not reserved for
it.

6
Public enterprises which are chronically sick and which are unlikely to be turned around will be
referred to the Board of Industrial and Finance Reconstruction for revival/rehabilitation schemes.

4. Foreign investment policy and Foreign Technology Agreements:

Foreign Investment:

In regard to foreign investment, the principal features of the new policy are as follows:

i. Automatic approval is available to FDI in almost all sectors except for a few sensitive ones.
Automatic approval is available for 50 per cent, 51 per cent, 74 percent and 100 per cent in
specified industry groups.

ii. To provide access to international markets, majority foreign equity holding of upto 51 per cent
will be allowed for trading companies primarily engaged in export activities.

iii. A Foreign Investment Promotion Board has been constituted to negotiate with a number of
large international firms and approve direct foreign investment in select areas.

Foreign Technology Agreements:

The principal features of the policy on foreign technology agreements are:

i. Automatic permission will be given to foreign technology agreements in identified high

priority industries up to a lumpsum payment of $2 million, 5 per cent royalty for domestic sales
and 8 per cent for exports, subject to total payment of 8 per cent of sales over a 10 year period
from the date of agreement or 7 years from commencement of production.

ii. In respect of industries other than those specifically mentioned, automatic permission will be
given subject to the same guidelines as in cases where no foreign exchange is required for any
payment.

5. Abolition of MRTP Act: The New Industrial Policy of 1991 has abolished the Monopoly and
Restricted Trade Practice Act. In 2010, the Competition Commission has emerged as the
watchdog in monitoring competitive practices in the economy.

7
The MRTP Act has been amended to remove the threshold limits of assets in respect of MRTP
companies and dominant undertakings.

The industrial policy of 1991 is the big reform introduced in Indian economy since
independence. The policy caused big changes including emergence of a strong and competitive
private sector and a sizable number of foreign companies in India.

Provisions relating to concentration of economic power, pre-entry restrictions with regard to

prior approval of the central government for establishing a new undertaking, expanding an
existing undertaking, amalgamations/mergers, etc. have been removed.

Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfair trade
practices.

Q-2 What do you understand by the term Gains from Trade? What is its significance
under International Trade?

Meaning and Measurement of Gains from Trade:

Just as two traders in the same country enter into exchange for the consideration of making some
gain, in the same way two countries get engaged into transactions for deriving some gain. The
economists have viewed the gains from trade from different angles. The classical theorists
believed that gains from trade resulted from increased production and specialisation.

Jacob Viner pointed out that the gains from trade were measured by the classical
economists in terms of:

(i) Increase in national income,

(ii) Differences in comparative costs, and

(iii) Terms of trade.

The modern theorists considered the gains from trade as the gains resulting from exchange and
specialisation.

8
Some approaches to the concept of gains from trade and their measurement are discussed
below:

(i) Adam Smith’s Approach:

In the opinion of Adam Smith, the gains from international trade are in the form of the increased
value of product and improvement in the productive capacity of each trading country. The
international trade leads to export of the commodity which is less in demand in the home market,
and import of the commodity which is strong in demand. It enables each trading country to
derive the maximum welfare and obtain maximum possible export earnings.

When each country specialises in the production of the commodity in which it has cost
advantage, there is optimum allocation of productive resources. Coupled with increased division
of labour, specialisation reduces the cost structure and enlarges the size of market for each
trading country. As a consequence, the world production and welfare gets maximized through
international trade.

ii) Ricardo-Malthus Approach:

Ricardo viewed the gain from trade as an objective entity. According to him, the specialisation in
production and trade on the basis of the principle of comparative costs results in saving of
resources or costs. Through the cheaper availability of commodities required by each country
from abroad, every country can increase the ‘sum of enjoyments’ and also increase the ‘mass of
commodities’.

In the words of David Ricardo, “The advantage to both places is not that they have any increase
in value but with the same amount of value they are both able to consume and enjoy an increased
quantity of commodities.” Malthus had expressed in this regard views similar to those of Adam
Smith. The gain from trade, according to him, consists of “the increased value, which results
from exchanging what is wanted less for what is wanted more.” The international exchange on
this basis increases “exchangeable value of our possession, our means of enjoyment and our
wealth.”

9
The Ricardo-Malthus approach to gains from trade was illustrated by Ronald Findlay in terms of
Fig. 1.1.

(v) Modern Approach:

The modern approach stresses that the introduction of international trade brings two types of
gains—gain from exchange and gains from specialisation. These two gains together constitute
the gains from international trade. When trade commences, consumers enjoy a higher level of
satisfaction, partly because of improvement in terms of trade and partly on account of greater
specialisation in the use of economic resources of the country. These two types of gains from
trade can be shown through Fig. 1.2

The significance of Gains under international trade can be explained through two ways:

10
1. Static Gains from Trade:

The static gains from trade are as under:

(i) Expansion in Production:

International trade based on the principle of comparative cost advantage, according to classical
economists, assures the benefits of international specialisation and division of labour. All the
available productive resources in the trading countries get optimally utilized resulting in the
maximisation of production not only for the individual trading countries but also for the whole
world.

(ii) Increase in Welfare:

International trade results in the increased production of consumable goods in both home country
and foreign country due to large world demand for products. Specialization also leads to
improvement in the .quality of consumer products. As cheaper consumer products of superior
varieties become easily available, there is definite rise in welfare of the people. “The extension
of international trade”, opined Ricardo, “very powerfully contributes to increase the mass
commodities and, therefore, the sum of enjoyments.”

(iii) Rise in National Income:

International specialisation results in expansion of production in the trading countries. More and
more employment opportunities become available to the people. The expansion of production
and employment leads to a rise in national income of the trading countries.

(iv)Vent for Surplus:

According to Adam Smith, international trade leads to the fullest utilisation of productive
resources of the country. It becomes capable of creating a surplus of goods, which can be easily
disposed of in the foreign market. Thus, the vent for surplus also constitutes a gain from
international trade.

11
2. Dynamic Gains from Trade:

The major dynamic gains from international trade are as follows:

(i) Technological Development:

The international trade stimulates technical and scientific inventions and innovations as the
producers in all the counties attempt to develop such techniques of production through which
costs can be minimised and the speed of production can be accelerated. Trade facilitates the
transfer of advanced technology from the developed to less developed countries. New ways of
producing and organising production are spread to local economies through trade.

(ii) Increased Competition:

Trade stimulates competition, which makes the producers in all the countries to improve the
quality of products and secure production at the least costs. The international competition
promotes efficiency of all the industries in the trading countries.

(iii) Widening of Market:

International trade enlarges the size of market. It induces the producers to expand the scale of
production, volume of investment and employment. Consequently, the production frontiers in the
trading countries can continuously be expanded.

(iv) Increase in Investment:

As the demand for the home produced goods increases due to international trade, there is strong
impetus to investment. The growth of export sector leads to the expansion of several allied
ancillary industries creating more and more opportunities for investment. There is also
substantial increase in foreign direct investments in the export sector of the economy.

(v) Efficient Use of Resources:

12
International trade paves the way for more efficient use of productive resources. The exploitation
and use of the resources, previously considered economically non-viable, becomes economically
viable due to increased demand in the foreign markets.

(vi) Stimulus to Growth:

Production for exports and increased imports of goods bring about a series of adjustments within
the economic system that ultimately have stimulating effect upon the overall growth in the
trading countries. Trade not only induces the growth of export industries, but also promotes the
growth of infrastructure and services sector.

Ellsworth and Clark Leith summed up the dynamic gain from trade in these words, “Trade is a
dynamic force that stimulates innovation. New ways of producing and organising production are
spread to the local economy through trade and the competitive force of trade stimulates adoption
of cost saving techniques. Trade also makes possible economical local production of many goods
that would be prohibitive to produce locally.”

Q-3 Enumerate the amendments brought in the FTDR act in the year 2010.

In 1992, the Government enacted the Foreign Trade (Development and Regulation) Act,
1992 (‘the principal Act’) to enable development and regulation of foreign trade by
facilitating imports and enhancing exports from India. In order to address certain
requirements like bringing in tighter export/ trade control in case of goods and related
technologies, ensure conformity with India’s commitments to WTO/ other international
agreements and to safeguard the domestic industry, need was felt to amend the Act.  The Foreign
Trade (Development and Regulation) Amendment Act, 2010 (‘the act’) was introduced and
passed in both the houses of the parliament. Thereafter, the Ministry of Commerce and
Industry issued a Notification for enforcement of the provisions of the Act. As per the
notification, the Central Government appointed the 27th day of August, 2010, as the date on
which the provisions of the Foreign Trade (Development and Regulation) Amendment Act, 2010
(25 of 2010), shall come into force.

13
The Foreign Trade (Development and Regulation) Amendment Act, 2010 amends the Principal
Act by incorporating safeguard measures by imposing quantitative restrictions on imports,  
trade control and establishing controls similar to the Weapons of Mass Destruction and
their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. A few significant
changes in the Act are enumerated below:

 The definition of “import” and “export” has been expanded to include “technology”
and “services” (including financial services)specified under the General Agreement on
Trade in Services (‘GATS’) entered into between India and other country, so that
incentive schemes and other provisions of the Foreign Trade policy can be administered.
 Dispensations of the requirement of obtaining any licences or permit for import or
export except as may be provided under the Act.
 The Act enables the central government to impose restrictions on increased import
of any article if it causes or threatens to cause serious injury or overall impairment to
the position of the domestic industry.
 No quantitative restriction shall be imposed on goods originating from a
developing country (notified by the central government) as long as the share of import of
that good is up to three per cent. In case of more than one developing country, the total
imports should not exceed nine per cent. The quantitative restriction shall become invalid
after four years unless the central government feels it is necessary to continue with
restrictions. However, no quantitative restriction shall remain valid beyond 10 years
from the date on which the restriction was imposed.
 Imposition of trade control measures  in relation to exports, transfers, re-
transfers, brought in transit, transshipment and broking of specified goods, technology or
services in accordance with the provisions of this Act, the Weapons of Mass Destruction
and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 (21 of 2005)
or any other relevant act.
 Importer-exporter Code Number shall be necessary for service provider in case he
is planning to avail benefits under the Foreign Trade Policy or is dealing with specified
services or specified technologies.

14
  Import and export of goods, services and technology in relation to Special Economic
Zone shall be governed in accordance with the provisions contained in the Special
Economic Zones Act, 2005.
 The Act enhances penalty for contravening the provisions regarding import and export.
It also prescribes penalty for signing any declarations knowing that it is false. If the
penalty imposed by the Act is not paid by any person, it may be recovered in the
prescribed manner.
 The Weapons of Mass Destruction and their Delivery Systems (Prohibition of
Unlawful Activities) Act, 2005 shall apply to export of specified goods, services or
technology (any goods or services or technology whose import or export or transfer is
restricted or conditions have been imposed on grounds of their being relevant to India as
a nuclear weapon state or to the national security of India or any international treaty to
which India is a party).
 A person cannot export any material, equipment and technology knowing that such
material is intended to be used to manufacture biological, chemical or nuclear weapons or
other nuclear explosive device.
 If any person contravenes provisions related to specified goods, the penalties under
the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful
Activities) Act, 2005 shall be applicable.
 The central government has the power to examine the decisions of the Director
General of Foreign Trade. The Director General has similar powers with regard to any
subordinate officer. However, a decision cannot be changed unless certain specified
conditions are met.
 Further, the Act aims to rationalize and improve the administration and dispute
settlement under the Act.

Q-4 What is the process of initiation of investigation under the safeguard measure
(quantitative restrictions) rules?

As in the case of Anti-Dumping or Countervailing duty investigations, the authority in a

safeguard investigation provides the known exporters, importers, users and the exporting country
governments with a copy of the initiation notification and a copy of the non-confidential version

15
of the application and usually requires these parties to respond to the allegations in the
application and submit the respective questionnaires within the prescribed timelines. This time
can be extended upon an application to the authority.

Other parties are notified of the investigation by means of a public notice that details the date of
the initiation, the exporting countries and product at issue, the volume of imports, the basis of the
main allegation on increased imports and a summary of the injury factors, the time limits for
submission of information and the address to which parties may direct their representations.

Parties are expected to convey their intent to participate within 40 days of the initiation
notification, pursuant to the Trade Notice issued by the DGTR in September 2018, upon
which they are provided with a non-confidential version of the petition in order to submit a
response to the allegations of injury and submit an exporter or importer questionnaire as the
case may be. Extension may be provided upon an application made to the DGTR to that effect.

Safeguard investigations are mandated to be concluded within eight months from the date of
initiation of the investigation unless extended by the central government. During this time, the
authority holds a public hearing where views presented orally must be submitted in writing to be
taken on record. Parties exchange post-hearing written submissions and are also provided with
an opportunity to rebut the claims of the other parties. Rebuttal submissions, however, are not
exchanged and are merely submitted to the DGTR.

Preliminary duties (Quantitative restrictions (herein known as ‘QR’) cannot be recommended on

a provisional basis) may be recommended by the DGTR if ‘critical circumstances’ are
established. As in the case of Anti-Dumping or countervailing duty investigations, these
findings of the DGTR are recommendatory in nature and are given effect by the Department of
Revenue by means of a custom notification. In all cases of safeguard investigations, if the final
duty or QR is recommended for more than a year, it must be progressively liberalised. The
duty or QR in any event ceases to have effect on the expiry of four years from the date of its
imposition, unless the central government is of the opinion that the duty or QR must continue, in
which case it may be extended. However, under no circumstance can the duties or QRs be
imposed beyond a period of 10 years from the date of the initial imposition.

16
Q-5 Critically analyze the current Covid-19 situation and its effect on the trade of products
such as ventilators and sanitizers. Has the government relaxed its policies with regards to
such products? Elaborate.

Trade and Trade-related Measures by India and few other Countries:

An Official Gazette Notification was Published by Government of India, Ministry of Commerce

&Industry, Department of Commerce, Directorate General of Foreign Trade in Notification No.
53/2015-2020 on 24 March 2020 has made an amendment in Export Policy of Ventilators
including any artificial respiratory apparatus or oxygen therapy apparatus or any other breathing
appliance/device and sanitizers exercising the conferred power under Section 3 of the Foreign
Trade (Development and Regulation) Act, 1992 (No.22 of 1992) read with Para. 1.02 and 2.01 of
the Foreign Trade Policy, 2015-20.

Hereby, all the ventilators including any artificial respiratory apparatus or oxygen therapy
apparatus or any other breathing appliance/device are prohibited under the serial no. 207 B of the
Schedule 2 of the ITCHS Export Policy in the Notification No. 52 dated 19-03-2020 amended,
with immediate effect.

The export of all Sanitizers falling under 207 D ITCHS Code is prohibited, with immediate
effect. The transnational arrangement under Para 1.5 of the Foreign Trade Policy shall not be
applicable.

Argentina imposed temporary implementation of export licensing requirement on medical

ventilators (artificial respiration apparatus) and also removed temporary suspension of the anti-
dumping duties on imports of hypodermic syringes of plastic, disposable, sterile, with or without
needles from China for which investigation was initiated on 15th September 2009 and definitive
duty imposed on 15th March 2011.

Australia imposed temporary restrictions on the non-commercial export of personal protective

equipment and sanitizer products, due to the COVID-19 pandemic. Legitimate commercial and
humanitarian exports are exempt, as are care packages to family overseas, although products
cannot be sent through the mail. The measures apply only to a specific list of products: personal

17
protective equipment that can be worn by individuals to limit transmission of organisms:
disposable face masks, disposable gloves, disposable gowns, protective eye wear in the form of
goggles, glasses or visors.

Canada as of 16 March 2020, and until further notice, Canada is waiving tariffs and sales taxes
on all goods imported by or on behalf of public health agencies, hospitals and testing sites, and
first response organizations (e.g. police, fire and local civil defense groups, including medical
response teams

United Kingdom temporary elimination of import tariffs on medical supplies, equipment and
protective garments due to the COVID-19 pandemic. Imports also exempted from VAT

The Annex Covid-19 is a document on Trade and Trade-related Measures confirmed Information
as of 9 April 2020 on World Trade Organisation website projects that countries like India,
Argentina, Australia, Canada etc has kept strict prohibition on the exportation of ventilators and
sanitizers. While as of Brazil, China, Colombia, Costa Rica, Dominican Republic, Ecuador and
many more has lifted or eliminated or suspended import tariffs on all purpose medical
equipments, masks, gloves, pharmaceutical ingredients, food, public health products etc. The
United Kingdom is the particular state which eliminated all import tariffs on medical supplies,
equipments (ventilators) and protective garments and also imports are exempted from VAT.

Many countries are right now facing the shortage of ventilators and now the position has arrived
that doctors have to make choice that who gets to live. The shortage of ventilators is not dealt
properly not because of the restriction but because of the increasing out of hand cases and spread
of the virus. Only few countries have a prohibition on ventilators and sanitizers. But the world is
not prepared or any country was not prepared for the Pandemic. US had lot of warning in last 3
years but the Trump Administration decided to dissolve the Global Outbreak Programme which
had lot of funding in Obama Era. All the countries have released or eliminated the import duties
on many of the products but ventilators are yet in making.

18