ENTREPRENEURSHIP

DEVELOPMENT TRAINING
PROGRAM

Sapna Tomar
Deputy Director
Spices Board India
 Main Categories of Exporters
Manufacturer Exporters Merchant Exporters

Manufacturer exporters are the producers who export Merchant exporters are the exporters who purchase
goods directly without any intervention from goods from domestic market and sell them in the
intermediaries. They may appoint agencies abroad for foreign counties as per the demand. They are indirect
selling their products. They are the direct exporters and exporters and enjoy several advantages:-
enjoy several advantages:-
 Limited capital Investment.
 Direct control over export marketing activities.
 Product adoption as per the requirement of
 Enjoy full benefit of export incentives.
overseas buyers.
 Enjoy greater profits and goodwill in the market.
 Large Market share.
 Indian trade classification on harmonized system (ITC
- HS)
• The harmonized system (HS) is an international nomenclature of goods classification developed by the world
custom organization (WCO) in 1988. It has been adopted by more than 190 countries.
• ITC-HS Codes or better known as Indian Trade Clarification based on Harmonized System of Coding was
adopted in India for import-export operations. A process of arriving at a particular heading or sub heading of a
commodity entering the international trade
• Indian custom uses an eight digit ITC-HS Codes to suit the national trade requirements.
• There are 2 schedules to the ITC HS: Schedule 1 (Import) & Schedule 2 (Export).
• Any changes or formulation or addition of new codes in ITC-HS Codes are carried out by DGFT (Directorate
General of Foreign Trade).
• Eight Digit HS Code of Turmeric Powder
EXAMPLE
is 09103030
09 – Chapter - Coffee, whether or not
roasted or decaffeinated; coffee husks and skins;
coffee substitutes containing coffee in any proportion Sub- Item
Chapter Heading
heading Description
10 – Heading - Ginger, saffron, turmeric
(curcuma), thyme, bay leaves, curry and other spices.

30 – Sub-heading - Turmeric First Two Digit First Four Digit First Six Digit
Total Eight
(curcuma)
Digit

30 – Item description - Powder

 Importance of ITC (HS) classification

• To identify products that are being imported or exported through a country’s borders.
• To classify and categorize products in a worldwide system used for customs clearance purposes.
• FOR GOVT.: To decide the Custom Tariffs.
• FOR GOVT.: Collection of International trade statistics
• FOT GOVT.: To formulate Rules of origin
 Classification of goods for Export & Import

Export through STE(s)

STATE TRADING
ENTERPRISES
PROHIBITED

RESTRICTED
Prohibited items are not
permitted for import
or export under any
circumstances.
Example: Tissue culture
plant
is permitted without a
The restricted item can license through
be permitted for designated STE’s only
import or export under as mentioned against
license. an item and is subject
to conditions
stipulated in the FTP.
Example: Cow, Buffalo, Some of these
Maize Bran designated agencies
are FCI, Mineral and
Metals Trade
Corporation of India,
APEDA and MPEDA.
 Important note

Exports and Imports shall be ‘Free’ except when regulated by way of ‘prohibition’, ‘restriction’ or
‘exclusive trading through State Trading Enterprises (STEs)’ as laid down in Indian Trade
Classification (Harmonized System) [ITC (HS)] of Exports and Imports. The list of ‘Prohibited’,
‘Restricted’, and STE items can be viewed by clicking on ‘Downloads’ at
https://www.dgft.gov.in/CP/?opt=itchs-import-export
INTERNATIONAL TRADE BARRIERS
Meaning

LIMITATIONS/RESTRICTIONS/ BLOCKING
What is TB?
Trade Barriers are the govt. policies which restrict
the trade. It makes the trade difficult, expensive
and sometimes it totally stops the trade

Why?
To make imported goods or service less competitive
than locally produced goods and services.

Types of TB

1. Tariff Barriers
2. Non – Tariff Barriers
 OBJECTIVE OF TRADE BARRIERS

Protect
Home Conserve Maintain
Promote Make
Industries Foreign Favorable
New Economy
from Exchange Balance of
Industries self-reliant
Foreign Reserves Payment
Competition
 TARIFF BARRIERS
Meaning

TAXES

A tariff is designed to make imports & export more expensive.

Classifications

1. Classification of Tariff on the basis of Origin

2. Classification of Tariff on the basis of Purpose

3. Classification of Tariff on the basis of Criteria

4. Classification of Tariff on the basis of Trade Relations

 CLASSIFICATION ON THE BASIS OF ORIGIN

Example
Export Tariff
In the past, China has placed export tariffs on many major
When the taxes impose by exporting country grain products. High international grain prices caused many
EXPORTING govt. before the goods or services leaves the IMPORTING producers of these grain products to export their goods. This
caused a domestic shortage of grain products, so the
COUNTRY country border COUNTRY government placed an export tariff to stabilize domestic
demand.

Example Import Tariff

in February 2021 in its 2021-2022 Annual Budget, the When the taxes impose by Importing
government of India (GOI) increased tariffs for 31 product
categories including cotton, palm oil, solar inverters, shelled
EXPORTING country govt. before the goods or services IMPORTING
walnuts and many more. COUNTRY enter their country border COUNTRY
 CLASSIFICATION ON THE BASIS OF CRITERIA
Specific Tariff
A fixed fee levied on one unit of an
imported good is referred to as a specific
tariff.
For example
1. Levy Rs. 10/- per on each pair of shoes
Imported.
2. Levy Rs. 100/ton on import of Rice
Example
The United States levies a 2.5 percent ad valorem
tariff on imported automobiles. Thus, if $100,000
worth of automobiles is imported, the U.S.
government collects $2,500 in tariff revenue. In this
case, $2,500 is collected whether two $50,000
BMWs or ten $10,000 Hyundai’s are imported.
Example
the U.S. government levies a $0.51 specific tariff on
every wristwatch imported into the United States.
Thus, if one thousand watches are imported, the
Generally U.S. government collects $510 in tariff revenue. In
Impose this case, $510 is collected whether the watch is a
$40 Swatch or a $5,000 Rolex.
On Quantity or
weight
Ad valorem tariff
Ad Valorem tariff rates are calculated as a
fixed percentage of the assessed commercial
Generally value of the goods. If a product you are
Impose importing has a stated commercial value of
On total Value $5,000 and an Ad Valorem tariff rate of 5%,
you would pay $250 in tariff rate charges.
 CLASSIFICATION ON THE BASIS OF CRITERIA

Compound Tariff
Example
Impose
A tax on imported goods that is a
on both Pakistan levies Rs. 0.88 per liter of some petroleum
combination of a fixed amount and an products plus 25 percent ad valorem.
quantity and
amount based on the value of the goods.
value
 CLASSIFICATION ON THE BASIS OF PURPOSE

Revenue Tariff Example

A tariff on coffee imports, for example (by a country
A tariff imposed principally to raise that does not grow coffee) raises a steady flow of
government revenue rather than to protect revenue.
domestic industries.

Example
Protective tariff
India already raised taxes on imports of goods such
as electronic items, toys and furniture in February,
drawing criticism that it was a protectionist move
Tariffs levied in order to reduce foreign
against foreign businesses. Sweden's IKEA, for imports of a product and to protect domestic
example, said at the time it was disappointed with industries.
the higher tariffs.
 CLASSIFICATION ON THE BASIS OF PURPOSE
Anti Dumping Duty
If a company exports a product at a price lower than
the price it normally charges on its own home
market, it is said to be “dumping” the product. An
anti-dumping duty is a protectionist tariff that a
domestic government imposes on foreign imports
that it believes are priced below fair market value.
Example
The government has imposed countervailing duty on
Saccharin, a kind of sweetener, from China for five
years, a move to guard domestic players from cheap
imports.
Example
India has imposed anti-dumping duty on untreated
fumed silica, used in the production of
pharmaceuticals, cosmetics, dyes and food
additives, for five years to offset the impact on
domestic industry from dumped imports from
China and South Korea. The duty is applicable on
imports originating in or exported from the People’s
Republic of China and South Korea
Countervailing Duty
To make their products cheaper and boost their demand in
other countries, foreign governments sometimes provide
subsidy to their producers. To avoid flooding of the market
in the importing country with these goods, the government
of the importing country imposes countervailing duty,
charging a specific amount on import of such goods.
 NON TARIFF BARRIERS
Quantitative restrictions are more effective than tariff barriers in controlling the total inflow of goods in physical terms in the country. This
restrictions are known as non-tariff barriers.

Example 1: In December 2017, the United Nations adopted a round of nontariff barriers against North Korea and the Kim Jong Un
regime. The nontariff barriers included sanctions that cut exports of gasoline, diesel, and other refined oil products to the nation.
They also prohibited the export of industrial equipment, machinery, transport vehicles, and industrial metals to North Korea. The
intention of these nontariff barriers was to put economic pressure on the nation to stop its nuclear arms and military exercises.

Example 2: U.S. Embargo on Cuba: In 1962, the U.S. placed a full embargo against Cuba..

Example 3: U.S. Embargo on Japan: In 1941, the same year the U.S. entered World War II, the U.S. imposed a comprehensive trade
embargo against Japan.
 NON-TARIFF BARRIERS
License
Countries may use licenses to limit imported
goods to specific businesses. If a business is
granted a trade license, it is permitted to
import goods that would otherwise be
restricted for trade in the country.
Non Tariff Barriers
Voluntary export restraints
Voluntary export restraints set limits on the
number of goods and services a country can
export to specified countries. These restraints
are typically based on availability and
political alliances.
Quota
With quotas, countries agree on specified
limits for products allowed for importation to
a country.
Subsidies to Domestic producer
Subsidies help in lowering down the cost of
production of domestic goods as a result of
which the prices also come down. It helps
domestic producers to capture export
markets by making their products cheaper in
international markets.
 NON-TARIFF BARRIERS
Embargo
Embargoes are when a country–or
several countries–officially ban the
trade of specified goods and
services with another country.
Governments may take this
measure to support their specific
political or economic goals.
Sanctions
Countries impose sanctions on
other countries to limit their trade
activity. Sanctions can include
increased administrative actions–
or additional customs and trade
procedures–that slow or limit a
country’s ability to trade.
 DIFFERENCE BETWEEN TARIFF & NON TARIFF BARRIERS
Tariff Barriers
Tariff Barriers are in the form of taxes and duties charged on the
total value of a commodity imported or exported.
Tariff barriers are classified on the basis of origin, criteria, purpose
and relations between trading countries.
The objective of TB is to increase the price of imported goods and
thereby reduce their consumption and import.
It is an indirect method of curtailing imports by increasing the price
of imported articles.
As a method of controlling import, tariffs may not be effective as
people may continue to buy imported goods at a higher price.
Tariff barriers generate revenue for the government in the form of
taxes and duties.
TB are more popular and used frequently.
Non-Tariff Barriers
Non-tariff barriers are quantitative restrictions on physical units of a
commodity imported or exported.
Non-tariff barriers are in the form of quotas, licensing, Voluntary
export restraints, embargo, sanctions and subsidy to domestic
producer etc.
The objective of NTB is to restrict the quantity of import so as to
provide protection to domestic industries.
It is a direct method of curtailing import by controlling physical
quantity of import.
As a method of controlling import, ntb may be more effective as
they directly control the total volume of the goods imported.
NTB do no generate any revenue for govt.
NTB are used rarely.
 REGIONAL ECONOMIC GROUPS

o Regional economic Integration are the agreement between the groups of countries in a geographic
region to reduce and ultimately remove, tariff and non-tariff barriers to the free flow of goods,
services.

o Such groups have liberal rules for member countries while a separate set of rules is laid for non-
members.

o These groups are popularly known as trade blocs.

o Example: SAARC (South Asian association for regional cooperation), EU, North America Free
Trade Agreement (NAFTA), The association of south-east Asian nations (ASEAN) are some of
the powerful trade blocs.
 Cont.- Concept of regional economic groups

Different Regional blocs have came up in the period of economic liberalization in

various parts of the world. Some of the functionally active trading blocs are:-

a) NAFTA (North America Free Trade Agreement)

b) EU

c) ASEAN (Association of southeast Asian nation)

d) SAARC (South Asia Association of Regional cooperation)

 Types of Regional Economic Groups
o Free Trade Area: FTA is the simplest form of economic integration which provides for internal free trade
between member countries. Each member is allowed to determine its own commercial policy with
respect to the non-members. Exp: - LAFTA

o Custom Union: A CU is a more advanced form of economic integration which not only provides for
internal free trade between member countries but also adopts a uniform commercial policy against the
non-members. In some cases, they may use different import quotas. For example, European Economic
Community.

o Common Market: A common market allows free movement of labor and capital within the common
market in addition to having free movement of goods between the member countries. The member
countries of common market also adopt a common commercial policy with respect to the non-members.
 Cont. – Types of regional economic groups

o Economic Union: In the case of Economic Union, the member countries have the same economic
policies, including monetary and fiscal policy, In addition to the features of common market.
Example: EU has introduced common currency EURO 2000 for its member countries in the year
1999.

o Political Union: Political union is the ultimate type of economic integration whereby member
countries achieve not only monetary and fiscal integration but also political integration. For
example, EU is moving towards a political union similar to the one created by 52 states of
America.
 Political
5. Common Government + 4
Union

Economic 4. Common monetary and fiscal

Union policy. + 3

Common 3. Free movement of capital and labor.

Market +2

Custom 2. Common external tariffs + 1

Union

Free Trade 1. Reduction of tariff between

Agreement members.
INCO TERMS
• The four Incoterms® 2020 rules for Sea and Inland Waterway Transport
are:
• FAS - Free Alongside Ship (insert name of port of loading)
• FOB - Free on Board (insert named port of loading)
• CFR - Cost and Freight (insert named port of destination)
• CIF - Cost Insurance and Freight (insert named port of destination)
 INCO TERMS
The seven Incoterms® 2020 rules for any mode(s) of transport are:
• EXW - Ex Works (insert place of delivery)
• FCA - Free Carrier (Insert named place of delivery)
• CPT - Carriage Paid to (insert place of destination)
• CIP - Carriage and Insurance Paid To (insert place of destination)
• DAP - Delivered at Place (insert named place of destination)
• DPU - Delivered at Place Unloaded (insert of place of destination)
• DDP - Delivered Duty Paid (Insert place of destination).
INTERNATIONAL PAYMENT TERMS
 INTERNATIONAL PAYMENT TERMS

Payment in Advance Letter of Credit

Documentary Bill of Exchange /

Open Account
Documentary Collection
OPEN ACCOUNT
CONSIGNMENT
 DOCUMENTARY COLLECTION

• A documentary collection (D/C) is a transaction whereby the exporter entrusts the collection of the payment for
a sale to its bank (remitting bank), which sends the documents that its buyer needs to the importer’s bank
(collecting bank), with instructions to release the documents to the buyer for payment.

• Funds are received from the importer and remitted to the exporter through the banks involved in the collection in
exchange for those documents.

• D/Cs involve using a draft that requires the importer to pay the face amount either at sight (document against
payment) or on a specified date (document against acceptance). The collection letter gives instructions that
specify the documents required for the transfer of title to the goods.

• Although banks do act as facilitators for their clients, D/Cs offer no verification process and limited recourse in
the event of non-payment.

• D/Cs are generally less expensive than LCs.

DOCUMENTS AGAINST PAYMENT
DOCUMENTS AGAINST ACCEPTANCE
PAYMENT IN ADVANCE
 LETTER OF CREDIT

• Letters of credit (LCs) are one of the most secure instruments available to international
traders.

• An LC is a commitment by a bank on behalf of the buyer that payment will be made to the
exporter, provided that the terms and conditions stated in the LC have been met, as verified
through the presentation of all required documents. The buyer establishes credit and pays his
or her bank to render this service.

• An LC also protects the buyer since no payment obligation arises until the goods have been
shipped as promised.
 Import
er

Advising Main
bank/
Parties to
Export
Exporter
bank L/C er

Issuing
bank/
Importer
bank
 NEW PAYMENT RISK DIAGRAM

Least Secure Less Secure More Secure Most Secure

Documentary Cash-in-
Exporter Consignment Open Account Letter of credit
Collection advance
Cash-in- Documentary
Importer Letter of Credit Open account consignment
advance Collection
THANK YOU