The Hindu Business Line : Easing the logistics of foreign trade

As India strives to follow the World Trade Organisation guidelines on dismantling trade barriers and inviting Foreign Direct Investments on a large-scale, the country needs to take some concrete steps to become a truly globalised nation.

There are best practices to learn from other nations to reduce the transaction costs and time. The two practices, which are globally used in exim trade and worth emulating, are: Doing away with guarantees, which exporters and importers are required to submit to DGFT/Customs/excise.

This can be done by innovative systems, and introducing proper procedures to help international companies freely stock and sell from Free Trade Warehousing Zones (FTWZ) to enable them to use FTWZs as hubs for global distribution.

On many occasions, DGFT and Excise andCustoms Department would insist on sureties and guarantees to be backed by bank guarantees. For example, guarantees are needed for export commitment against EPCG/Advance Licences, Transit Bonds, Provisional Duty Assessment Bonds, Import Trade Control Bonds, Warehousing Bonds, EOU/STP related Bonds and so on. Also several bonds are required to be furnished by shipping lines, airlines, etc.

Insurance facilitiation

The Foreign Trade Policy has waived bank guarantees for status holders at Customs and DGFT.

However, there is a way to protect the government revenues without giving any concessions by following the system of insurance policies such that the policy-holder will be the shipper or importer as the case may be and the policies should be accepted in lieu of bonds and this could be done by deep e-enablement.

The selected insurance companies can have huge business and individual importers can have the facility of authorised debit by buying policies. Such an arrangement will save a lot of man-hours and speed up the process.

The vast army of assistants in Customs offices, who process the bonds, a three-tier approval system and also keep track for cancellation and enforcement, can instead focus on core matters.

Transactions gets speeded up considerably and in case of default there will be quick realisation of revenue, which does not take place now.

This practice is followed in the US and other countries extensively. We have thrown the doors open for FTWZs as a part of promotion of SEZs in the country with two objective in view.

One, to encourage distribution by foreign companies out of warehouses in SEZ and this could be Vendor Managed Inventory for Indian OEMs or physical commodity positioning for being nearer to SAARC markets. And two,distribution by domestic companies of products manufactured for export at the right time.

FTWZ rules

The rules for FTWZ have been framed with respect to supply side i.e. warehouse operators etc while the requirement of international customers who will make use of these zones have been neglected.

All over the developed world the practice is this: As long as a foreign company registers for import duty, it is allowed to consign the goods to "self" to store in these warehouses pending sales to local customers who, in turn, pay duty and lift the goods.

These foreign companies are not required to be incorporated as a firm or company in the country where they warehouse and sell and be subjected to a plethora of local regulation and taxes.

On the other hand, in India while one does expect overseas organisations to store and sell or buy or distribute in these FWTZs, one does not know yet whether consigning the goods to self or the warehouse without paying local duties or registering with sales tax authorities or ROC or income tax authorities and service tax people is possible.

If for warehousing in an FTWZ and buying or selling from Zone, these overseas companies undergo all these processes and registration, the whole demand side will be a non-starter.

(The author is Managing Director, Logistics Plus Inc.)

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