New focus product scheme not enough

EXIM MATTERS

The annual supplement to Foreign Trade Policy 2004-09, unveiled on Friday, introduces two new duty credit schemes, replaces the Duty Free Replenishment Certificate (DFRC) scheme with Duty Free Import Authorisation (DFAI) scheme, renames "licences" as "authorisations", denies DFRC/DFAI for deemed exports, gives necessary procedural relaxations to help gem and jewellery exporters and makes some other minor changes.

The exporters still await notification of products under the Focus Product scheme but Commerce Minister Kamal Nath did indicate in his speech that the scheme would cover sports goods, stationery, fireworks, value-added fish and leather products, handlooms and handicrafts.

Under the scheme, transferable duty credit will be available to the extent of 1.25% of the FOB value of exports. I wonder if this is enough to make an impact.

Under the Focus Market scheme, exports to specific countries will earn a transferable duty credit of 2.5% of the FOB value of exports. The list of countries is yet to be notified but here again, the minister indicated that he has in mind countries in Latin America, Africa and East Europe.

An exporter has the option to claim the entitlements under one of the three schemes for every export, ie, he can choose from the Focus Product scheme, Focus Market scheme and Vishesh Krishi Upaj and Gramodyog Scheme (which gives 5% transferable duty credit).

Essentially, the DFAI scheme will differ from the DFRC scheme in six aspects. DFAI is a pre-export scheme, where the application has to be filed before any exports are made (as in the case of advance licences/authorisations), whereas under the DFRC scheme, an application had to be filed after exports. Under the DFRC scheme, the value-addition required was 25% but under the DFAI scheme, the value addition required is only 20%.

The list of sensitive items is much longer under the DFAI scheme compared with the DFRC scheme. Finally, all duties were exempt under the DFAI scheme whereas only basic Customs duties are exempt under the DFRC scheme.

The DFAI will be issued with export obligation whereas there is no export obligation under the DFRC scheme. DFAI will be endorsed for transferability after fulfillment of export obligation.

The DFAI scheme will be applicable for export products in respect of which Standard Input Output Norms are notified. It is a more cumbersome scheme as compared with the DFRC scheme, where, the exporter usually did not have to go back to the licensing authority after issue of DFRC. DFAI scheme will replace DFRC scheme from May 1, 2006, onwards. Till April 30, exporters can file DFRC shipping bills.

Deemed exporters now cannot get DFRC or DFAI. Even supplies made to DFRC/DFAI holders will not qualify for deemed export benefits, says Para 8.2 (a) of the policy. Elsewhere in the policy, the provision to issue Advance Release Order against invalidation of DFRC is kept intact.

The minister said that under EPCG scheme, flexibilities would be provided for maintaining annual average exports. The details are yet to be announced.

The Duty Entitlement Passbook (DEPB) scheme will continue for one more year. According to the commerce minister, incidence of service tax and fringe benefit tax will also be rebated, probably through the DEPB scheme. The details are yet to be announced.

Overall, the annual supplement brings about few changes in the Foreign Trade Policy.

tncr@sify.com