EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

Forex operation can be critical and risky so government tried to

develop a systematic process and regulated it. The FEMA [Foreign

Exchange Management Act] is the law which regulates the forex

market .The regulatory authority for the Indian forex market is the RBI.

The RBI issues Guidelines/regulations/instructions from time to time

which govern the functioning of the market .Only A.D’s [Authorised

Dealers] licensed by the RBI can participate directly in the forex

market. These are usually schedule commercial banks.

Foreign exchange operations can be regulated and controlled by

following guidelines:

1. Trade Management-

-Managed by ministry of Finance – through DGFT Import & Export

- Foreign Trade Policy (2009-14)

2. Exchange management –

-Managed by ministry of Finance – through Reserve Bank of India

- Authorised dealers

3. UCPDC

-Managed by International Chambers of Commerce (ICC)

- defines set of rules governing L/C

4. ECGC

-Managed by ministry of Commerce-

Through board of directors representing Govt, Banking, trade &

industry

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

5. Bank Policies

-Services charged

-Internal documentation

-Finance

-Security

DIMENSIONS TO TRADE FINANCE

• TRADE CONTROL

• EXCHANGE CONTROL

• BANK POLICY

TRADE CONTROL

• PHYSICAL MOVEMENT OF GOODS IN AND OUTSIDE INDIA

• MIN OF COMMERCE THRO DGFT

• TRADE POLICY 2009-2014

• HANDBOOK OF PROCEDURES-2VOLS

• HS CLASSIFICATION CODE BOOK

• PUBLIC NOTICES

EXCHANGE CONTROL

• PHYSICAL MOVEMENT OF FUNDS

• RBI THROUGH FEMA

• THROUGH ADs

• CUSTOMS FOR ACTUAL EXPORTS AND IMPORTS:END USE

• ENFORCEMENT DIRECTORATE : CHECK FOR ADHERENCE AND FOR

VIOLATIONS, BANKS TO MAINTAIN PROPER RECORDS

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

• OTHER INSTITUTIONS

FEDAI:

1. APEX BODY OF ADs AND AMCs

2. FRAMES RULES CHARGES,BOOK OF RULES AMENDED WEF 1ST

OCT 1999

3. AR CIRCULARS

4. PRESCRIBES FLOOR LIMITS FOR TRADING

• ECGC:

1. CREDIT INSURANCE

2. ISSUES POLICIES TO EXPORTERS AND GUARANTEES TO

BANKS[FOR EXPORTS]

3. POLICIES PROTECT EXPORTERS AGAINST RISK

OVERSEAS( IMPORTER’S DEFAULT)

4. GUARANTEES PROTECT BANKERS IN CASE OF DEFAULT…OF

ADVANCES TO EXPORTERS

• INDIAN BANKS ASSOCIATION :FOR BACK TO BACK LETTER OF

CREDIT (INLAND LETTER OF CREDIT)

ICC

• HQ AT PARIS

• 18 PUBLICATIONS

• 3 ARE MANDATORY AS PER RBI

1. UCPDC ICC PUB NO. 600 01-07-2007

2. URC ICC PUB NO. 522 01-01-1996

3. URR ICC PUB NO. 525 01-07-1996

4. ISBP ICC PUB NO. 645 Jan 2003

2 ARE OPTIONAL

1. DOCDEX ICC PUB NO.577 01-10-1997

2. CONCILIATION ICC PUB NO. 581 01-01-1998

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

In India, the main legislation concerning foreign trade is the Foreign Trade (Development and Regulation) Act, 1992. The Act provides for the development and regulation of foreign trade by facilitating imports into, and augmenting exports from, India and for matters connected therewith or incidental thereto. As per the provisions of the Act, the Government :- (i) may make provisions for facilitating and controlling foreign trade; (ii) may prohibit, restrict and regulate exports and imports, in all or specified cases as well as subject them to exemptions; (iii) is authorised to formulate and announce an export and import policy and also amend the same from time to time, by notification in the Official Gazette; (iv) is also authorised to appoint a 'Director General of Foreign Trade' for the purpose of the Act, including formulation and implementation of the export-import policy.

Accordingly, the Ministry of Commerce and Industry has been set up as the most important organ concerned with the promotion and regulation of foreign trade in India. In accordance with the provisions of the Act, a "Directorate General of Foreign Trade (DGFT)" has been set up as an attached office of the Ministry of Commerce and Industry. It is headed by the 'Director General of Foreign Trade' and is responsible for formulating and executing the Foreign Trade Policy/Exim Policy with the main objective of promoting Indian exports. The DGFT also issues licences to exporters and monitors their corresponding obligations through a net work of 32 regional offices.

In India, the most important law which regulates all foreign exchange transactions including investments abroad is the Foreign Exchange Management Act (FEMA),1999 . It is an investor friendly legislation which aims to facilitate external trade and payments as well as promote an orderly development and maintenance of foreign exchange market. Under the Act, Reserve Bank of India (RBI) has been authorised to frame various rules, regulations and norms pertaining to overseas investments in consultation with the Central Government.

Customs Act, 1962The consolidated and self-contained Customs Act, 1962 came into operation on December 13, 1962, This comprehensive Act provides the legal framework, guidelines and procedures related to all situations emerging from the export and import trade transactions. The primary objectives of this Act are to (a) regulate the genuine export and import trade transactions in keeping with the national economic policies and objectives, (b) check smuggling, (c) collect revenue, (d) undertake functions on behalf of other agencies, and (e) gather i trade statistics. Details about the rate and nature of customs duty leviable on any

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

item, as decided by the Central government, are specified in the First and Second Schedule of the Customs Tariff Act, 1975 with regard to imports and exports, respectively.

The Foreign Contribution (Regulation) Act, 2010 (42 of 2010) dated the 26th September, 2010 was notified in the Gazette of India – Extraordinary – Part II - Section I dated the 27th September, 2010. However, the Act has come into force with effect from the 1st

May, 2011 vide Gazette Notification vide G.S.R. 349 (E) dated the 29th

April, 2011. Consequently, the earlier Act, viz., the Foreign Contribution (Regulation) Act, 1976has been repealed. The Foreign Contribution (Regulation) Rules,2011 made under section 48 of FCRA, 2010 have also come into force simultaneously with FCRA, 2010 vide Gazette Notification vide G.S.R. 349 (E) dated the 29th April, 2011. While the provisions of the repealed FCRA, 1 976 have generally been retained, the FCRA, 2010 is an improvement over the repealed Act as more stringent provisions have been made in order to prevent misutilisation of the foreign contribution received by the associations. The prime objective of the Act is to regulate the acceptance and utilization of foreign contribution and foreign hospitality by persons and associations working in the important areas of national life. The focus of the Act is to ensure that the foreign contribution and foreign hospitality is not utilized to affect or influence electoral politics, public servants, judges and other people working the important areas of national life like journalists, printers and publishers of newspapers, etc. The Act also seeks to regulate flow of foreign funds to voluntary organizations with the objective of preventing any possible diversion of such funds towards activities detrimental to the national interest and to ensure that individuals and organizations may function in a manner consistent with the values of the sovereign democratic republic. Organizations seeking foreign contributions for definite cultural, social, economic, educational or religious programmes may either obtain registration or prior permission to receive foreign contribution from Ministry of Home Affairs by making application in the prescribed format and furnishing details of the activities and audited accounts. The registration is granted only to such association which has proven track record of functioning in the chosen field of work during last three years and after registration, such organization is free to receive foreign contribution from any foreign source for its stated objectives. Registration is granted only after thorough security vetting of the activities and antecedents of the organization and office bearers thereof. However, such organizations which are newly established and do not have proven track record of functioning may also receive foreign contribution for specific activities, for

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

a specific purpose and from a specific source after seeking project based prior permission (PP) from the Ministry of Home Affairs.

The Prevention of Money Laundering ActThe Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.

The PMLA and rules notified there under impose obligation on banking companies, financial institutions and intermediaries to verify identity of clients, maintain records and furnish information to FIU-IND. PMLA defines money laundering offence and provides for the freezing, seizure and confiscation of the proceeds of crime.

Financial Intelligence Unit – India (FIU-IND) was set by the

Government of India vide O.M. dated 18th November 2004 as the

central national agency responsible for receiving, processing, analyzing

and disseminating information relating to suspect financial

transactions. FIU-IND is also responsible for coordinating and

strengthening efforts of national and international intelligence,

investigation and enforcement agencies in pursuing the global efforts

against money laundering and related crimes. FIU-IND is an

independent body reporting directly to the Economic Intelligence

Council (EIC) headed by the Finance Minister

THINGS TO REMEMBER

1. Explain The Difference Between FERA and FEMA

ANS: DIFFERENCES BETWEEN FERA AND FEMA

 Sr. No

DIFFERENCES FERA FEMA

1 PROVISIONS FERA consisted of 81 sections, and was more complex

FEMA is much simple, and consist of only 49 sections.

2 FEATURES Presumption of negative These presumptions of Mens

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

intention (Mens Rea ) and joining hands in offence (abatement) existed in FERA

Rea and abatement have been excluded in FEMA

3

NEW TERMS IN FEMA

Terms like Capital Account Transaction, current Account Transaction, person, service etc. were not defined in FERA.

Terms like Capital Account Transaction, current account Transaction person, service etc., have been defined in detail in FEMA

4

DEFINITION OF AUTHORISED PERSON

Definition of "Authorised Person" in FERA was a narrow one ( 2(b)

The definition of Authorised person has been widened to include banks, money changes, off shore banking Units etc. (2 ( c )

5

MEANING OF "RESIDENT" AS COMPARED WITH INCOME TAX ACT.

There was a big difference in the definition of "Resident", under FERA, and Income Tax Act

The provision of FEMA, are in consistent with income Tax Act, in respect to the definition of term " Resident". Now the criteria of "In India for 182 days" to make a person resident has been brought under FEMA. Therefore a person who qualifies to be a non-resident under the income Tax Act, 1961 will also be considered a non-resident for the purposes of application of FEMA, but a person who is considered to be non-resident under FEMA may not necessarily be a non-resident under the Income Tax Act, for instance a business man going abroad and staying therefor a period of 182 days or more in a financial year will become a non-resident under FEMA.

6

PUNISHMENT Any offence under FERA, was a criminal offence , punishable with imprisonment as per code of criminal procedure, 1973

Here, the offence is considered to be a civil offence only punishable with some amount of money as a penalty. Imprisonment is prescribed only when one fails to pay the penalty.

7

QUANTUM OF PENALTY.

The monetary penalty payable under FERA, was nearly the five times the amount involved.

Under FEMA the quantum of penalty has been considerably decreased to three times the amount involved.

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

8

APPEAL An appeal against the order of "Adjudicating office", before " Foreign Exchange Regulation Appellate Board went before High Court

The appellate authority under FEMA is the special Director ( Appeals)Appeal against the order of Adjudicating Authorities and special Director (appeals) lies before "Appellate Tribunal for Foreign Exchange."An appeal from an order of Appellate Tribunal would lie to the High Court. (sec 17,18,35)

9

RIGHT OF ASSISTANCE DURING LEGAL PROCEEDINGS.

FERA did not contain any express provision on the right of on impleaded person to take legal assistance

FEMA expressly recognises the right of appellant to take assistance of legal practitioner or chartered accountant (32)

10

POWER OF SEARCH AND SEIZE

FERA conferred wide powers on a police officer not below the rank of a Deputy Superintendent of Police to make a search

The scope and power of search and seizure has been curtailed to a great extent

2. Who regulate Import Trade in India?

ANS. Import trade is regulated by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce & Industry, Department of Commerce, Government of India. Branches while undertaking import transactions, should ensure that the imports into India are in conformity with the Export Import Policy in force and Foreign Exchange Management (Current Account Transactions) Rules, 2000 framed by Government of India vide Notification No. G.S.R.381 (E) dated May 3, 2000 and the directions issued by RBI under Foreign Exchange Management Act from time to time.

3. What is Importer Exporter Code (IEC) and where can this be obtained?

ANS: Importer Exporter Code (IEC) is required for carrying out import or export activity. The units located in the EPZ or the EOUs can obtain the same from the Development Commissioners concerned. In respect of units operating in the Domestic Tariff Area, IEC can be obtained from the office of the Director General of Foreign Trade. This form can be downloaded from the DGFT website or from this site under the

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

Heading Exim Policy and Procedures. IEC Code is unique 10 digit code issued by DGFTOnly one IEC would be issued against a single PAN. Validity of IEC An IEC number allotted to an applicant shall be valid for all its branches / divisions / units / factories.If an IEC holder does not wish to operate allotted IEC number, he may surrender the same by informing issuing authority. On receipt of such intimation, issuing authority shall immediately cancel it and electronically transmit it to DGFT and Customs authorities.

4. What are the documents required for obtaining IEC Number? What categories of importers or exporters are exempted from obtaining Importer - Exporter Code (IEC) number

Ans: Full From of IEC Code is : “Importer Exporter Code ”. To import or export in India, IEC Code is mandatory. No person or entity shall make any Import or Export without IEC Code Number.

Mandatory Requirements to apply for IEC Code Number

1. PAN Number 2. Current Bank Account 3. Bankers Certificate 4. IEC Code Number Application Fee Rs 250.00

(Expert TIP : Pay via EFT (Electronic Fund Transfer ), and submit IEC Online Application form, If you wish to receive IEC Number instantly)

5. The physical application containing required documents should reach DGFT RLA concerned within 15 days of its online submission.

6. E-mail is not mandatory. If it is provided it will facilitate faster communication.

Check List of Documents to apply for IEC Code

Covering Letter on your company's letter head for issue of new IEC Code Number.

Two copies of the application in prescribed format ( Aayaat Niryaat Form ANF 2A ) must be submitted to your regional Jt.DGFT Office.

Each individual page of the application has to be signed by the applicant.

Part 1 & Part 4 has to be filled in by all applicants. In case of applications submitted electronically.

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

No hard copies of Part 1 may be submitted. However in cases where applications are submitted otherwise, hard copy of Part 1has to be submitted.

Only relevant portions of Part 2 need to be filled in. Rs 250.00 Bank Receipt (in duplicate)/Demand Draft/EFT details

evidencing payment of application fee in terms of Appendix 21B. Certificate from the Banker of the applicant firm in the format

given in Appendix 18A. Self certified copy of PAN issuing letter or PAN (Permanent

Account Number) Card issued by Income Tax Authority. Two copies of passport size photographs of the applicant duly

attested by the Banker of the applicant. Self addresses envelope with Rs.25/- postal stamp for delivery of

IEC certificate by registered post or challan/DD of Rs.100/- for speed post.

The following categories of importers or exporters are exempted from obtaining Importer - Exporter Code (IEC) number:

1. Importers covered by clause 3 (1) [except sub-clauses (e) and (l)] and exporters covered by clause 3(2) [except sub-clauses (i) and (k)] of the Foreign Trade (Exemption from application of Rules in certain cases) Order, 1993.

2. Ministries/Departments of the Central or State Government.3. Persons importing or exporting goods for personal use not

connected with trade or manufacture or agriculture. 4. Persons importing/exporting goods from/to Nepal provided the

CIF value of a single consignment does not exceed Indian Rs.25,000.

5. Persons importing/exporting goods from/to Myanmar through Indo-Myanmar border areas provided the CIF value of a single consignment does not exceed Indian Rs.25,000.

However, the exemption from obtaining Importer-Exporter Code (IEC) number shall not be applicable for the export of Special Chemicals, Organisms, Materials, Equipments and Technologies (SCOMET) as listed in Appendix- 3, Schedule 2 of the ITC(HS) except in the case of exports by category(ii) above.

6. The following permanent IEC numbers shall be used by the categories of importers/ exporters mentioned against them for import/ export purposes..

Note: Commercial Public Sector Undertaking (PSU) who have obtained PAN will however be required to obtain Importer Exporter Code number. The permanent IEC number as mentioned above, shall be used by non-commercial PSUs.

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK

Code Number CATEGORIES OF IMPORTER AND EXPORTERS

0100000011

All Ministries / Departments of Central  Government and agencies wholly or partially owned by them.

0100000029

All Ministries / Departments of any State Government and agencies wholly or partially owned by them.

0100000037

Diplomatic personnel, Counselor officers in India and officials of UNO and its specialized agencies.

0100000045

Indians returning from / going abroad and claiming benefit under Baggage Rules.

0100000053

Persons / Institutions / Hospitals importing or exporting goods for personnel use, not connected with trade or manufacture or agriculture.

0100000061

Persons importing / exporting goods from /to Nepal

0100000070

Persons importing / exporting goods from /to Myanmar through Indo-Myanmar border areas

0100000088

Ford Foundation

0100000096

Importers importing goods for display or use in fairs / exhibitions or similar events under provisions of ATA carnet This IEC number can also be used byimporters importing for exhibitions/fairs as per Para 2.29 of HBPv1.

0100000100

Director, National Blood Group Reference Laboratory, Bombay or their authorized offices.

0100000126

Individuals / Charitable Institution /Registered NGOs importing goods,which have been exempted from Customs duty under Notification issued by Ministry of Finance for bonafide use by victims affected by natural calamity.

0100000134

Persons importing / exporting permissible goods as notified from time to time, from / to China through Gunji, Namgaya Shipkila and Nathula ports, subject to value ceilings of single consignment as given in Para 2.8(iv) above.

0100000169

Non-commercial imports and exports by entities who have been authorized by Reserve Bank of India.

EXPORT-IMPORT TRADE -REGULATORY FRAMEWORK