The DGFT finally stepped in to control the import of metal scrap at the dispatch end on the shipper’s side instead of the destination point at the port in India. A public notice was issued on 19 September to say that all scrap from the port of Bandar Abbas in Iran must be in shredded form regardless of the destination port in India. There are 14 notified sea ports and 12 notified ICDs for import in unsorted form without compulsory pre shredding. With the issue of the new public notice, pre shredding is compulsory even at these ports and Container Depots for Bandar Abbas consignments. The change will check the problem of live explosives entering scrap consignments at the source itself.

It is unfortunate that the Government should have taken such a long time to notify the right procedure for safety to human life. Any amount of care in sorting or shredding at the 26 notified entry points will not eliminate the risk of explosions during the movement and handling of scrap. (The blast furnaces and the mini steel plants will complain about the $10-$20 per tonne premium on shredded scrap compared to HMS (Heavy Melting Scrap) but the industry is sufficiently strong to deal with the cost factor in the production economics).

There is always a chance that the scrap will be rerouted to other ports in the Gulf region such as Dubai, Abu Dhabi, Kuwait, or Basra to get past the shredding regulation but the government is bound to tighten the system in due course to introduce compulsory pre-shredding on all metallic scrap before import. Market circles say that the singling out of Iran for compulsory shredding may be due to US pressure on India to isolate Iran on account of non compliance of nuclear proliferation treaty but there is no evidence of the pressure.

DRI making news

 The DRI is seizing imported cars from rich people. It is alleged that expensive cars have been sold in violation of the actual user condition on their import under EPCG services licence. The insinuation is that the export promotion incentives are being misused for the import of duty free cars for the rich.

From the newspaper reports, it is not clear whether the transfer of the cars by the Jodhpur hotelier to the rich consumers was before or after discharge of the export obligation of the licence. The DRI has not said whether the bank guarantee of the hotelier was enforced upon transfer before the discharge of the export obligation when the actual user condition is operative. (The innocent purchasers of the cars have paid the price of the vehicles along with the premium representing a portion of the duty saved in the EPCG imports. He is now penalized by seizure of the motor vehicle).

As the law stands, the EPCG licence is issued to hotel operators on the basis of an export obligation at eight times the duty saved. In the case of the cars, 60 percent basic customs duty along with 24.48 percent countervailing duty is levied with the total at a little more than 101 percent. Thus a Lexus car priced at $200,000 in the international market attracts a stiff export obligation of $1.52 mn at eight times of 96 percent, the duty saved, after netting for the five percent EPCG duty.

The export earnings and the duty foregone are linked and the public policy is to allow the duty concession for the foreign exchange and employment from export of services. In the market mechanism, the import of cars is expected to give competition to domestic manufacturers and there is no loss to the economy as such.

The DRI should see the entire gamut of actions from issue of the EPCG licence to clearance of the car by the customs field formations and whether the required foreign exchange was earned. Raids to check only the actual user condition harm the forex earnings, the exporter and the holder of the motor vehicle, the only gainer will be the motor vehicle companies protected by 60 percent tariff and non tariff technical barriers on testing and specifications.

DEPB

 There is uncertainly on the fate of the DEPB scheme with the customs notification on use of DEPB credit against customs duty set to expire on 30 September. There is no official announcement on extension of the validity date pending finalization of the alternative scheme. Exporters are holding back shipments and waiting for the official announcement before sending their goods to port. (The recent raids on the EPCG services scheme seem to show that the finance ministry is still not happy with the commerce ministry’s ways). There is a risk of getting stuck with DEPB shipping bills without the backing of the customs notification. It is almost impossible to substitute the DEPB shipping bill with a drawback or advance licence shipping bill, the exporter wants reasonable predictability to keep the risk within manageable limits.

The expectation is that the Government will give the scheme another lease of life to carry on for another three months or maximum six months. Even though the Finance Ministry has modernized and updated the rival drawback scheme using the DGFT’s Input Output Norms, the DEPB still offers better rates than drawback in quite a few cases. The drawback department does not go directly to the exporters for data nor does it use its in-house database of brand rate approvals for formulating all Industry rates, thus the drawback schedule is not able to take the broad based character of the DEPB scheme.

In the meanwhile, the DGFT released new rates for compressor pump kit assemblies, trichloro carbanilide, cheque security papers and potassium chlorate. The announcement is a sign that the DEPB scheme is on for the time being.

Anti dumping news

 After the first phase of defensive moves on the measures of anti dumping action of the previous designated authority, the commerce ministry has started moving forward on its own under the current designated authority. Reviews of past actions against aniline, oxo alcohols have been launched. Pending finalisation of the decision on revision of duty, the expiry date of the customs duty notifications have been pushed forward to continue the penal action.

In the meanwhile, Mr DS Sra, an experienced customs officer of the rank of Chief Commissioner, has taken over as the new Director General of Safeguards to police his wing of the economic security force. He will take action against complaints of sudden surges in import volumes or values which are likely to cause injury to domestic industry.

Edible oil tariff value

 The department of revenue has slashed the tariff value of imported edible oil substantially. The biggest fall is the case of crude soyabean oil which is down to $506 per tonne from the earlier rate of $558 per tonne. Given the low import duty on soyabean oil which is bound at 45 percent duty at WTO, the import cost of soya is low compared to the Malaysia palm oil. The local production of oilseeds is also good this year, the consumers are going to benefit now for a change.