25th February 2020: Chennai Free Trade Zone, India’s first notified free trade and warehousing zone developed and promoted by J. Matadee Free Trade Zone Pvt Ltd today, called for more favourable policy amendments and reforms for SEZs.
Mr. Sunil Rallan, Chairman and Managing Director, J Matadee Free Trade Zone Pvt. Ltd. and President-TASID addressed the media and said that, the recent amendments proposed for will play a vital role in boosting investments in the manufacturing sector, greater employment generation and growth in export volumes. The potential of SEZs has been furthered by providing relaxation and simplifying the provisions for setting up of multisector SEZs.
He further added that, foreign Investors who wish to set up new manufacturing units will find the SEZs as attractive investment hubs with good infrastructure, while redefining last mile connectivity. Nearly one third of Indian Exports are out of SEZs, which now have the potential to become a strong pillar of the Indian economy and allow integration of technology and businesses to tap and drive the growth potential of the country.
He shared few suggestions for the SEZ sector and the upcoming free trade agreement and proposed the following points:
CASE FOR RECALIBRATION OF THE SEZ RULE ON NET FOREIGN EXCHANGE EARNING
Manufacturing Units and Supply Chains from China and ASEAN Region are keen to set up Manufacturing Units in India which can cater to the large Indian Domestic Markets as well as for Exports. These Supply chains will not achieve economies of Scale if they are compelled to set up discrete Factories for Domestic Demand and for Exports.
Currently all DTA customers make payments for their Imports through their regular banking Channels. However, the same products are not encouraged for Supply by SEZ Units to DTA Customers. The payments made by the DTA Customers are not considered as being Compliant with the SEZ Rules. This defeats the Make in India Policy as Imports are being encouraged over Indian Manufacturing.
Indian SEZs are a very attractive destinations for these Overseas Supply Chains to start new Units.
The US Trade authorities have stated in their petition before the WTO that the existing Net Foreign Exchange Earning Rules by implication tantamount to an Export Subsidy since the Upfront Exemptions of Taxes are Deemed to be Export Linked and therefore a prohibited Export Subsidy.
The recalibration of the Net Foreign Exchange Rules will make the Indian SEZs attractive for new Units as well as make the SEZ Scheme WTO compliant.
Mr. Sunil Rallan added that, there is no requirement of NFE in the current Policy of the Government of India, Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes & Customs as detailed in Circular No. 34/2019-Customs Dated 1st Oct 2019. This will provide a positive boost to fresh investments and support government’s “Make in India” and “Assemble in India “initiative.
SUPPLIES INTO DTA ON DUTY FOREGONE PRINCIPLE.
India has free-trade agreements with countries such as Sri Lanka, Japan, South Korea and the Association of South-East Asian Nations, which groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. For many of the FTA partner countries, India exempts or allows concessional rate of customs duties on the listed products.
Though SEZs are treated as foreign territory for the purpose of law, supply of goods manufactured by SEZs to DTA are subject to full Tariff including on the Local Content Value Additions.
Products manufactured by Indian SEZ Units are uncompetitive as compared to imports from the FTA Partner countries.
Mr. Sunil Rallan suggested that, duty/tariffs must be levied based on the Duty Foregone Principle. This will enable very high manufacturing efficiencies to be achieved if new Units can achieve economies of scale with access to both the Indian Markets as well as exports.
He further emphasized that, the country has witnessed a significant boom in the warehousing, logistics infrastructure and transportation sector. Creating a superior trading infrastructure, building a seamless interface of single window clearances, harnessing technology and advantages like skilled work force at competitive rates along with other domestic resources can substantially make a strong case for a robust SEZ and FTWZ ecosystem. It will help in attracting more players and boost levels of international trade and investments. Ease of doing business for domestic and international players can make SEZs and FTWZs global manufacturing and distribution hubs in the coming years.