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Unformatted text preview: STUDY MATERIAL PROFESSIONAL PROGRAMME INTERNATIONAL BUSINESS – LAWS AND PRACTICES MODULE 3 ELECTIVE PAPER 9-5 ICSI House, 22, Institutional Area, Lodi Road, New Delhi 110 003 tel 011-4534 1000, 4150 4444 fax +91-11-2462 6727 email [email protected] website i © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA TIMING OF HEADQUARTERS Monday to Friday Office Timings – 9.00 A.M. to 5.30 P.M. Public Dealing Timings Without financial transactions – 9.30 A.M. to 5.00 P.M. With financial transactions – 9.30 A.M. to 4.00 P.M. Phones 41504444, 45341000 Fax 011-24626727 Website E-mail [email protected] Laser Typesetting by AArushi Graphics, Prashant Vihar, New Delhi, and Printed at Tan Prints ii INTERNATIONAL BUSINESS - LAWS AND PRACTICES Today globalization has dramatically re-shaped the markets and has changed the way business is being done. One has to keep pace with the customer’s requirement and has to bring in services and products as per global standards. International trade has become a vital component of development strategy, which can be used as an effective instrument of economic growth. Moreover the establishment of institutions like World Trade Organisation has ushered a new era of global economic co-operation reflecting the widespread desire to operate in a more open multilateral trading system. Participation in international trade has become necessity for all countries and as well as companies for growth. Thus it becomes important for professionals to acquire knowledge and skill to help work in international companies and in global environment. Having updated knowledge of international business laws and procedures becomes key requisite for professionals. So, in this study broad aspects related to international business environment, export management, FDI policy, FTP policy, international trade theories, international trade bodies like WTO, UNCTAD, international logistics and supply chain etc. has been discussed in detail. Added emphasis has been laid on strategic alliances, foreign collaborations and joint ventures abroad, to enable the students to discharge efficient services and to tackle practical situations. In this study every efforts has been made to give a comprehensive coverage of all the topics relevant to the subject. At the end of each study lesson a brief about the lesson have been given under the caption ‘Lesson Round Up’ as well as questions have been given under the caption ‘Self Test Questions’ for the practice of students to test their knowledge. This study material has been published to aid the students in preparing for the INTERNATIONAL BUSINESS – LAWS AND PRACTICES paper of the CS Professional Programme. It is part of the education kit and takes the students step by step through each phase of preparation stressing key concepts, pointers and procedures. Company Secretaryship being a professional course, the examination standards are set very high, with emphasis on knowledge of concepts, applications, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. Therefore, in order to supplement the information/contents given in the study material, students are advised to refer to the Suggested Readings mentioned in the study material, Student Company Secretary, Business Dailies and Journals. In the event of any doubt, students may write to the Directorate of Academics and Perspective Planning in the Institute for clarification at [email protected] or [email protected] Although due care has been taken in publishing this study material yet the possibility of errors, omissions and/ or discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if the same are brought to its notice for issue of the corrigendum in the Student Company Secretary bulletin. iii SYLLABUS ELECTIVE PAPER 9-5 : INTERNATIONAL BUSINESS - LAWS AND PRACTICES Level of Knowledge: Expert Knowledge Objective: To acquire specialized knowledge in International business, law, procedure and practices. Detailed Contents: 1. Introduction – International Business - Nature and Scope, – Globalization - Meaning, Levels, Merits, Limitations and irreversibility of Globalization – Need to go global – Internationalization Decisions (entry modes) – SEZ features 2. International Business Environment – Meaning of Environment – Dimensions - PEST to STEEPLE – Internal Environment and External Environment – SWOT Analysis – Various approaches to Assess competitiveness including Michael Porter’s 5- Forces Model – Global Competitiveness Index 3. Multi National Enterprises (MNEs) and Foreign Direct Investment (FDI) – Meaning and Characteristics – Role of MNEs in host economy – Trends in Global FDI – Trends in FDI with reference to India – Issues with MNEs - Taxation, Restrictive Trade Practices, Currency, Jurisdiction and Technology Transfer 4. Foreign Trade Policy and Procedures – Introduction to Foreign Trade Policy – Institutional Framework for Export Promotion – Export Incentives and Facilities – EPZ/FTZ/100% EOUs – Quality Control for Exports – Export Prospects for Select Products and Services – INCO Terms iv – International Commercial Arbitration-Shipment and Post Shipment Finance – SEZ-Incentives and Benefits – Method of Realizing Export Payments and Ensuring Guaranteed Export Payment – Central Excise Clearance Formalities – Customs Regulations and Clearance Formalities for Exports & Imports – Duty Draw Back Claims Procedure – Foreign Trade Financing - Export & Import – Foreign Exchange Risk Management – International Credit Management – Warehousing – Instruments of Trade Policy and India’s Trade Policy 5. International Trade and Regional Economic Integration – Theory - Mercantilism, absolute advantage and comparative advantage – Trends in Global Trade – Trends in India’s Trade – Types of Regional Economic Integration - Free Trade Area, Custom Union, Common Market, Economic Union, Monitory Union and Political Union etc. – Trading Blocks- ASEAN,SAFTA,SAARC,NAFTA,EU 6. Institutional Environment – Pre WTO Scenario, difference between GATT and WTO – Trade Related Institutions - WTO and UNCTAD – WTO - Basic Principles, various agreements, Functions and Areas of Operations, Dispute Settlement Mechanism (rules and procedures) – IMF, IBRD, ADB – Commodity Agreements 7. Anti-Dumping Duties – WTO Provisions on Anti-Dumping-, Anti-Dumping Duties, Procedure and Developments – Regulatory Framework for Anti Dumping in India – Recent Anti Dumping Cases in India 8. Subsidies and Countervailing Duties – WTO Provisions – Administration – Procedure and Emerging Trends – Regulatory Framework for Subsidies & Countervailing duties in India – Doha Development Round v 9. Foreign Collaborations and Joint Ventures – Foreign Direct Investment Policy, Industrial Policy – Kinds of Collaboration and Joint Ventures – Drafting of Agreement – Restrictive Clauses in the Foreign Collaboration/Joint Venture Agreements – International Commercial Arbitration 10. Strategic Alliances – Meaning, Rationale, Types, Trends in Alliances in New Competitive Environment, Strategic Alliance Failures, Managing Strategic Alliances. 11. Logistics Management – Logistics Framework- Concept, Objective and Scope – Transportation, Warehousing, Inventory Management, Packing and Unitization, Control and Communication – Role of IT in Logistics, Logistics Service Firms and Third Party Logistics vi LIST OF RECOMMENDED BOOKS MODULE 3 ELECTIVE PAPER 9-5 : INTERNATIONAL BUSINESS - LAWS AND PRACTICES The students may refer to the given books and websites for further knowledge and study of the subject : Books : – International Trade and Export Management by Francis Cherunilam , Himalaya publishing House – International Business by K Awasthappa, Mc Graw Hill – Foreign Trade Policy and Handbook of Procedures by R.K.Jain (17th Edition 2012) – Anti Dumping Law and Procedures by R.K.Gupta (4th Edition 2013) – International Business – Justin Paul, PHI Publications – A Guide to Export-Import Consultancy & Registration Services V.K.Pamecha, Paper Bac – Export Management, P.K.Khurana, Paper Back Websites : – – – – – – – – – – – – – – vii CONTENTS INTERNATIONAL BUSINESS - LAWS AND PRACTICES LESSON 1 INTRODUCTION TO INTERNATIONAL BUSINESS Business 2 International Business 2 Drivers of International Business 2 Benefits of International Business 4 Scope of International Business 5 Difference between Domestic and International Business 5 Globalisation 8 Benefits of Globalisation 9 Criticisms of Globalisation 10 Myths about Globalization 10 Stages of Globalisation 11 Risks in Global Business 13 Issues in Global Business 13 Globalisation and International Trade 14 Globalisation and Financial Markets 15 Globalization, Income Inequality and Poverty 15 Globalisation and Strategic Management 16 The Future of Globalization 18 India and Globalisation 18 Needs to go Global 22 From an individual company’s viewpoint 22 From the governments viewpoint 23 Modes of Entry and Operation in International Business 24 Exporting 25 Licensing 25 Franchising 26 Special Modes 28 Foreign Direct Investment without Alliances 29 Foreign Direct Investment with Strategic Alliances 30 viii Page LESSON ROUND UP 30 SELF TEST QUESTIONS 31 LESSON 2 INTERNATIONAL BUSINESS ENVIRONMENT Concept of International Business Environment 34 Internal and external environment 34 Economic Environment 36 Technological Environment 39 Political – Legal Environment 40 Socio-Cultural Environment 42 Global Environment 43 Physical Environment 44 Tools for Environmental Analysis 44 Pest Analysis 44 PEST Analysis Template 47 PESTEL Model 50 SWOT Analysis 51 SWOT Analysis Template 54 Porter’s Five Forces model 57 Global Competitiveness index 61 The 12 Pillars of Competitiveness 62 The Global Competitiveness Index of India 2012–2013 67 LESSON ROUND UP 68 SELF TEST QUESTIONS 69 LESSON 3 MULTINATIONAL ENTERPRISES (MNEs) AND FOREIGN DIRECT INVESTMENTS (FDI) Multinational Enterprises/Multinational Corporations 72 Characteristics of Multinational Corporations 73 Forms of Multinational Corporations 74 Role of Multinational Corporations 75 Benefits to Host Country 75 Benefits to Home Country 76 ix Page Criticism of Multinational Corporations 76 Issues with Multinational Corporations 77 Foreign Direct Investment 78 Importance of FDI 79 Advantages of FDI 80 Disadvantages of FDI 80 Trends in global FDI 80 FDI trends in INDIA 87 Industrial policy of India 90 Industrial Policy Resolution, 1948 91 Industrial Policy Resolution, 1956 91 New Industrial Policy, 1991 92 FDI Policy Framework in India 92 Role of Department of Industrial Policy & Promotion 93 FDI Policy of India 94 Key Changes in Consolidated FDI Policy 2013 103 Foreign Investment Implementation Authority (FIIA) 111 FDI Policy: The International Experience 112 Cross-Country Comparison of FDI Policies 115 LESSON ROUND UP 118 SELF TEST QUESTIONS 118 LESSON 4 FOREIGN TRADE POLICY AND PROCEDURES PART I – EXPORT PROMOTION Introduction 122 Foreign Trade Policy 2009-14 123 Export promotional measures 127 Assistance to States for Developing Export Infrastructure and Allied Activities (ASIDE) 127 Market Access Initiative (MAI) 127 Market Development Assistance (MDA) 128 Meeting Expenses for Statutory Compliances in Buyer Country for Trade Related Matters 128 Towns of Export Excellence (TEE) 128 Brand Promotion and Quality 129 x Page Test Houses 129 Quality Complaints/Disputes 129 Trade Disputes affecting Trade Relations 129 Export and Trading Houses 129 Focus Market Scheme (FMS) 130 Focust Product Scheme (FPS) 130 Duty Exemption & Remission Schemes 130 Advance Authorisation Scheme 131 Duty Free Import Authorisation Scheme 131 Export Promotion Capital Goods Scheme 131 Export Oriented Units 131 Special Economic Zones 134 Setting up of SEZ 137 Free Trade and Warehousing Zones 138 Facilities available in a FTWZ 139 Some FTWZ in India 140 Institutional Framework for Promotion of Exports 140 Ministry of Commerce 141 Autonomous Bodies/ Public Sector Undertakings/ Export Promotion Councils/other Organizations under Ministry of Commerce 144 Commodity Boards 144 Marine Products Export Development Authority, Cochin 145 Agricultural and Processed Food Products Export Development Authority, New Delhi 145 Export Inspection Council 145 Indian Institute of Foreign Trade, New Delhi 146 Indian Institute of Packaging, Mumbai 146 Public Sector Undertakings Ministry of Commerce 146 State Trading Corporation of India Limited (STC) 146 MMTC Limited 147 PEC Limited 147 Export Credit Guarantee Corporation of India Limited (ECGC) 147 India Trade Promotion Organization (ITPO) 148 Export Promotion Council 148 xi Page Registered Export Promotion Councils 149 EPCS under the Administrative Control of the Department of Commerce 149 Other Organisations under Ministry of Commerce 151 Federation of Indian Export Organisations 151 Indian Council of Arbitration, New Delhi 152 Indian Diamond Institute, Surat 152 Footwear Design & Development Institute (FDDI) 152 National Centre for Trade Information 152 Price Stabilization Fund Trust 153 GS1-India 153 Advisory Bodies 153 Board of Trade (BOT) 153 Terms of reference of the Board of Trade 153 Inter State Trade Council 154 Attached and Subordinate Offices 154 Directorate General of Foreign Trade (DGFT) 154 Directorate General of Supplies and Disposal (DGS&D) 154 Directorate General of Anti-Dumping & Allied Duties (DGAD) 154 Directorate General of Commercial Intelligence and Statistics (DGCI&S) 155 Offices of Development Commissioner of Special Economic Zones (SEZs) 155 Pay and Accounts Office (Supply) 155 Pay and Accounts Office (Commerce & Textiles) 156 Exim Bank of India 156 LESSON ROUND UP 158 SELF TEST QUESTIONS 159 LESSON 5 FOREIGN TRADE POLICY AND PROCEDURES PART II – EXPORT MANAGEMENT Concept of Export 162 Reasons for Export 162 Planning for Export 162 Product Selection 163 Market Selection 164 xii Page General Provisions Regarding Imports and Exports 165 Registration of Exporters 165 Registration with Reserve Bank of India (RBI) 165 Registration with Director General of Foreign Trade (DGFT) 165 Registration with Export Promotion Council 165 Registration with Commodity Boards 166 Registration with Income Tax Authorities 166 Importer Exporter Code Number (IEC) 166 Export License 170 Inquiry and Offer for Exports 171 Sample Exports 171 Export Pricing 172 Incoterms 173 Export Documents 175 Pre-shipment Documents 176 Post-shipment Documents 176 Documents Related to Goods 177 Documents Related to Payment 178 Documents Related to Inspection 178 Documents Related to Excisable Goods 179 Certificates Related to Shipment 179 Terms of payment or methods of payment 180 Payment in advance 181 Open account 181 Documentary collections 182 Documents Against Payment (D/P) 183 Documents Against Acceptance (D/A) 183 Letter of credit 184 Parties to Letters of Credit 185 Types of Letter of Credit 189 Export Financing 190 Pre-shipment / Packing Credit 192 Stages of Granting Pre Shipment Credit to Exporter 193 xiii Page Types of Pre-shipment Rupee Export credit 194 Rupee Export Packing Credit to Manufacturer Suppliers 194 Rupee Export Packing Credit to Sub-Suppliers 194 Rupee Pre-shipment Credit to Construction Contractors 194 Pre-shipment Credit to Floriculture, Grapes and Other Agro-based Products 195 Packing Credit Facilities to Deemed Exports 195 Pre-shipment Credit in Foreign Currency (PCFC) 196 ‘Post-shipment Credit’ 197 Types of Post Shipment Rupee export credit 197 Export Bills Purchased/ Discounted (DP & DA Bills) 197 Export Bills Negotiated (Bill under L/C) 197 Advance against bills for collection 198 Advances against Undrawn Balances on Export Bills 198 Post-shipment Advances against Duty Drawback Entitlements 198 Advances against Retention Money 198 Advance against export on consignment basis 198 Post-shipment Credit In Foreign Currency 199 Factoring and Forfaiting 199 Export Factoring 200 Forfaiting 201 Quality Control & Pre-shipment inspection 203 Documents Required for Quality Control & Pre-shipment Inspection 204 ISI Certification 204 Agmark Certification 204 In-Process Quality Control (IPQC) 204 Self-Certification Scheme 205 ISO 9000 205 Packaging 205 Labeling 206 Central Excise Clearance Procedure for Export 206 Procedure for Export to all Countries (Except Nepal and Bhutan) under Payment of Duty 206 Procedure for Export to all Countries (Except Nepal and Bhutan) without Payment of Duty 208 Customs Procedure for Export 210 xiv Page Export Risk Management 213 Types of Risks 213 Methods and Instruments to Manage Risks 213 Forfaiting 214 Hedging 214 Export Credit Insurance 215 Export Credit Guarantee 216 LESSON ROUND UP 217 SELF TEST QUESTIONS 219 LESSON 6 INTERNATIONAL TRADE AND REGIONAL ECONOMIC INTEGRATION International Trade – Meaning 222 Difference between International and Domestic Trade 222 Reasons for International Trade 222 Theories of International Trade 224 Mercantilism 224 Theory of Absolute Advantage by Adam Smith 225 Theory of Comparative Advantage by David Ricardo 225 Hecksher Ohlin Model 227 New Trade Theory: by Paul Krugman 227 Recent Trends in Global Trade 228 India’s Trade Performance 230 Regional Economic Integration 240 Regional Trading Blocs 241 Types of Regional Trading Blocs 241 Advantages of Regional Trading Blocs 242 Disadvantages of Regional Trading Blocs 242 Association of South-East Asian Nations (ASEAN) 243 European Union 245 North American Free Trade Agreement (NAFTA) 248 South Asian Association for Regional Cooperation (SAARC) 250 South Asian Preferential Trading Area 252 xv Page South Asian Free Trade Area (SAFTA) 252 LESSON ROUND UP 255 SELF TEST QUESTIONS 255 LESSON 7 INSTITUTIONAL ENVIRONMENT World Trade Organization 258 Principles of the Trading System 259 History and Formation of WTO 261 GATT: ‘Provisional’ for Almost Half a Century 261 The Tokyo Round: A First Try to Reform the System 262 Did GATT Succeed? 263 The Uruguay Round 263 A Round to End all Rounds? 264 What happened to GATT? 265 The Post-Uruguay Round Built-in Agenda 265 How is the WTO Different From GATT? 266 Dispute Settlement Mechanism 266 WTO Structure 271 WTO Secretariat 272 The WTO Agreements 272 1. Agreement on Tariffs 273 2. The Agriculture Agreement 274 3. Agreement on Standards and safety 274 4. Agreement on Textiles 275 5. Agreement on Trade in Services 276 6. Agreement on Intellectual Property 277 7. Agreement on Safeguards 279 8. Agreements on Non-tariff Barriers: Red Tape, Etc 281 9. Agreement on Plurilaterals 282 10. Agreement on Trade Policy Reviews 283 United Nations Conference on Trade and Development (UNCTAD) 285 Members 285 xvi Page UNCTAD Conferences 287 History of UNCTAD 287 Main Goals 289 Main Activities 290 Relationship with other Agencies 291 UNCTAD and civil society 291 UNCTAD´s Programme Budget and Financing of Technical Cooperation Activities 292 Evaluation at UNCTAD 292 International Commodity Agreements 293 International Buffer Stock Agreements 293 International Export Quota Agreement 294 International Grains Agreement 294 International Coffee Agreement 295 International Tropical Timber Agreement 295 International Cotton Advisory Committee 295 International Cocoa Agreement 296 International Sugar Agreement 296 World Bank 296 Members 296 Organisation 297 Functioning of the World Bank 297 Contributions of the World Bank 297 India and the World Bank 298 International Monetary Fund (IMF) 301 Fast Facts on the IMF 302 Goals of IMF 302 Surveillance 302 Financial assistance 303 SDRs 303 Technical assistance 303 Resources 303 Governance and organization 303 India and the IMF 304 xvii Page Asian Development Bank 304 Members 305 Regional M...
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