Trade Winds - Volume 2 Issue 1

8/6/2019 Trade Winds - Volume 2 Issue 1

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Indian generics to be safe from seizure

while passing through EU

Pharmaceutical exporters can breathe easy as the European Union

has finally agreed to Indias demand to amend its Customs

regulations to stop confiscation of drugs en route to African and

Latin American countries. Till the amendment is brought about, the

European Commission has promised that no further seizures would

take place at any European port.

Case History

India's generic exports rising at afast clip to Africa & Latin America

MNC companies holding patents to

these drugs in Europe complain of

violation Customs authorities in

some countries seize consignments

from India. India says drugs do not

have patents in India or destination

countries Approaches WTO for

discussion on the issue

Textile companies gung ho on Indo-Japan

FTA

As India and Japan get closer to signing a free trade pact, textile and

clothing majors from both the countries are exploring opportunities

News SnippetsAnkush Mehta, MBA(IB), 1st year

Contents

News Snippets 1

WTO 2010:

A Recap 5

The Rise & Rise in Gold

Prices 6

Siliguri: A Trade Center

Bigger than Delhi 8

Editorial Team

Oojwal Manglik

Abhijith Vasudevan

Ankush Mehta

Shiv Kumar Gupta

[email protected]

[email protected]

IIFTs Monthly Newsletter on

National & International Trade

February 2011 Volume II, Issue I
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Top Japanese industrialists are slated to meetIndian companies such as Future Group,

Raymond, Alok Industries, Arvind Mills,

Mafatlal and S Kumars. Encouraged by the

prospect of duty free trade between Asia's

second and third largest economies, Indian

companies are also eyeing Japan as a new, large

destination for their products and for importing

high-end fabrics into the local market

India and Japan have already announced that theComprehensive Economic Partnership

Agreement will come into effect soon after

being signed and the completion of necessary

procedures. The free trade agreement is likely to

significantly boost trade, which stood at around

$11 billion in 2009-10, between the two

countries. India, one of the largest producers and

consumers of textile products, exports more than

70% of total textile exports worth $25 billion to

the US and European markets. On the other

hand, Japan, one of the most technically

advanced countries with high end luxury

consumer market, imports more than $31 billion

of textile products, of which over 90% comes

from China, according to Japan Textile Import

& Export Association.

Banks seek higher interest to

control arbitrage by exporters

Banks want an increase in the rate of interest on

foreign currency loans to exporters for packag-

ing and export to prevent interest rate arbitrage.

The Reserve Bank of India has capped the rate

of interest on pre-shipment credit to ensure exporters get funds at internationally competitive

rates.

One banker pointed out that there is a lag of

50-100 days before the exporter has to make

payment towards pre-shipment purchase. The

cheap money borrowed is lent out at higher

rates, getting them a good interest margin or

arbitrage. Pre-shipment credit is largely made

available as packing credit to enable him to

finance purchase/import of raw materials,

processing and packing of the goods meant for

exports.

Under the existing mechanism, an exporter can

avail a loan facility in most currencies including

US Dollar, Pound Sterling, Yen and Euro. The

packing credit loan can be extended for a period

of one year and the credit limit is decided on the

basis of the exporters performance and track

record.

As per RBI guidelines, banks are required to

lend around 12% of their net bank credit

towards exports.

I m p l i e d v o l a t i l i t y i n

commodities trade

Export populism in commodities is a

phenomenon which is directly connected to the

countrys backwardness profile. A mandi

operator claims higher place among his peer

group for being a supplier to an exporter and

exporter demands highest place of pride than his


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domestic counterpart in social forums. These areall ingrained in a false vanity that is often

attached to international trade.

In the controlled regime, the successful exporter

had to manage the babudom to leverage the

incentives and subsidies of the government.

However, market orientation brought about a

change in the profile of the exporters. The

established players have moved out and the less

established players have moved in. The mootpoint is whether one makes money by exporting

commodities?

Free play of the market can be seen nowhere

more dominantly than in exportable

commodities like soybean de-oiled cake (DOC)

and coffee market. In both these commodities,

one rarely finds a back to back parity. So, how

does one make money thru positional calls?

lower interest & logistical cost or by sheer luck?

Coffee and soybean are the largest traded

commodities in international exchanges. Implied

volatilities for these commodities have been

creeping up steadily over the course of past two

decades and now appear a more permanent

feature in their markets than was the case in the

past. A detailed examination of the past

underscores just how volatile these markets havebecome and how volatility has persisted.

Since the beginning of 2006, implied volatility

have frequently spiked to levels well beyond

30% in these commodities, reaching well over

60% at times. The more divergent are traders

expectations about future prices: the higher theunderlying uncertainty and hence the implied

volatility of the underlying commodity.

Does volatility matter? Prices of derivative

commodities that are observed today of

commodities which are traded in the major

global exchanges are determined by underlying

expectations and uncertainties about such

expectations, pertinent to the market and the

commodity. Hence, implied volatility, asreflected or inferred by the prices of derivative

contracts, is an important component of the

price discovery process and is a barometer as to

where markets might be headed.

Markets are failing under the pressure of

oligopolistic powers. The companies that

process and ship agricultural commodities are

growing in size as they decrease in numbers.

Empirical evidence shows that a growing

disconnect between prices paid by the

consumers and prices received by the producers.

International Commodity Agreements, Buffer

Stocking and government intervention have

failed in past.

In addition to seeking ways to increase stability

in commodities market the government needs to

re-think that in a market oriented economy, howcan one limit the exposure to commodity price

volatility and mitigate the detrimental effects of

commodity wild price swings. To quote

Friedman, governments never learn. Only

people learn.


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Indias exports at 33-mth high,surges 36% in Dec

INDIAS exports posted a 36% growth in

December 2010, the highest in 33 months,

riding on successful forays by exporters into

new markets and demand revival in both the US

and EU. A dip in oil imports contracted overall

imports by 11% bringing down trade deficit to a

three year low and relieving worries on current

account deficit.

Strong growth in exports was recorded across

sectors in December particularly in engineering,

electronics, man made fibres, yarns and drugs

pushing exports to $22.5 billion. During the

April-December 2010 period, exports rose

29.5% to $164.7 billion. Diversification of

Indias export markets to countries in Latin

America, Africa and South East Asia is one bigreason for the encouraging figures.

Despite the rosy export numbers, it may be too

soon to withdraw support given to exporters as

the world economy, especially the European

Union, still remain unstable said K T Chacko,

director, Indian Institute of Foreign Trade

(IIFT).

The economic crisis is not over. It is not yet

time to withdraw sops, he said.Imports declined by 11.1% in December 2010

to $25.1 billion with oil imports going down by

16% during the month. Other sectors that posted

a decline include gold, fertiliser, vegetable oil,

coal, chemicals and electronics. In the April-

December 2010 period, imports rose by 19% to$ 247.1 billion.

Normally a decline in imports could mean a

reduction in industrial activity, but if import of

capital goods are up, then there is no reason to

worry. But one must find out why oil imports

are down, Mr Chacko said.

Maritime Agenda 2010-2020

Launched

The Minister of Shipping Shri G.K. Vasan

launched the Maritime Agenda 2010-2020, a

perspective plan of the Shipping Ministry for the

present decade. Launching the Maritime

Agenda, the Minister talked about the goals set

for the sector.

The Ministry envisages an estimated traffic of

2495 MMT in all ports including the non-metro

ones. The total capacity of all these ports is

expected to be 3280 MMT. The total proposed

investments in major and non-major ports by

2020 is expected to be approximately 287000

crores and the total proposed investments in the

shipping sector by 2020Rs. 165000 crores.

The Maritime Agenda projects a total traffic of

2494.95 million tonnes for all major and

non-major ports taken together and a capacity of

3280.04 million tonnes. The proposed

investments in ports by 2020 is expected to be

119449.41 crore and in non-major ports it is

167930.84 crore.


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programme to finish the Doha Round by theend of next year.

The number of regional trade agreements

(RTAs) continues to rise rapidly. By end of

2010, almost 200 RTAs that are in force had

been notified to the WTO and about 100 more

are being negotiated. Since 2008, East Asia has

been the most active region notifying new

RTAs, with 19 agreements entering into force.

Europe is also active, with 15 new agreements,as is South America with nine new agreements.

North and Central America have notified four

and six new agreements, respectively, and

Africa three new agreements since 2008.

The business environment for trade finance has

continued to improve since the middle of 2009.

Nevertheless, traders in low-income countries,

especially Africa, are still confronted with

significant difficulties in accessing trade finance

at affordable prices.

Three potential dangers to WTO members in

2011

The first is that the last few months have

seen an increase in protectionist pressures

generated by global imbalances, at a time

when the political consensus in favour of

open trade and investment is already under

strain from stubbornly high levels of

unemployment in many countries.

The second is the danger of a steady

accumulation over time of measures that

restrict or distort trade and investment.Since the end of 2008, new trade

restrictions have built up to cover 1.9% of

total imports.

The third is the challenge of managing the

trade and investment impacts of stimulus

and bail-out measures taken in response to

the crisis. The effects of those measures,

on trade and competition, will be

examined by Members at a SpecialSession of the TPRB scheduled for early

spring 2011.

The rise and rise in gold

prices

Shiv Kumar Gupta

MBA(IB), 1st year

Gold has been used throughout history as money

and has been a relative standard for currency

equivalents specific to economic regions or

countries. Of all the precious metals, gold has

been the most popular as an investment. Today,

like most commodities, the price of gold is

driven by supply and demand as well as

speculation. However unlike most other

commodities, saving and disposal plays a larger

role in affecting its price than its consumption.

Gold prices have been on the rise for two years

now and nobody knows when the rally will end.

Gold is a foul-weather friend. In times of war,

recession, bank failures, fall of the real estate


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market and political turmoil, it always goes up.During such periods, due to the devaluation of

paper currency, people feel comfortable

investing in assets that are very unlikely to lose

their value, and gold most definitely is one of

these assets. The same factors that affect

gold-economic trouble, weak dollar and

inflation- affect silver too. Looking around us, we

can see so many signs of instability right now.

This article will try to bring out the reasons for the

rise in gold prices.

The main reasons behind the bull-run have been

the European Sovereign debt issues and

quantitative easing in the U.S. Also increasing

investment demand in Asia with lacking new

supply has pushed the price to record levels. As

more institutions and hedge funds are starting to

invest in gold the lack of new supply might startcausing problems in the future. Big institutions

are buying from the same market as central

banks and as the IMF can only sell 403.3 tonne

per annum it is likely that some of the big

players have to start using open markets to buy

gold. A weak dollar boosts golds appeal as an

alternative asset and makes dollar priced com-modities cheaper for holder of other currencies.

The economic crisis from late 2008 boosted

gold, which investors bought as a safe haven

asset. Gold is also bought as a hedge against

inflation, which erodes the value of paper assets.

Another common factor influencing rising gold

prices is the success of the real estate market.

When there are low or negative returns on real

estate, the demand for gold and other

commodities typically is expected to increase.

The issue with quantitative easing is that the

money is not going where it should be. It should

go down to small and medium size businesses to

help them to get loans more easily and this way

create more new jobs. Currently the money is

just going from central banks to commercial

banks and it is only benefitting stock marketsand other investment institutions. This keeps

investors happy but is not solving any of the

issues which are causing the current situation.

On August 15, 1971, the United States

unilaterally terminated convertibility of the


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dollar to gold. After this event gold became justlike any other commodity which could be traded

and also became subjected to speculation like

other commodities, especially through the use of

futures contracts and derivatives. Since gold has

always been looked upon as a safe investment

people increasingly started to invest in gold to

get good return on their investments. Other

reason that can be attributed to the rise in prices

is the increasing incomes. Higher incomes allow

people to make investments in stocks or gold.

Over the years there has been a negative

correlation between the sensex and the gold

prices. Whenever there was fall in the stock

market people invested in gold to get better

returns. But as we can see from the graph that

after 2008 both price of gold and the sensex

have been rising. The rise in gold prices can be

attributed to increase in demand from the point

of investments. After the sub-prime crises there

has been significant volatility in the stock

market. The sensex had plummeted from 20,873

on January 8, 2008 to 8701 on October 24,

2008. To hedge their risks, investors switched to

gold for stable returns. The demand has led to

the sharp increase in prices of the precious

yellow metal. The stock market has done well in

2010 but analysts say that the prices of gold will

be on the rise as the US dollar is expected toremain weak for some more time. Continuing

concerns about debt problems in Europe will

also fuel prices.

Siliguri: A Trade CenterBigger than Delhi

Ashish Agarwal

MBA(IB), 1st year

Reading the heading would make you wonder

and put you in a dilemma whether this is a hoax

or does this have substance behind it. Well the

news is that it is true. This small city, the gentle

giant of the east is surely a trading hub bigger in

terms of daily trading value and volume when

compared to the capital city Delhi. Going further

ahead Siliguri is now considered as one of the

fastest growing in the country.

Strategic Location

Siliguri is located what is popularly known as

the The Siliguri Corridor, or the Chicken's

Neck, as it is sometimes called, is the onlyland-link between the 7-Sister states (Arunachal

Pradesh, Assam, Meghalaya, Manipur,

Mizoram, Nagaland, and Tripura) of North

Eastern India and the rest of the country. As this

is only piece of land that separates Nepal and

Bangladesh the importance in terms of

international trade also becomes vital. The Silk

Route of India i.e. trade route between India and

China is accessible only after crossing Siliguri Nathula and Jelepla. Thus making it important

for international trade between India and other

countries and also among other countries.

Economy Of Siliguri

Siliguri is described as the gateway to the North


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East of India, Bhutan, Nepal & Bangladesh. The

strategic location of the city makes it a base for

essential supplies to the region. Siliguri has

gradually developed as a profitable centre for a

variety of businesses. As a central hub, manynational companies and organizations have set

up their offices here.

Due to the unprecedented trading boom the city

has seen it has become the second biggest and

impor tan t c i ty o f Wes t Benga l .

The Siliguri corridor accounts for about 59 per

cent of exports from the eastern zone of the

country. It has come up as a strong Platform to

further the growth of the North Eastern states.

Explains TCA Ranganathan, chairman and

managing director, Exim Bank, The region

occupies a share of 5 per cent in the countrys

export that makes up an amount of Rs 42,000

crore.

Industries of Siliguri

The industry of Siliguri is based on the 5 Ts:-

Tea

Timber

Tourism

Transport

Trade

West Bengal's Government has set up an IT

Parksomething like a Special Economic Zone

(SEZ) where one can get huge tracks of land just

set apart for IT industries. Cost of living and

hiring is cheaper and there is plenty of potential

for infrastructure growth and development in

Siliguri.

Fruits Of Progress

Opening of shopping and entertainment

malls like COSMOS, ORBIT & City Centre

has affected a change in lifestyle.

Large number of retail jewelers has

opened showrooms in Siliguri: Tanishq, P.C.

Chandra, M. P. Jewellers, Senco Gold,

Damas.

The city recently also witnessed the arrival


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of its first set of multiplexes -CINEMAX,INOX at ORBIT and Big

Cinemas.

The rapidly growing city also has

showrooms of numerous automobile

companies such as Maruti Suzuki, Honda Siel,

Toyota Kirloskar, Ford, Tata, JCB, Mahindra

& Mahindra, Hyundai,Skoda, General Motors,

Fiat, Mahindra Renault, Chevourlet, Eicher,

Ashok Leyland, Sonalika.

Opening of Nathula Pass: Future

Prospects

Nathu La is a mountain pass in the Himalayas. It

is located on the IndoChina border connecting

the Indian state of Sikkim with the TibetAutonomous Region of the People's Republic of

China. The pass, at 4,310 m(14,140 ft)

above mean sea level, forms part of an offshoot

of the ancient Silk Road Sealed by India after

the 1962 Sino-Indian War, it was re-opened in

2006 following numerous bilateral trade

agreements. The opening of the pass is expectedto bolster the economy of the region and play a

key role in the growing Sino-Indian trade.

It is estimated that Sino-Indian trade would

increase by nearly 1520% within two years of

Nathu La's opening. Trade volumes through the

pass are projected to grow to Rs. 206 crore (US$

44.6 million) by 2007, and Rs. 12,203 crore

(US$ 2.6 billion) by 2015. The pass offers

Chinese companies access to the port of Kolkata(Calcutta), situated about 1,100 km (700 mi)

from Lhasa, for transshipments to and from

Tibet. Siliguri due to its strategic position stands

to gain immensely from the opening of the

Nathula pass.

Siliguri Corridor As a Future Free

Trade Zone

It is hoped that if Chickens Neck has to becomea free trade zone it would be able to lift trade

restrictions between Nepal, Bangladesh and

Bhutan. India, however having great trade

relations with Nepal has still got on going issues

with Bangladesh but if this is to become a

reality the region will see huge trade national as

well as international.

With Boons Come the Bane

Siliguris Strategic Location is also the reason

for its set of problems. Chickens Neck, or the

Siliguri Corridor has also been a known area for

criminal activity. It is a popular area for rebels

and insurgents to make illegal crossings and

many people fleeing their dire situations take on


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the Siliguri Corridor in the hope to find a betterlife elsewhere. And together with illegal

crossings, comes smuggling.

Siliguri Corridor has been patrolled by four

recognized military and police forces: The

Assam Rifles, The West Bengal Police, The

Indian Army and the Border Security Force.

With so many countries and factions vying for

control over one tiny area, it is no surprise that

the Siliguri Corridor has become a politicallycharged subject in the region.

Conclusion

Siliguri has all the potential of becoming one of

the best cities in India and is a example for other

North Eastern cities to emulate. The city has

indeed established itself on the map of India and

with the ever growing trade possibly the world

map too.

About IIFT

Indian Institute of Foreign Trade (IIFT) is

Indias nodal institution of excellence in the

field of International Trade and Business. Since

its inception in 1963, IIFT has kept pace with

the extremely dynamic Global business

environment by focusing on International Trade

and Logistics-related issues. The rigorous,

extremely dynamic and up-to-date coursecurriculum stands testimony to this fact.

Supplementing the classroom, IIFT organizes

several events and discussions on currently

relevant issues in the field of Trade and

Logistics, which are graced by pre-eminent

professionals, industry veterans and

academicians, alike. Our students have

maintained and sustained IIFTs rich legacy by

successfully exhibiting their skills time and

again in various Live Projects and Competitions.

The institution has groomed international

business managers for over 40 years and boasts

alumni base spread over geographies and

business verticals

Trade Winds - Volume 2 Issue 1

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