The Synthetic & Rayon Textiles Export Promotion Council

MARKET WATCH 22 AUGUST, 2016

NATIONAL

 

INTERNATIONAL

 

Govt raises duty drawback to boost high-value RMG export

In an effort to boost export of high-value readymade garments (RMG), the Central government has increased the duty drawback of 3.2 per cent to 4.7 per cent, depending on the category, for exports of non-fabric inputs made from imported fabrics under the Advance Authorisation Scheme. The new duty drawback rates would be effective from the next month. Exporters shall be eligible for the All Industry Rate of Duty Drawback, for non fabric inputs, as determined by Central government for this scheme. The fabric imported shall be subject to pre-import condition and it shall be physically incorporated in the export product (making normal allowance for wastage). Only physical exports shall fulfil the export obligation. Authorisation, and the fabric imported, shall be subject to actual user condition. The same shall be non-transferable even after completion of export obligation. Duty-free import of fabric under the Special Advance Authorisation Scheme shall be allowed for export of articles of apparel and clothing accessories for export of items covered under Chapter 61 and 62, subject to the terms and conditions. The authorisation shall be issued based on Standard Input Output Norms (SION) or prior fixation of Norms Committee. The authorisation shall be issued for the import of relevant fabrics including inter lining only as input. No other input, packing material, fuel, oil and catalyst shall be allowed for import under this authorisation.

SOURCE: Fibre2fashion

Back to top

Centre notifies rebate of state levies on garment exports

The Union ministry of textiles has notified the rebate of state levies, which were not refunded earlier to the garment exporters, as announced in the special package for garment sector. The rebate shall be given under the 'Scheme for rebate of state levies on export of garments 2016'. The scheme will come into effect from September 20, 2016 and will remain in operation for a period of three years. For the scheme, the amount of rebate shall be calculated using the FOB value of the garment exported. The rates (including applicable caps) of rebate of the state levies on exports of garments manufactured in India shall be recommended by the Drawback Committee constituted by the Central government and notified by the ministry of textiles. However, the rebate will not applicable for exports made under pre-existing Advance Authorisation Scheme. Further, the rate and rebate shall be applicable only to exporters who have constituted and Internal Complaints Committee (ICC) in pursuance of the sexual harassment of women at workplace (prevention, prohibition and redressal) Act, 2013. Reacting to the notification, Tirupur Exporters' Association (TEA) president Dr. A Sakthivel said he was glad to note that the government has considered the long requisitions of the association to refund the state levies like electricity tax etc, fuel tax, etc. “The rebate rate for cotton garments is 3.5 per cent, blended garments 2.65 per cent, and man-made fibre 2.65 per cent. The rebate cap is Rs 16.1, Rs 11.4 and Rs 11.6 respectively. This will increase competitiveness and helpful to enhance exports and also employment,” he said.

SOURCE: Fibre2fashion

Back to top

 

New scheme for apparel export

The authorisation will be issued for "the import of only the relevant fabrics, including inter-lining, as input. No other input, packing material, fuel, oil or catalyst will be allowed for import under this authorization. The commerce ministry has notified a special advance authorisation scheme for articles of apparel and clothing accessories. Duty-free import of fabrics will be allowed for export of items covered under chapters 61 and 62 of ITC (HS) Classification of Export and Import. The unique feature is that exporters using the scheme will also be eligible for the All Industry Rate (AIR) of duty drawback for non-fabric inputs, as notified by the finance ministry. The scheme comes into effect from September 1. Under it, an exporter can get special advance authorisation for import of fabrics relevant to the export products, on the basis of standard input-output norms (SION) or prior fixation by the norms committee at the Directorate General of Foreign Trade (DGFT). The authorisation will be issued for the import of only the relevant fabrics, including inter-lining, as input. No other input, packing material, fuel, oil or catalyst will be allowed for import under this authorisation. The usual value addition has to be achieved. The present option to claim the brand rate of drawback as determined by central excise authorities remains. In which case, the value of inputs (other than the fabric imported duty-free under the special advance authorisation) will continue to be based on actuals for the purpose of value addition calculation. However, where the AIR of drawback is claimed, the value of other inputs should be reckoned at 22 per cent of the FOB value of export realised, for the purpose of value addition. This stipulation could confuse some and the DGFT should issue a suitable circular, clarifying the matter by way of an example.

The fabrics imported under the scheme will be subject to pre-import conditions and be physically incorporated in the export products (making normal allowance for wastage). The export obligation must be fulfilled through physical export only. The special advance authorisation and the fabrics imported cannot be transferred even after completion of export obligation. However, the fabrics imported may be transferred to job workers (other than in units located in areas eligible for area-based exemption from central excise duty) as permitted by the central excise authorities. Invalidation of the authorisation will not be permitted. The finance ministry has issued suitable exemption notification to give effect to this scheme. More significant, a non-tariff notification has been issued, amending the conditions for grant of AIR. The notification gives the alternative AIR of drawback in the drawback schedule for exports made in discharge of an export obligation against the special advance authorisation. The rates for many items are nearly or less than half the original rates, and the value caps are around 65 per cent of the original ones. The Central Board of Excise and Customs has asked exporters opting for drawback at brand rates under the new scheme to declare the figure 9807 as an identifier in the shipping bill and to mention the tariff item number of goods as shown in the AIR schedule, followed by the character 'D', immediately after the said identifier. Based on this, the shipping bill will be processed for payment of provisional drawback amount equivalent to the Customs portion of these alternative AIRs. Hopefully, this new scheme will help boost export of apparel.

SOURCE: The Business Standard

Back to top

 

 

‘Revised trade facilitation measure to ensure speedy clearance at ports’

The Central Board of Excise and Customs (CBEC) has recently revised the Authorised Economic Operator (AEO) programme to make it more lucrative for trade in speedy clearance of cargo from ports, and reduce time and cost in cross border trade, said BK Bansal, Member (Customs), CBEC. Customs is moving away from a regime of control to facilitation and partnership. The revised AEO was launched with this in mind, he said.

Inventory system

AEO will enable direct port delivery of imports to ensure just-in-time inventory management by manufacturers and clearance from wharf to warehouse. It is a programme of trust and confidence between the Customs and trade. “Why should the department treat everybody the same? Some are better compliant, some are not. Why should both be treated on par? A distinction should be made on facilitating more for trusted clients,” he said.

Grading the assessees

The department will grade assessees based on compliance track record. Accordingly, assessees will be facilitated much better, can have reduced bank guarantee and can get deferred payment of Customs duty, he said. Food Security and Textile Ministry are willing to come on board once assessees become AEOs with Customs. There will be international recognition also with China, Korea, Hong Kong and the US looking forward to have mutual recognition agreements with India, he said. The department has been trying to make things simpler and easy by rationalising processes, procedures and simplifying norms to help industry, promote trade and capture more and more share in international trade.

SOURCE: The Hindu Business Line

Back to top

 

Cotton sector calls for efforts to boost production and benefit farmers

A two-day conference on “Indian Cotton Scenario in the Current Context 2016-2017” is organized by the Indian Cotton Federation (ICF) jointly with the Indian Cotton Association (ICAL). Speaking on Friday at the conference inaugural, Rakesh Rathi, president of ICAL, said that India needs better real time data on cotton. All cotton bales pressed in the country should have a digital mark and should be registered. India has the largest area under cotton but its yield is lower. Regional cotton associations should focus on extension services to educate farmers and should also take up programmes that will help collect real time data, he said. According to M. Senthil Kumar, chairman of Southern India Mills’ Association, India is losing on cotton acreage, productivity, and quality in the last two seasons. Textile mills in the south are apprehensive that the country might become a net importer of cotton and the mills might not get cotton at the right time even at high price. They need united efforts to make the Government work on the white gold. Dhiren N. Sheth, president of Cotton Association of India, said that the cotton sector needs a system such as direct transfer of benefits for farmers. In the case of GM technology, the country is in cross roads. All segments of the cotton sector should sit with the Government and the seed industry to thrash out issues. The industry also needs to address problems related to irrigation, storage in peak season, infrastructure at ports, etc. President of South Indian Spinners Association K. Thirunavukkarasu said cotton farmers, ginners and spinners are not happy though the country had a good crop for the last two years. Efforts are needed to save the cotton sector. B.K. Krishnaraj Vanavarayar, chairman of Bharatiya Vidya Bhavan, pointed out that economic growth should be inclusive. The aim of the country should be holistic human development. Be it those in the industry, trade, or agriculture, the focus should be making the country strong. Stakeholders of the cotton sector called for efforts that will give a boost to cotton production and will benefit the farmers and the industry.

SOURCE: Yarns&Fibers

Back to top

 

AP govt mulls to slash power tariff to spinning mills to revive textile industry

Andhra Pradesh state government is contemplating to drastically slash power tariff to spinning mills in the state to revive the sagging morale of textile industry. As the spinning mills provide employment to four lakh people in the state, but several mills are on the verge of closure due to heavy losses. A cabinet sub-committee headed by finance minister Yanamala Ramakrishnudu has formally moved a proposal to offer power at Rs 2 per unit to the spinning mills. The committee comprising rural development minister Ch Ayyanna Patrudu, transport minister Sidda Raghava Rao and the FM discussed the issue recently. The committee met after managements of spinning mills met chief minister Chandrababu Naidu and urged him to bail out the industry from the crisis. The finance minister said that the new tariff, if implemented, would cause a burden of Rs 400 crore on the exchequer. Since lakhs of cotton farmers and workers depend on the survival of the textile industry, the committee is recommending the proposal to lower the power tariff. The cabinet will take a final call on the issue. According to the AP Spinning Mills Association leaders, the main reason for this unusual increase of cotton price is due to allowing multi-national and local trading companies by Cotton Corporation of India (CCI) to participate in daily auction along with the spinning industry. The price of cotton has increased from Rs 35,000 to Rs 48,000 a candy (356 kg) and is racing towards Rs 50,000 mark. But the yarn rate is not increasing commensurate with the increased cotton price. With deep parity in yarn production and marketing cost, the industry is losing heavily from Rs 25 to Rs 30 per kg, said industry representative K Anjaneyulu. The committee has also decided to recommend to the government to allow the ferro alloy industries to clear debts in two years. The FM said that these industries owe Rs 300 crore to the power distribution companies.

SOURCE: Yarns&Fibers

Back to top

 

 

India to see biggest impact and higher growth rate in digital textile print

The textile printing industry represents 30 billion square metres of material volume on an annual basis worldwide. According to the World Textile Information Network, digital textile printing is estimated to see a 25% growth rate. On the eve of Gartex at 27 to 29 August to be held Pragati Maidan in Delhi, textiles are a very strong segment in India and they will spot some good trends at the show. In fact, more and more shows from Fespa to Media Expo to Gartex are showcasing the strength of digital print with textiles. The reason is obvious: size plus growth. However, as per data, after a decade of advances in digital printing technologies for textile, a miniscule percentage (1%) of India's printed textiles are produced digitally. The majority of digital printing on textiles is done today mainly on polyester fabrics using dye sublimation. Smithers Pira estimates a total of 384 million square metres of fabric being printed digitally via dye sublimation up to Q1 2016, having grown by 18.4% in the past year 2015-16. This is set to rise to 892 million square metres in 2021. Sam Gulve of EFI who is based in the tech company's impressive Bengaluru-centre said that the textile printing is a 7.5 billion dollar market, and is projected to grow more than 34% worldwide, providing outstanding opportunities. But he hastens to add that the actual number should be much higher and the biggest impact shall be in India and China. Fespa's survey states that textile print growth in graphics, garment, decor and industrial markets is the big shift in the future. The initial trends were: inkjet was used for prototyping and one-offs, as the time and cost of setting up screens made inkjet a better value. With the advent of customization and more efficient production equipment, digital printing is becoming mainstream. In India, they saw the growth of dye sublimation digital print after 2010, from a low base from 2011 onward. And so, high profile campaigns like IPL with the IPL shirts were rendered through dye sublimation. These are printed on the Epson Surecolor SC-F6070 and SC-F 7070 with the Epson Ultrachrome DS inks. Developed over a three-year period, Epson UltraChrome DS is a specially-formulated dye-sublimation ink, producing vibrant colours, intense blacks, sharp contours, and smooth gradations. The all-new ink technology, according to Epson, exhibits excellent light and wash fastness, as well as resistance to alkaline and acid perspiration.

Epson printers did well in the last two years mainly because Mimaki was shut down in India. Now Mimaki is re-entering the Indian market - and are getting very aggressive. Mimaki has tied up with Insight Communications for TS models during the Media Expo show in Mumbai will be promoting the printers at Gartex 2016. Ajay Aggarwal from Insight said that digital technology has changed everything it has touched, including the textile and printing markets. He adds, that the textile industry is one of the world’s largest industries, and it has come a long way. Women garments are getting more popular, and home furnishing is doing well. The sportswear fluorescent inks are very important and help to locate the colours in the dark. Simultaneously, Epson has also strengthened its position in the industrial digital textile segment with the acquisition of Italian digital printer manufacturer Robustelli. According to Gulve of EFI, it is easy to print digitally with low cost sublimation on polyester, but cotton and blends is also growing fast with reactive printing; this needs pre coats and washing/steaming, and one can see this mainly in organized sectors; this is growing rapidly as well. EFI's focus has been on soft signage and furnishings for sure, they have developed fabrics locally and also import the best fabrics from George Otto, Germany, for the sign and display segment. They see double digit growth in the near future in this segment. Custom apparel like IPL and custom furnishings is growing and sees digital pigment and dye sub being an important part of this. The market for reactive inks is grown into high volumes, low margins and sees bigger players entering this segment with high speed digital equipment soon. EFI bought Reggiani Macchine and Matan digital printers in 2015. To boost their textile print presence, EFI purchased Optitex, a 2D/3D fashion design and prototyping software developer. At Gartex 2016, visitors will get to see a large number of manufacturers and suppliers with focus on digital textile printing.

SOURCE: Yarns&Fibers

Back to top

 

Coming up Textile Park at Tiruchi to have state-of-the-art infrastructure

The Textile Park to come up on about 100 acres at Padalur village on the Tiruchi – Chennai National Highway, would have a state-of-the-art infrastructure said K. Nandakumar, District Collector while addressing the entrepreneurs at a meeting convened for starting textile park. Madhumathikumar, General Manager of State Industries Promotion Corporation of Tamil Nadu and other officials were present. The collector said that all required infrastructure for the Textile Park will be provided within a year’s time and the State government has sanctioned Rs. 15 crore for the purpose including formation of roads, provision of drinking water supply and street lights and sheds. To start with, a road would be laid for about one km from the National Highway to Therani village. Of the 100 acres, 25 acres would be utilized for formation of roads, setting up of transformers and other utility services, while the balance 75 acres would be utilized for setting up sheds for allotment to entrepreneurs through single-window system. All training for skill development would be given to the entrepreneurs selected through the single window system. The textile park would produce export-oriented quality garments. No chemicals and dyes would be allowed at the park.

SOURCE: Yarns&Fibers

Back to top

 

Nagaland to join North East India Fashion Week coming up soon

At the upcoming second edition of the North East India Fashion Week (NEIFW) to be held in the Arunachal Pradesh capital. Designer Yana Ngoba Chakpu, who hails from Arunachal Pradesh, is hosting the event. NEIFW gives weavers and designers from the region a platform to showcase their creations. At the event hand-woven fabrics with natural colours, angular designs and floral patterns of the northeast tribes will take centre stage. Apart from that one will get to see creations by weavers of Arunachal Pradesh, Meitei weavers from Manipur, weaver Dimbeswary Kherkatary from Assam, fashion designers Lalthabiki Chawngthu (Mizoram), Ongtiong Kichu (Nagaland) and Rupert W. Lynrah (Meghalaya), among others. Chakpu said that she is one of the designers who works with weavers from all the northeastern states. There are only few active weavers. So to encourage them and work with them, they met weavers of Meghalaya, Mizoram and other northeast states. People generally get to see influence from the West at fashion weeks in India. NEIFW, on the other hand, is all about northeast Indian tribal fabrics, said the designer, who also showcased her creations at the London Fashion Week’s off-schedule Fashions Finest show last year. The models are also from the northeast. There aren’t too many northeast models who have made a mark in the fashion industry nationally. So, they need to encourage them. They aren’t too tall, but modelling isn’t just about height or looks.

Designers need a person who has the right attitude and can carry off the clothes well on the stage. The focus should be on their clothes and not just their faces, Chakpu said. Life of Pi, actor Adil Hussain, who hails from Assam, will be one of the showstoppers at the fashion week, which will see around 40 participants. He is also the brand ambassador of NEIFW. Former Mr. India International contestant Opang Jamir from Nagaland will also be a showstopper. He has choreographed the shows as well. The event is all about celebrating the work of weavers and designers from the northeast region. There are also many weavers from different states working on their collections for the event. The event is being done in association with the Arunachal Pradesh government.

SOURCE: Yarns&Fibers

Back to top

 

Exemptions, incentives and GST don’t go together: Rita Teaotia

Commerce secretary Rita Teaotia today told the exporting community that exemptions and incentives, which were being given for promoting exports would go away once the GST was in place. “Exemptions and incentives will go away once the Goods and Services Tax (GST) is implemented. GST and exemptions do not go hand-in-hand,” Teaotia said at a session organised by EEPC, FIEO and GJEPC here. She said the department of revenue was getting all the suggestions and representing from various quarters on the probable impact of GST on exports. “The commerce department is not involved with the GST legislation. We will give our inputs to the finance department before everything gets finalised,” the official said. Saying that many countries across the world were resorting to protectionist policies to protect insulate their domestic industries from suffering due to the global slowdown, the Indian government was making efforts to create a conducive environment for making country’s exports competitive. “Programmes like Make in India, Skill India, Digital India were efforts to increase competitiveness of Indian exports,” she said. Regarding SEZs, she said that the government was committed to this sector. “We will align our policies in tune with the GST. Our interest and concern is to protect the export sector and SEZ is important for the country’s economic landscape,” she said.

SOURCE: The Financial Express

Back to top

 

Growth potential, savings support India’s credit profile: Moody’s

Global credit rating agency Moody’s Investors Service on Monday said India’s credit profile is supported by its strong growth potential, high private savings enabling access to funds for the government at favourable terms. On the other hand Moody’s said these credit strengths were balanced against high government debt — 67.4 per cent of gross domestic product — regulatory and infrastructure constraints, slow pace of reform and the contingent liability risk to the sovereign from public sector banks’ high and rising non-performing loans. “Over the past year, external developments favourable to India such as lower global oil prices have combined with policy measures — including tighter or less accommodative fiscal and monetary policies than in the past — to move the economy towards a more stable macroeconomic development with smaller fiscal deficits, lower inflation and a narrower current account deficit,” Moody’s said in its annual credit analysis of India. However, one short-term consequence of the policy setting, combined with two successive unfavourable monsoon last year and the year before, has been relatively moderate nominal GDP growth, the agency added. Moody’s expects corporates’ profitability to remain muted which will continue to dampen their ability and willingness to invest in the next few quarters. “We forecast real GDP growth at around 7.5 per cent in the next two years. In nominal terms, we do not expect GDP growth to rise above 10 per cent until FY2017,” Moody’s said.

According to Moody’s, sustained fiscal consolidation, stable inflation at moderate levels and progress on reforms aimed at enhancing the business environment would contribute to sustained growth at robust levels. In turn, persistent income and profit growth would raise government revenues and contribute to improved fiscal metrics. While India has institutional strength of checks and balances there are offsetting weaknesses like an uncertain regulatory environment, corruption, a slow-moving judicial system and, in general, inefficiencies in the delivery of government services. Moody’s said political fragmentation leads to slow and ad-hoc progress on reforms. Progress on land and labour reforms, when it has occurred has been limited and gradual. According to Moody’s India’s Susceptibility to Event Risk is driven by banking sector risk. As banks continue to recognise bad assets, non-performing loans will rise further, particularly for public sector banks, albeit at a slower pace than at the end of 2015. The focus on bad asset recognition and provisioning in the banking system as well as the recent passage of a new bankruptcy bill would be credit positive from a sovereign perspective, if it led to improved bank capitalisation levels, renewed loan growth and robust risk processes, Moody’s said.

SOURCE: The Financial Express

Back to top

 

Global Crude oil price of Indian Basket was US$ 48.02 per bbl on 19.08.2016 

The international crude oil price of Indian Basket as computed/published today by Petroleum Planning and Analysis Cell (PPAC) under the Ministry of Petroleum and Natural Gas was US$ 48.02 per barrel (bbl) on 19.08.2016. This was higher than the price of US$ 47.75 per bbl on previous publishing day of 18.08.2016.

In rupee terms, the price of Indian Basket increased to Rs. 3213.73 per bbl on 19.08.2016 as compared to Rs. 3189.36 per bbl on 18.08.2016. Rupee closed weaker at Rs. 66.93 per US$ on 19.08.2016 as against Rs.66.79 per US$ on 18.08.2016. The table below gives details in this regard 

Particulars    

Unit

Price on August 19, 2016 (Previous trading day i.e. 18.08.2016)                                                                  

Pricing Fortnight for 16.08.2016

(July 28, 2016 to Aug 10, 2016)

Crude Oil (Indian Basket)

($/bbl)

                  48.02              (47.75)        

   40.73

(Rs/bbl

                 3213.73       (3189.36)       

2723.62

Exchange Rate

  (Rs/$)

                  66.93              (66.79)

   66.87

 

SOURCE: PIB

Back to top

 

Pak Asia USA Trade Expo to strengthen linkage with American buyers

The Pak-Asia-USA Trade Expo scheduled to be held from December 9 to 17, 2016 in Houston, will help in effectively building the image of Pakistan through fair business and exports will provide them a unique opportunity to strengthen linkages with the American buyers, said Syed Waseem Akhtar, President of the Pakistan Chamber of Commerce USA. He described Pakistan products as the best in terms of quality and price that could grab a sizeable share in the American market. Pakistan has given a unique identity to its expatriates abroad, hence they must return it back by allocating at least 10% of their savings.

Turning to textiles, Syed Akhtar boasted that Pakistan was producing best-quality clothes, bed sheets and other related goods which had a great demand in the US. Only proper marketing is required to boost the sale of these products. The president of Pakistan Chamber of Commerce, created to introduce and promote country’s products in US markets said that they would provide help in holding meeting with leading American store chains in addition to big hotels that regularly purchase bedspreads and textile products in bulk. And hence, urged the Faisalabad Chamber of Commerce and Industry (FCCI) president to arrange a delegation of serious businessmen for a visit to the US to explore the huge market.

SOURCE: Yarns&Fibers

Back to top

 

Bangladesh’s EPB to join German textile exhibition

The biggest international trade fair for home and contract textiles will be held from Jan 10 to 13 next year, EPB said in a media release. More than 2,867 exhibitors from over 69 countries and around 69,000 buyers and trade visitors from more than 137 countries took part in the fair 2016, the release said. Twenty-one exhibitors participated from Bangladesh, including 10 under the EPB.

SOURCE: The BD News

Back to top

 

DOST presents S&T roadmap to reinvigorate textile industry in PH

The Department of Science and Technology-Philippine Council for Industry, Energy and Emerging Technology Research and Development (DOST- PCIEERD) recently presented Science and Technology (S&T) Roadmap for textile industry aiming to reinvigorate the country’s once dominating sector at the DOST Executive Lounge in Taguig City. Representing DOST Secretary Fortunato dela Peña, Dr. Carlos Primo David, executive director of DOST-PCIEERD, said that they, at the DOST, desire to help the local textile industry rise back to the ranks in the international community by employing science and technology (S&T) in textile research and development (R&D). The roadmap aims at Philippine textile industry that is culture-sensitive, robust, sustainable, and profitable based on Filipino knowledge using locally available raw materials. The roadmap by DOST to boost textile industry is drawn for a duration of five years from 2016 to 2020.

SOURCE: Yarns&Fibers

Back to top

 

 

IRANTEXT international expo to have over 340 companies exhibiting latest products

IRANTEXT, the 22nd edition of Iran’s international exhibition of Textile Machinery, Raw Materials, Home Textiles, Embroidery Machines and Textile Products to be hosted by Tehran to begin from September 3 to 6, 2016 where more than 340 domestic and foreign companies from over 15 countries will exhibit their latest products, services and achievements in the textile industry. Holding 15 workshops and two specialized seminars to be attended by experts and university professors and arranging the visits of several foreign trade delegations are some of the side events of the 22nd IRANTEXT. Some 140 Iranian companies will attend the event while the number of foreign exhibitors is 200. France, Austria, Belgium, the UK, Thailand, South Korea, India, Pakistan, Spain, Italy, Turkey, Japan, China, Taiwan and Germany are among the countries which will participate in the exhibit. In this year’s event, India, China and Turkey will have their own pavilions.

SOURCE: Yarns&Fibers

Back to top

 

Making ASEAN economic community effective: Don’t lose sight of smaller things that matter

Even as the 10-member grouping continues to chip away at breaking barriers and bridging borders, the fanfare to which the ASEAN economic community (AEC) was implemented at the end of 2015 may have fizzled. At this eight-month juncture, it is important that they keep momentum to generate greater benefits for the region’s businesses. It is unrealistic to expect the AEC to produce fix-it-all approaches to integrate markets as diverse as those in ASEAN. The difference between GDP per capita in Singapore and Cambodia is as big as 55 times. Against this backdrop, the most practical way is to explore simpler ideas and implement them swiftly to great effect. And the fastest way would be for ready countries to first impose coordinated measures while keeping agreements open for others to join at their own pace. To foster greater integration, the common denominator is the “power of one”. Not to be confused with the ASEAN centrality, this “power of one” refers to the creation of a single component in the different growth aspects that will make it easier for corporates, especially small- and medium-sized enterprises, to do business in the region.

Highly-open ASEAN countries, vulnerable to external economic trends, need increased and sustainable intra-regional trade and investments to weather the slowdown. Indicators show that regional trade is more important than world trade to ASEAN members, as compared to other regions. According to ADB, ASEAN’s intra-regional trade intensity index was 3.54 in 2014, higher than the European Union’s 2.04 and East Asia’s 1.54. As businesses become more interdependent and connected, policies need to keep up with changes in organisational objectives as the rise of global value chains transforms the way trade is conducted.

Regional financial services providers have a role to play, working with regulators to promote economic integration and make ASEAN an easier environment for businesses to operate in. Costs reduction and efficiency gains are a straight-forward way to facilitate trade and boost corporate liquidity. It is true that the bulk of intra-ASEAN tariffs have been abolished but there remain cumbersome measures which indirectly eat into cash flows and constrain growth. As ASEAN countries strive to simplify and harmonise customs and other border procedures, a quicker approach to stimulate trade is to introduce the use of one multi-jurisdictional bank guarantee (BG) for the movement of goods across multiple markets.

Discussions are underway to pilot this programme among a few ASEAN countries to do away with different BGs for as many borders crossed. Keeping to only one BG for multiple transportation nodes will reduce corporate costs. Say, a manufacturer in Thailand that ships goods to Singapore via Malaysia has to pay 800,000 baht equivalent of duty in Singapore and 1 million baht equivalent in Malaysia. The company will need a BG of 1.8 million baht, tying up its bank limit by the same amount as it waits an average 6-9 months for the customs clearance and the BG to be released. But under the proposed initiative, it will only require a BG of 1 million baht, saving the cost of the lower-priced BG issuance (800,000 baht). A successful implementation can be extended throughout ASEAN for widespread benefits.

Another way to generate more trade is through the promotion of regional currencies in the settlement of trade, which will cushion ASEAN from the effects of foreign exchange fluctuation. Because many ASEAN currencies are restricted and not freely tradable, the use of US dollars in ASEAN trade settlements helps overcome non-convertibility issues. But this isn’t always cost effective. Similar to what China did to encourage renminbi use for trade, ASEAN could create a pool of a few local currencies for settlements within the region to reduce its dollar dependence. Since the 2010 launch of the renminbi trade settlement scheme, it’s become one of the most important payment currencies. It may be challenging to pull together a few currencies at once so we can adopt the “power of one” again. That is, to start with one ASEAN currency before gradually adding a few others, potentially covering a big percentage of regional trade settlement. A Thai exporter and a Malaysian importer, currently settling trade in dollars, will each pay to hedge forex risks. If either of their local currencies was open to convertibility, one of the companies could agree to pay or receive payments in the freely-traded currency, leaving only the other organisation having to incur hedging costs. The gradual and greater use of ASEAN currencies can sustainably increase regional trade as conversion costs and hedging risks are mitigated. ASEAN businesses are keen to access regional capital markets to widen financing options. However, the time and monetary costs associated with reaching out to investors in foreign jurisdictions with varying regulations can prove daunting. Companies issuing cross-border securities need to prepare separate prospectuses complying with each market’s local legal and financial requirements. While tax, accountancy and insolvency treatments are thorny issues to reach consensus on, it is worthwhile exploring ways to simplify the securities offering process by making one prospectus work across different jurisdictions. A framework for the common prospectus between Singapore, Malaysia and Thailand has been developed but it is yet to be adopted as the industry standard. In addition, if an integrated institution is created to receive all issuer applications for cross-border offerings, it will make it even easier for businesses to explore funding alternatives. As cross-country investments deepen, so will economic integration in ASEAN. In working together to make the AEC a successful journey, we must not lose sight of the smaller things that matter, for some small steps can result in a big leap.

SOURCE: The Financial Express

Back to top