CITI-NEWS LETTER · Nirmala Sitharaman assures steps being taken to revive growth GST may become two-tier tax with merger of 12%, 18% slabs: ... looked into later,” said Sanjay

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03rd July

2019

Scheme to rebate embedded Central, State levies may be extended to more textile sectors

Govt may impose anti-dumping duty on imports of nylon multi-filament yarn from 4 nations

Economic growth high on agenda of government: Nirmala Sitharaman

CEA KV Subramanian to table Economic Survey in Parliament

Trade talks: India, US officials likely to meet next week

Increasing Bangladesh imports worry Tamil Nadu textile firms

Cotton and Yarn Futures

ZCE - Daily Data (Change from previous day)

MCX (Change from previous day)

July 2019 21380 (-280)

Cotton 145110 (-145) Aug 2019 21120 (-300)

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2 CITI-NEWS LETTER

-------------------------------------------------------------------------------------- Scheme to rebate embedded Central, State levies may be extended to more

textile sectors

Govt may impose anti-dumping duty on imports of nylon multi-filament yarn

from 4 nations



Nirmala Sitharaman assures steps being taken to revive growth

GST may become two-tier tax with merger of 12%, 18% slabs: Arun Jaitley

Export-promotion forum, trade fair to boost farm cooperatives: Govt



India could face productivity loss equivalent to 34 million jobs in 2030 due to

global warming: UN

UAE says approves full foreign ownership of firms

Bangladesh seeks to synergise India ties

Does India really need a direct tax code?

------------------------------------------------------------------------------- Christine Lagarde nominated as president of European Central Bank

Trade war: US manufacturing slows to a 3-year low

Pakistan: Govt allows duty-free cotton import till July 31

Apparel sector urged to develop supporting industry to optimise EVFTA

Pakistan: Razak emphasis for role of Chinese investors in local textile sector

EU-Mercosur Trade Deal Opens Opportunity For Textile And Clothing

Companies

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NATIONAL

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GLOBAL

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3 CITI-NEWS LETTER

NATIONAL:

Scheme to rebate embedded Central, State levies may be extended to more

textile sectors

(Source: Amiti Sen, The Hindu BusinessLine, July 02, 2019)

Exporters raise concerns at meeting with Textiles and Commerce Ministers

The government is considering extending the scheme to rebate embedded Central and

State levies for the garments and made-ups sector to other textile items in the light of

the urgency to do away with the popular merchandise export incentive scheme (MEIS)

which is against World Trade Organization rules.

A number of issues raised by the textiles industry, including possible extension of the

Rebate of State and Central Taxes and Levies (RoSCTL) to other sectors, expeditious

clearance of TUFS and tackling increased imports of garments from Bangladesh, were

discussed at a meeting textile exporters had with Textiles Minister Smriti Irani and

Commerce & Industry Minister Piyush Goyal on Monday, a government official said.

“The meeting was attended by all officials apart from the two Ministers. Each and every

issue raised was immediately looked into. Whatever could be addressed was addressed

with deadline while an assurance was given that the rest had been listed and would be

looked into later,” said Sanjay K Jain from the Confederation of Indian Textile Industry.

An assurance was given to textile exporters that their demand of extending the RoSCTL

to other textile sectors, including yarn and fibre, will be addressed soon, another

exporter, who did not wish to be identified, said.

“Commerce Minister Piyush Goyal had said at the recent Board of Trade meeting that

his Ministry was seriously considering the Textiles Ministry’s proposal of extending the

RoSCTL to all textiles sectors. The Minister has said that a decision on the matter will be

taken soon as the MEIS scheme for textiles needs to be withdrawn,” the exporter said.

The Cabinet, in March, approved the RoSCTL scheme to rebate all embedded State and

Central Taxes/levies for apparel and made-ups, through an IT-driven scrip system. The

scheme replaced the existing Rebate of State Levies (RoSL) scheme that provided rebate

of only certain State taxes.

The embedded taxes include Central excise duty on fuel used in transportation,

embedded CGST paid on inputs such as pesticides and fertilisers used in production of

raw cotton, purchases from unregistered dealers, inputs for transport sector and

embedded CGST and compensation cess on coal used in the production of electricity.

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4 CITI-NEWS LETTER

Now that the MEIS scheme, which offers incentives based on the markets the goods are

being exported to, has to be withdrawn as Indian textiles have graduated out of the

group of items allowed to extend export sops at the WTO, the RoSCTL is a workable

alternative.

Clearance of funds

The two Ministers also agreed to the expeditious clearance of funds for exporters under

the Technology Upgradation Fund Scheme (TUFS), address GST issues on textiles and

clothing ,including inverted duty structure in the man-made fibre sector, and reduce

hank yarn obligation from 30 per cent to 15 per cent.

The fall out of duty-free imports of garments from Bangladesh on India’s apparel

industry and the opportunities arising from Vietnam reaching saturation in textile

production were also discussed.

According to industry figures, India’s textiles & clothing exports declined from $38.60

billion in 2014 to $37.12 billion in 2018 while imports increased from $5.85 billion to

$7.31 during the same period.

India slipped to the fifth position amongst garments and textiles exporters in 2018 from

the second position it enjoyed in the 2014-17 period. China, Germany, Bangladesh and

Vietnam are the top four exporters of garments and textiles.

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Govt may impose anti-dumping duty on imports of nylon multi-filament

yarn from 4 nations

(Source: Business Standard, July 02, 2019)

The government may impose anti-dumping duty on imports of certain types of filament

yarn from China, Korea, Taiwan and Thailand as the commerce ministry has started

investigation into alleged dumping of the product following complaints from domestic

players.

The Directorate General of Trade Remedies (DGTR), under the commerce ministry, has

initiated the probe as it has found "sufficient evidence" of dumping of nylon multi-

filament yarn from these countries.

"The authority hereby initiates an investigation into the alleged dumping, and

consequent injury to the domestic industry... to determine the existence, degree and

effect of alleged dumping," the DGTR said in a notification.

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5 CITI-NEWS LETTER

If the DGTR will establish that dumping is impacting domestic players, it would

recommend imposition of a certain amount of anti-dumping duty, which if levied, would

be adequate to remove the injury to the domestic industry.

The finance ministry will take final call on imposition of the duty after considering

recommendations of the directorate.

Two firms, including Century Enka Ltd, have filed application for imposition of anti-

dumping duty on the imports.

The period of investigation covers 2018-19. However, for the purpose of injury

investigation, the period will also cover data for 2015-18 period.

Dumping occurs when a foreign company sells an imported product at an artificially low

price.

Countries carry out anti-dumping probe to determine whether their domestic industries

have been hurt because of a surge in cheap imports.

As a counter measure, they impose duties under multilateral regime of the World Trade

Organisation.

The duty is aimed at ensuring fair trade practices and creating a level-playing field for

domestic producers with regard to foreign producers and exporters.

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(Source: Economic Times, July 02, 2019)

Sitharaman said economic growth is high on the agenda of the govt and various reforms

are being undertaken in many spheres to improve GDP growth.

India still continues to be the fastest growing economy and demonetisation has had no

effect on the Indian economy, Finance Minister Nirmala Sitharaman told the Rajya

Sabha on Tuesday.

The minister, while responding to supplementaries during the Question Hour, said the

manufacturing sector has had a certain fall, but it is not attributable to demonetisation.

She said economic growth is high on the agenda of the Government and various reforms

are being undertaken in many spheres to improve GDP growth. Sitharaman said the

moderation in growth momentum in 2018-19 is primarily on account of lower growth in

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6 CITI-NEWS LETTER

'Agriculture and allied', 'trade, hotel, transport, storage, communication and services

related to broadcasting' and 'public administration and defence' sectors," she said. "If

the impact of low growth in certain sectors has impacted growth rate, particularly in

agriculture and allied activities as also in financial and real estate and professional

services, there has been a fall, particularly in agriculture based on third advance

estimates, it is believed that there has been a 0.6 per cent decline in the output.

"If the impact on the low growth is because of outcomes from these sectors, the

manufacturing sector has had a certain fall but which is not attributable to

demonetisation,"

She said in the last quarter, there could have been a fall and steps have been taken to

improve the economy.

"But, we are still the fastest growing economy," she said. Sitharaman said if the United

States' growth has grown between 1.6, 2.2, 2.9 and 2.3 per cent in 2016, 2017, 2018 and

2019, and China's growth has also decelerated from 6.7, 6.8, 6.6 and 6.3 per cent, India

is still well above 7 per cent at 7.3 per cent growth. "While the concern of member is well

taken about the last quarter's growth having come down, it is still India which is growing

at the fastest rate and the figures are before us," she stressed in response to a query from

a member. The minister said as regards steps taken, the government has taken several

steps in order that more money goes to people and that is why the PM's Kisan Samman

Yojna, the Pension Yojna, where money goes directly through DBT in activities through

which people are getting the benefit.

"Over and above that, in order that institutions will have to extend more credit facilities

for industry and for those entrepreneurs in the ground, the credit situation and also

taking care of resolutional stressed assets through banks is also happening," she said. In

her written reply, the finance minister said, as per estimates available from Central

Statistics Office, Growth of Gross Domestic Product (GDP) at constant prices was 6.8

percent in 2018-19, as compared to 7.2 percent in 2017-18 and 8.2 percent in 2016-17.

"Economic growth is high on the agenda of the Government. Various reforms are being

undertaken by the Government in many spheres to improve GDP growth. The key

reforms in Governments new term include expansion to all farmers the cash transfer

scheme 'PMKisan' providing an income support of Rs 6000 per year, which was earlier

limited to farmers with a land holding of less than 2 hectares," she said.

Along with this, the Government has launched voluntary pension scheme for small and

marginal farmers and small shopkeepers or retail traders, she claimed. To give focused

attention to issues of growth, Government has constituted a five-member cabinet

committee on investment and growth chaired by Prime Minister.

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The Economic Survey is an outlook of developments in the economy that is presented a

day before the Union Budget.

Chief Economic Adviser KV Subramanian will table the new Narendra Modi

government's first Economic Survey in Parliament on Thursday. "Looking forward with

excitement to table my first - and the new Government's first - Economic Survey in

Parliament on Thursday. #EcoSurvey2019" he tweeted on Tuesday. The Economic

Survey is an outlook of developments in the economy that is presented a day before the

Union Budget. The survey contains a summary of the performance on major

development programmes, as well as the policy initiatives of the government and the

prospects of the economy. Subramanian was appointed as the Chief Economic Adviser

in December last year, nearly six months after Arvind Subramanian stepped down from

the post at the end of his term owing to "pressing family commitments."

The first full-fledged budget of the Union Government will be tabled on Friday by

Finance Minister Nirmala Sitharaman.

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Nirmala Sitharaman assures steps being taken to revive growth

(Source: Gireesh Chandra Prasad, Live Mint, July 02, 2019)

The government will take immediate steps to arrest

the slowdown in economic growth and encourage

manufacturing, finance minister Nirmala

Sitharaman said in a written reply to questions by

lawmakers on Tuesday, just days before she

presents the Union budget.

Sitharaman’s statement indicates the National

Democratic Alliance government is likely to announce measures to boost business

confidence and attract private investments that the economy needs to accelerate growth

in the budget to be presented on Friday. She may also offer incentives that will

encourage job creation, especially in labour-oriented sectors such as textiles and real

estate.

The Modi administration, which had drawn criticism in its previous term for disruptions

in economic activity caused by the 2016 currency ban and the initial glitches in the roll-

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8 CITI-NEWS LETTER

out of the goods and services tax, is consulting economists and chief ministers before

drawing up a road map for economic reforms for the next five years.

“Economic growth is high on the agenda of the government. Various reforms are being

undertaken by the government in many spheres to improve GDP growth... Further, to

give focused attention to issues of growth, government has constituted a five-member

cabinet committee on investment and growth chaired by the Prime Minister,"

Sitharaman said in her written reply to a question in the Rajya Sabha.

Sitharaman said the moderation in economic growth momentum in FY19 was primarily

on account of slower growth in the farm and allied sectors.

She, however, denied that demonetization has had any harmful effect on the Indian

economy. Growth in the manufacturing sector has slowed, but it is not attributable to

demonetization, news agency PTI said, citing Sitharaman.

India’s economy expanded at 5.8% in the March quarter, its slowest pace in nearly five

years, according to data from the statistics ministry.

The minister said the economy was still growing faster than the US and China.

In response to another question on the economy, the minister said the aim was to create

a conducive environment for the manufacturing sector by streamlining regulations and

processes.

India’s businesses are hoping for a cut in the corporate tax rate from the budget and

expect banks to pass on the reduction in the Reserve Bank of India’s benchmark policy

rates.

They are also hoping for easier land and labour policies.

According to the latest government data, India’s factory output picked up in April to hit

a six-month high.

Data released by the National Statistical Office on 12 June showed the index of

industrial production expanded at 3.4% in April from 0.3% a month ago.

Sitharaman also said in response to another question that state-run banks had

classified ₹1.5 trillion worth of loans as “wilful defaults" in FY19, with the biggest

lender, State Bank of India (SBI), accounting for nearly a third of the amount.

SBI recorded wilful defaults worth ₹46,158 crore, while Punjab National Bank

reported ₹25,090 crore and Bank of India₹9,890 crore, Sitharaman said in her

reply, Reuters reported.

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9 CITI-NEWS LETTER

GST may become two-tier tax with merger of 12%, 18% slabs: Arun Jaitley


Jaitley said that most items of consumer use have been brought in the 18 per cent, 12 per

cent and even 5 per cent category.

Former finance minister Arun Jaitley said policymakers could merge the 12% and 18%

slabs under the goods and services tax going forward as revenue increases, thereby

effectively making it a two-tier tax. Jaitley made the suggestion in a Facebook post on

the second anniversary of the GST roll out. He had opted out of the new government due

to health reasons. The former finance minister, who had led the GST talks with states,

said as many as 20 states were already showing more than a 14% increase in their

revenue. These states no longer require the Centre to compensate them for revenue loss

arising out of the GST implementation, he said. Under the GST framework, most items

of consumer use have been brought in the 18%, 12% and even 5% category, Jaitley said.

The GST Council, chaired by the union finance minister and comprising finance

ministers of states, has reduced tax rates over the last two years, leading to a revenue

loss of more than Rs 90,000 crore, he said. “Except on luxury and sin goods, the 28%

slab has almost been phased out. Zero and 5% slabs will always remain,” he said.

Observing that a sudden reduction of tax rates on all categories of goods could lead to a

massive loss of revenue for the government leaving it without resources to spend Jaitley.

After the roll out of the tax system in July 2017, the average monthly GST collection in

that fiscal year was Rs 89,700 crore. In the next year (2018-19), the monthly average

increased by about 10% to Rs 97,100 crore. “The fear of the states today is that for the

first five years they get a guaranteed 14% increase. The lurking doubt is as to what will

happen after five years? Every state has been paid its share of tax as also from the

compensation fund, if necessary. We have just completed two years of GST,” Jaitley

said. A single-slab GST is possible only in extremely affluent countries where there are

no poor people, he said, adding that it would be inequitable to apply a single rate in

countries where there are a large number of people below the poverty line. “In the pre-

GST regime, the rich and the poor, on various commodities, paid the same tax. The

multiple slab system not only checked inflation, it also ensured that the aam aadmi

products are not exorbitantly taxed,” he said, adding: “A hawai chappal and a Mercedes

car cannot be taxed at the same rate.” This, however, is not to suggest that the

rationalisation of slabs is not needed, he said. “That process is already on.” The GST

system currently has four slabs — 5%, 12%, 18% and 28%. On top of the 28% slab, a cess

is levied on automobiles, luxury, demerit and sin

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Export-promotion forum, trade fair to boost farm cooperatives: Govt

(Source: Subhayan Chakraborty, Business Standard, July 02, 2019)

The international trade fair will be held by the agriculture ministry and will be

supported by the commerce and external affairs ministries

The government has announced that an export-promotion forum for the cooperative

sector will be created soon. An international trade fair will also be organised on October

11-13.

The forum will be set up under the National Cooperative Development Corporation

(NCDC), after consultations with 20 states and three Union territories, said Commerce

and Industry Minister Piyush Goyal and Agriculture Minister Narendra Singh Tomar on

Tuesday.

The government hopes this will work as an exchange platform for the cooperatives. Both

ministries have committed to establish a framework to double farm exports from Rs

2.75 trillion to about Rs 7 trillion by 2024-25.

There are more than 800,000 cooperative institutions in India; 94 per cent of 1.5

million farmers in the country are members of at least one cooperative.

Along with this, a trade fair will be held by the agriculture ministry and will be

supported by the commerce and external affairs ministries. The latter is expected to ask

India’s diplomatic missions abroad to get foreign participants for the fair.

While cooperatives from the farm sector will be the primary participants, cooperatives

from other fields such as textiles and leather may also be allowed.

The trade fair, to be organised jointly by commerce, agriculture and external affairs

ministries with support of cooperative bodies such as the NCDC and the Agricultural

and Processed Food Products Export Development Authority, will provide direction to

exporting value-added agriculture products.

Goyal said the fair will be instrumental in disseminating global demand and engaging

with industry players from other nations. “Technology has not yet comprehensively

reached our farm sector. The fair will provide our cooperatives ways to do this,” he

added.

Last year, the government had unveiled an ambitious agriculture export policy that

seeks to double agriculture exports to $60 billion by 2022 and do away with arbitrary

curbs on exports. However, the policy found little support from experts who termed the

target “highly ambitious”, given how exports had fallen from nearly $40 billion five

years back to $36 billion in 2017-18.

https://www.business-standard.com/topic/trade-fair

https://www.business-standard.com/topic/trade-fair

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11 CITI-NEWS LETTER

Despite India occupying a pole position in global trade of these products, its total

agriculture export basket still accounts for only a little over 2 per cent of world agri

trade, estimated at a $1.37 trillion.

Aiming to push India into the list of the top 10 agri export nations, the policy has been

backed by the Prime Minister’s Office.

The aim to remove curbs on exports also had not found much traction among experts. If

previous experience is any indication, the government tends to clamp down on exports

at the slightest hint of rising inflation, they said.

The commerce department has suggested tying the policy to logistics support, a better

trade regime, and states-led product development to connect farmers to global markets.

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Senior officials of India and the US are likely to meet next week here to discuss trade

related issues, sources said Tuesday.

A team of US Trade Representative (USTR) is expected to hold the meeting with senior

officials of the commerce department, they said.

This would be the first meeting on trade issues after the meeting of Prime Minister

Narendra Modi with US President Donald Trump in Japan at the sidelines of the G20

summit.

The trade talks between the two countries slowed down after the US rolled back export

incentives from India under their GSP programme. India too has imposed additional

customs duties on 28 US products.

There are certain irritants which both the countries wants to sort-out to push the

bilateral trade. The US wants greater market access for its dairy products and cut in

customs duties in ICT products. The American companies have also raised concerns

over price cap on certain medical devices by India.

Stating that the US has taken a "unilateral position" in rolling back export incentives

from India, the government has asserted that it would not allow trade negotiations to

overtake issues of national interest.

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12 CITI-NEWS LETTER


(Source: Bharani Vaitheesvaran, Economic Times, July 02, 2019)

The companies are worried because the increasing imports of readymade garments are

hurting them in the local market even as they grapple with tepid growth in exports.

Concerned about increasing imports from

Bangladesh, garment makers from the industrial

clusters of Coimbatore and Tirupur in Tamil Nadu

have approached the central government, seeking

its assistance in getting supply contracts from

Indian retailers and brands.

The Indian Texpreneurs Federation (ITF), an association of more than 560 textile

establishments with a combined turnover of over Rs 40,000 crore, wrote to textile

minister Smriti Irani in early June, seeking her ministry’s intervention.

The companies are worried because the increasing imports of readymade garments are

hurting them in the local market even as they grapple with tepid growth in exports.

“Indian clusters can better serve the sourcing needs of both Western and Indian brands

than products sourced from Bangladesh, Sri Lanka or Indonesia,” the federation said in

the

According to data collated by ITF, textile imports from Bangladesh jumped 53% in fiscal

year 2018-19 to $1.07 billion (Rs 7,500 crore). Local entrepreneurs fear neighbours like

Bangladesh will edge them out in the Indian market due to the advantages they enjoy

such as lower manufacturing costs and free-trade agreements (FTAs) that create a duty-

free expressway for their products into this country.

The challenge from Bangladesh is also affecting India’s prospects in the international

market. According to an ITF survey of more than 320 participants in the Indian textile

industry, cost ineffectiveness, narrow focus on target countries and labour shortage are

top reasons Indian exporters are unable to pip those from the neighbouring country in

the export markets.

“We are hoping that the Indian government will help us engage with brands, retailers

who might look at sourcing from India,” said Prabhu Damodharan, the convenor for ITF

and a mill owner in Coimbatore.

After the implementation of GST, India had removed a 12% countervailing duty on

imports from Bangladesh.

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13 CITI-NEWS LETTER

India could face productivity loss equivalent to 34 million jobs in 2030 due

to global warming: UN


Accumulated global financial loss due to heat stress is expected to reach $2,400 billion by

2030

India is projected to lose 5.8 per cent of working hours in 2030, a productivity loss

equivalent to 34 million full-time jobs, due to global warming, particularly impacting

agriculture and construction sectors, a report by the UN labour agency said. The

International Labour Organization (ILO) released its report 'Working on a Warmer

Planet - The Impact of Heat Stress on Labour Productivity and Decent Work' which said

that by 2030, the equivalent of more than two per cent of total working hours worldwide

is projected to be lost every year, either because it is too hot to work or because workers

have to work at a slower pace. "Projections based on a global temperature rise of 1.5°C

by the end of the twenty-first century, and also on labour force trends, suggest that, in

2030, 2.2 per cent of total working hours worldwide will be lost to high temperatures - a

productivity loss equivalent to 80 million full-time job," the report said. It said that the

accumulated global financial loss due to heat stress is expected to reach USD 2,400

billion by 2030. "If nothing is done now to mitigate climate change, these costs will be

much higher as global temperatures increase even further towards the end of the

century," the report said. Countries in Southern Asia are the most affected by heat stress

in the Asia and the Pacific region and by 2030, the impact of heat stress on labour

productivity is expected to be even more pronounced.

In particular, up to 5.3 per cent of total working hours (the equivalent of 43 million full-

time jobs) are projected to be lost, with two-thirds of Southern Asian countries facing

losses of at least two per cent. In a dire warning, the report said that the country most

affected by heat stress is India, which lost 4.3 per cent of working hours in 1995 and is

projected to lose 5.8 per cent of working hours in 2030. Because of its large population,

India is in absolute terms expected to lose the equivalent of 34 million full-time jobs in

2030 in productivity as a result of heat stress. "Although most of the impact in India will

be felt in the agricultural sector, more and more working hours are expected to be lost in

the construction sector, where heat stress affects both male and female workers," it said.

National-level GDP losses are projected to be substantial in 2030, with reductions in

GDP of more than five per cent expected to occur in Thailand, Cambodia, India and

Pakistan due to heat stress. Heat stress is defined as generally occurring at above 35

degrees Celsius, in places where there is high humidity. Heat stress affects, above all,

outdoor workers such as those engaged in agriculture and on construction sites. Excess

heat at work is an occupational health risk and in extreme cases can lead to heatstroke,

which can be fatal, the UN agency said. The report also noted that the western Indian

city of Ahmedabad incorporated a cool roofs initiative into its 2017 Heat Action Plan,

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14 CITI-NEWS LETTER

notably by providing access to affordable cool roofs for the city's slum residents and

urban poor, ie those who are most vulnerable to the health effects of extreme heat. The

initiative aims to turn the roofs of at least 500 slum dwellings into cool roofs, improve

the reflectivity of roofs on government buildings and schools, and raise public

awareness. "The impact of heat stress on labour productivity is a serious consequence of

climate change," said Catherine Saget, Chief of Unit in the ILO's Research department

and one of the main authors of the report. "We can expect to see more inequality

between low and high-income countries and worsening working conditions for the most

vulnerable." With some 940 million people active in agriculture around the world,

farmers are set to be worst hit by rising temperatures, according to the ILO data, which

indicates that the sector will be responsible for 60 per cent of global working hours lost

from heat stress, by 2030. Construction will also be "severely impacted", with an

estimated 19 per cent of global working hours lost at the end of the next decade, ILO

says. Other at-risk sectors include refuse collection, emergency services, transport,

tourism and sports, with southern Asian and western African States suffering the biggest

productivity losses, equivalent to approximately five per cent of working hours by 2030

The report noted that a labour market challenge pertains to the high rates of informality

in the region, particularly in Southern Asia and South-East Asia. As many as 90 per cent

of all workers in India, Bangladesh, Cambodia and Nepal work informally. Although the

prevalence of informality can to a great extent be explained by the high share of

employment in agriculture, informality is also pervasive in other sectors, including

construction, wholesale and retail trade, and the accommodation and food service

industries. "Temperatures exceeding 39°C can kill. But even where there are no

fatalities, such temperatures can leave many people unable to work or able to work only

at a reduced rate. Some groups of workers are more vulnerable than others because they

suffer the effects of heat stress at lower temperatures," the report said. Older workers, in

particular, have lower physiological resistance to high levels of heat and represent an

increasing share of workers - a natural consequence of population ageing.

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UAE says approves full foreign ownership of firms


The United Arab Emirates said Tuesday it had decided to lift a decades-old cap on

foreign ownership and allow full foreign control of business ventures.

"In a cabinet meeting I chaired in Abu Dhabi, we approved 100 percent foreign

ownership in 122 economic activities," UAE vice president and prime minister Sheikh

Mohammed bin Rashed Al-Maktoum said on Twitter.

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15 CITI-NEWS LETTER

The decision abolishes a decades-old law that limits foreign ownership to just 49 per

cent.

The move covers "fields including agriculture, manufacturing, renewable energy, e-

commerce, transportation, arts, construction and entertainment," Sheikh Mohammed

added.

The seven Sheikhdoms that comprise the UAE will have the discretion to specify their

own ceilings for foreign ownership of key business sectors, a government statement

said.

To dodge the 49-percent limit, some emirates led by Dubai have long established free

trade zones where foreigners can own up to 100 percent of their business.

Sheikh Mohammed said Tuesday's decision opens the UAE economy to all nationalities

so as "to make it one of the best destinations for global investments."

The cabinet decision essentially opens up 13 major economic sectors in the Arab world's

second largest and most diversified economy.

The capital Abu Dhabi sits on the majority of the UAE's vast oil reserves and pumps

close to three million barrels per day.

The UAE is already the Arab world's top recipient of foreign direct investment,

attracting more than USD 11 billion last year.

But economic growth was lacklustre last year, registering 1.3 per cent.

To counter the slowdown, authorities have introduced a range of measures, including

permanent residency schemes.

Expatriates, mostly Asians, form some 90 per cent of UAE's population of 10 million.

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Bangladesh seeks to synergise India ties

(Source: Asian Age, July 03, 2019)

Syed Muazzem pointed out trade, investment, connectivity and energy as the three key

areas of immediate focus.

Bangladesh high commissioner to India Syed Muazzem Ali listed security, fight against

terrorism, energy cooperation, bilateral and sub-regional connectivity, water sharing,

trade and investment, lines of credit, defence cooperation and people-to-people contact

as key features of India-Bangladesh relations.

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16 CITI-NEWS LETTER

“We need to combine our synergies in different areas for mutual benefits of both the

countries as well as of the region,” he said on Tuesday while speaking at an event.

Syed Muazzem said Bangladesh looks forward to taking full advantage of the high

growth of the Indian economy to further her own economic development. “A fast

developing Bangladesh also offers opportunities to India to further deepen its economic

relations,” he said.

He pointed out trade, investment, connectivity and energy as the three key areas of

immediate focus.

Quoting the Indian Prime Minister Narendra Modi, Mr Syed Muazzem said Bangladesh-

India relation is passing through a “Golden Chapter” or “Sonali Adhyay” and has

presently emerged as a “role model” for “neighborhood diplomacy” and countries in

other parts of the world should follow this model of “neighborhood relations”.

Referring to the Rohingya refugees in Bangladesh, the ambassador said Bangladesh

seeks continuous support of India and international community to put pressure on

Myanmar for taking back their citizens.

“The ultimate solution to the crisis can come only when Myanmar recognizes Rohingyas

as their citizens and takes over a million of refugees back home. We are working on safe

repatriation of the Rohingyas,” he said.

Home

Does India really need a direct tax code?

(Source: Sanjay Sanghvi, Economic Times, July 03, 2019)

A new law is certain to consume precious time and energy for all stakeholders.

The Union Budget may be around the corner. But the task force set up by the finance

ministry on the new direct taxes code (DTC) is scheduled to submit its draft by July 31.

The task force was mandated to draft a new law to bring income tax in line with global

best practices, while also addressing India’s economic needs. Recently, the terms of

reference was expanded to include faceless tax assessments, introducing amechanism

for cross-verification of financial transactions, reduction in compliances, litigation and

sharing of information among various economic agencies of the govt. While its stated

objective is worth appreciating, the odds against introducing DTC are high, compared to

ensuring that the existing income-tax law is administered rationally and with fairness. A

new law is certain to consume precious time and energy for all stakeholders —

taxpayers, tax authorities, tax advisers, the judiciary — in their need to unlearn the

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17 CITI-NEWS LETTER

existing law and to learn the new code from scratch. Having said that, the Income-Tax

Act has been amended several times to keep up with changing business dynamics.

Whether these amendments have been measures to counter base erosion and profit

shifting (BEPS), or to instal ‘place of effective management’ (POEM) guidelines in

corporate taxation, the legislature has kept pace with the country’s economic needs. But

one is left unsure as to what specific change is being sought to be brought in by having a

new tax law altogether, instead of bringing it under the existing Income-Tax Act. It is

well-known that tax administration has been the biggest litigator in this country. While

GoI has taken steps towards doing away with litigation of small tax amounts where cases

are in favour of taxpayers at the appellate level, there remains a substantial backlog of

cases across all appellate fora and courts. It is unclear whether bringing in DTC will add

to or subtract from the present pile-up. Under the Income-Tax Act, several significant

provisions have attained some certainty, thanks to judicial adjudication by tax tribunals

and courts over time. As was highlighted by the Supreme Court in the Vodafone case in

2012, certainty and stability of law is fundamental for any fiscal statute. If a new tax

code is introduced now, it would seem that such ‘certainties’ will need to be redefined all

over again. Instead of a new tax code, what is needed is a fair and reasonable

administration of existing tax laws as contained in the Income-Tax Act, 1961. With the

introduction of the general antiavoidance rule (GAAR) in the Income-Tax Act,

‘aggressive tax planning’ on the part of taxpayers stands sufficiently addressed. Then

there’s the matter of treaty abuse by ‘third country’ parties. The terms of reference of the

task force are laudable. But these, too, can be made part of the Income-Tax Act and

implemented to reduce tax disputes in India. For instance, how does one reduce tax

litigation when foreign direct investment into an Indian operating company from a

prominent foreign economy is treated as unexplained cash credit (read: black money) in

the tax assessment of the Indian company? Once again, fair and reasonable

administration of tax laws, coupled with accountability of field officers, needs to be

pushed as a solution. It is also not very clear whether the proposed DTC will articulate

the provisions of incometax law in a totally different manner, the new law being

considered ostensibly to simplify matters and introduce best international practices.

One hopes that GoI carefully considers the pros and cons of introducing the new tax

code. It should also consider streamlining the existing Income -Tax Act instead of

introducing DTC.

Home

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18 CITI-NEWS LETTER

GLOBAL:

Christine Lagarde nominated as president of European Central Bank


International Monetary Fund Managing Director Christine Lagarde was on Tuesday

nominated as the president of the European Central Bank, following which she

announced to temporarily relinquish her responsibilities as head of IMF.

The nomination means Lagarde will step down two years before the end of her second

five-year term at the helm of the IMF.

I am honoured to have been nominated for the Presidency of the European Central

Bank, Lagarde said in a statement issued at the IMF headquarters here.

In light of this, and in consultation with the Ethics Committee of the IMF Executive

Board, I have decided to temporarily relinquish my responsibilities as Managing

Director of the IMF during the nomination period, Lagarde said.

Lagarde would succeed Mario Draghi, whose term ends on October 31.

Lagarde's second term in office coincided with the rise of US President Donald Trump

and a wave of confrontations among major economies over trade, which the former

French finance minister described as a singular threat to the world economy.

Lagarde has at the same time acknowledged the strains caused by globalisation, which

has disrupted industries and marginalised some workers.

Home

Trade war: US manufacturing slows to a 3-year low

(Source: The Hindu BusinessLine, July 02, 2019)

The index of national factory activity dropped to 51.7 in June, the third straight monthly

decline.

US manufacturing activity slowed to near a three-year low in June, with a measure of

new orders received by factories tumbling, amid growing anxiety over an escalation in

trade tensions between the United States and China.

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19 CITI-NEWS LETTER

Other data on Monday showed construction spending unexpectedly fell in May as

investment in private construction projects dropped to its lowest level in nearly two and

a half years. The reports were the latest indications that economic growth slowed in the

second quarter after getting a temporary boost from exports and an accumulation of

inventory.

While the slowdown in factory activity was not as steep as had been flagged by some

regional factory surveys, a sharp drop in a gauge of prices paid by manufacturers could

be yet another reason for the Federal Reserve to consider cutting interest rates this

month. The US central bank last month signalled it could ease monetary policy as early

as this month, citing low inflation and growing risks to the economy from US-China

trade tensions.

“Manufacturing is clearly taking it on the chin from the rising trade uncertainty,” said

Chris Rupkey, chief economist at MUFG in New York.

The Institute for Supply Management (ISM) said its index of national factory activity

dropped to 51.7 last month, the lowest reading since October 2016, from 52.1 in May. It

was the third straight monthly decline in the index.

A reading above 50 indicates expansion in the manufacturing sector, which accounts for

about 12 percent of the US economy. Economists polled by Reutershad forecast the ISM

index would fall to 51.0 in June.

‘Trade turbulence’

The ISM said businesses “expressed concern about US-China trade turbulence.” They

were also spooked by potential tariffs on Mexican imports, which were averted at the

eleventh hour.

The United States’ bitter trade war with China has hurt business sentiment. That,

together with disruptions to supply chains caused by import tariffs, is weighing on

manufacturing.

US President Donald Trump and Chinese President Xi Jinping on Saturday agreed to a

trade truce and a return to talks. But Trump said he was “in no hurry” to cut a deal and

Chinese state media warned there was no guarantee an agreement would be reached.

Trump in May raised import tariffs on $200 billion in Chinese goods, prompting Beijing

to retaliate.

Slowing economy

Manufacturing is also taking a hit from an inventory overhang, which has resulted in

businesses placing fewer orders with manufacturers. A reduction in the production of

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20 CITI-NEWS LETTER

Boeing's MAX 737 aircraft, which was grounded in March after two fatal plane crashes

in five months, is also a drag on activity.

The weakness in factory activity is in sync with a slowdown in economic growth

following a temporary boost from exports and an accumulation of inventory. Consumer

spending is rising moderately, while the pace of job and wage growth has slowed. In

addition, the housing market is struggling and the goods trade deficit widened in May.

The ISM's forward-looking new orders sub-index decreased 2.7 points to a reading of

50.0 last month, the lowest reading since December 2015. A measure of prices paid by

manufacturers tumbled 5.3 points to 47.9.

Computer and electronic products manufacturers complained that “China tariffs and

pending Mexico tariffs are wreaking havoc with supply chains and costs” and described

the situation as “crazy.” Transportation equipment manufacturers said “demand for the

remainder of 2019 has softened significantly, due to issues in the aerospace industry.”

“While manufacturers' worst fears about an all-out trade war with China developing

imminently have been allayed, uncertainty about the structure of future trading

relations continues to linger,” said Sarah House, a senior economist at Wells Fargo

Securities in Charlotte, North Carolina.

“We suspect factory activity will continue to struggle in the second half of the year.”

Improving sentiment

However, there were some glimmers of hope for manufacturing. Factories reported

hiring more workers, which included replacing retiring workers and adding summer

help. The survey's factory employment gauge rose to 54.5 from 53.7 in May.

That pointed to a moderate pick-up in manufacturing payrolls in June after they were

almost flat in May. It also suggested an improvement in overall job growth last month

after non-farm payrolls increased by only 75,000 in May.

The government is scheduled to publish June's employment report on Friday.

Suppliers' deliveries are improving. While a measure of inventories contracted for the

first time since December 2017, with many manufacturers saying they continued to align

stocks with softening demand, more customers viewed inventories as too low, which

could lead to some increase in orders.

Stocks on Wall Street were trading higher, with the S&P 500 index hitting an all-time

high, as technology stocks gained on a likely reprieve for Chinese telecoms company

Huawei. The dollar rose against a basket of currencies, but US Treasury prices fell.

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21 CITI-NEWS LETTER

Despite the persistent weakness, US manufacturing is in relatively better shape

compared to the rest of the world. Reports on Monday showed factory activity shrinking

across much of Europe and Asia. The ISM said 12 industries, including machinery,

computer and electronic products, textile mills, furniture and electrical equipment,

appliances and components reported growth last month. Apparel and transportation

equipment were among the five industries reporting a contraction.

A separate report from the Commerce Department on Monday showed construction

spending declined 0.8 per cent in May, the biggest drop since last November, after rising

0.4 per cent in April. Construction spending surged in the first quarter, boosted by

increased investment in roads and highways by state and local governments.

Home

Pakistan: Govt allows duty-free cotton import till July 31

(Source: The News, July 03, 2019)

The government has silently granted extension to duty-free import of cotton by another

month, contrary to the demands of most of the stakeholders, sources said.

The Economic Coordination Committee (ECC) of the Cabinet last week accorded

permission to give total exemption of 11 percent duty and taxes on cotton import. This,

the sources added was unlike the previous year’s practice, and favoured the textile lobby.

The recommendation came from Abdul Razak Dawood, advisor for textile, commerce,

industry and production, and investment. The government silently gave the extension

on June 30, 2019, and contrary to previous practices, did not announce the formal

decision after the ECC meeting.

The decision was against the recommendations of the non-partisan Parliamentary

Committee on Agriculture. In its unanimous recommendations, the Parliamentary

Committee asked for restoration of regulatory import duty on cotton to prevent its

massive import and dumping, and to enable farmers receive international parity price.

Ministry of National Food Security and Research also supported withdrawal of

exemption given on cotton imports to give incentives to local farmers to grow the silver

fibre on greater area. Almost all farmer bodies vehemently oppose the import of cotton

right in the middle of cotton cultivation season.

Pakistan Kissan Ittehad (PKI) has forcefully backed domestic production of cotton by

giving incentives to local farmers. The unabated import of cotton would ruin local

growers, as price of lint would crash in the market, warned PKI.

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22 CITI-NEWS LETTER

The price of fresh cotton was already below Rs3,000/maund in Sindh, much lower than

the due price, it added. The decision might discourage growers from tending their

standing crops against pest attacks, which could also impact total output of the silver

fibre.

Cotton ginners were also unhappy with the inconsistent policy for dealing with the

cotton market. Ihsanul Haq, senior member of Pakistan Cotton Ginners Association

(PCGA) said frequent changes in policy for cotton trade made this business riskier,

which was always unwelcomed by ginners.

PKI President Khalid Khokhar said the regulatory measures being taken by the federal

government were against its policy of increasing cotton production in the country.

Textile bodies, including the All Pakistan Textile Mills Association (APTMA) have hailed

the federal government's decision to continue the policy of duty-free cotton import.

APTMA spokesman said cotton import was necessary for meeting the requirement of

local industry. He brushed aside the notion that farmers would be adversely affected

from the imports. “Local cotton is yet to start arriving in the market,” he added.

Home

Apparel sector urged to develop supporting industry to optimise EVFTA

(Source: Vietnam Plus, July 02, 2019)

Insiders have recommended Vietnam pay attention to developing weaving and other

production activities supporting the textile-garment sector to make best use of the

EVFTA, a freshly-inked free trade agreement with the European Union.

In 2018, the textile-garment sector posted year-on-year exports growth of more than 16

percent to surpass 36 billion USD, making Vietnam the world’s third biggest exporter of

these products, after China and India.

Based on these figures, the Vietnam Textile and Apparel Association (VITAS) believes

the export target of 40 billion USD for 2019 is achievable, thanks in part to FTAs,

including the one with the EU – the second biggest market for Vietnamese textile and

garment products.

VITAS Chairman Vu Duc Giang said the EVFTA, signed in Hanoi on June 30, promises

apparel export potential of more than 100 billion USD annually. Textiles and garments

shipped to the EU are currently subject to export tariffs of 9.6 percent, but when the

EVFTA takes effect, the rate will be gradually reduced to zero percent in seven years.

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23 CITI-NEWS LETTER

He noted most of the countries exporting textiles and garments to the EU don’t have

FTAs with the bloc. Therefore, if Vietnamese firms meet origin requirements, the

EVFTA will open up enormous opportunities for exports.

Managing Director of the Vietnam National Textile and Garment Group Cao Huu Hieu

said that to be exempt from tariffs, apparel products must satisfy two conditions: the

fabric used to make apparel must hail from Vietnam or the EU, and the production

process must be carried out in Vietnam or the EU.

However, the EVFTA is also flexible, he said, elaborating that apparel products can also

benefit from preferential tariffs under this deal if the material fabric comes from the

countries that have FTAs with both the EU and Vietnam, such as the Republic of Korea.

VITAS Chairman Giang pointed out that although the rules of origin in the EVFTA are

not as strict as in the Comprehensive and Progressive Agreement for Trans-Pacific

Partnership (CPTPP), Vietnamese firms still face several challenges because most of

them have just engaged in cutting and sewing steps while not producing fabric and yarn.

Additionally, most production materials still come from China, which doesn’t have a

trade deal with the EU.

To capitalise on the EVFTA, he urged domestic businesses to develop weaving and the

supporting industry to provide materials for the sector.

They also need to use more fabric from the Republic of Korea to make use of the trade

pact pending the supporting industry’s development. Under the EVFTA, companies can

also import materials from Europe to improve their products’ quality and value, he

added.

According to Director General of the Garment 10 Corporation Than Duc Viet, his

company has high hopes for the EVFTA, and has made preparations to capitalise on this

deal.

Exports now account for 80 percent of Garment 10’s total revenue, with 45 percent of

export turnover from the US, 35 percent from Europe, and 10 percent from Japan.

These figures will change when FTAs come into force as the firm will receive more

orders, he noted, adding that the business has made plans to connect its domestic

supply chain to satisfy origin requirements

Home

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24 CITI-NEWS LETTER

Pakistan: Razak emphasis for role of Chinese investors in local textile

sector

(Source: Business Recorder, July 03, 2019)

The Adviser to Prime Minister on Commerce, Textiles, Industries and investment, Abdul

Razak Dawood on Tuesday underlined the significance of investment opportunities for

Chinese investors in textile sector for industrial cooperation and growth.

Razak appreciated the role of Chinese Companies in textile sector of Pakistan and urged

the Chinese delegation to have more extended cooperation in the textile sector, said a

press release issued by Ministry of Finance here.

A Chinese delegation of National Textile and Apparel Council (CNTAC) was called on

Abdul Razak Dawood to deliberate upon bilateral trade and investment opportunities.

CNTAC is the National Federation of all textile-related industries, as it includes the

textile industrial associations and the other economic entities as the registered

members.

Members of the delegation showed interest in technology up gradation in Pakistan by

investing in Textile Research Centers and Stitching Labs.

Adviser to PM emphasized to enhance know-how regarding Chinese technological

advancement in textile sector and urged the delegation to cooperate in the development

of textile sector to avail investment opportunities for developing better partnership.

He appraised the delegation that China Pakistan Economic Corridor (CPEC) has opened

enormous investment and business opportunities in Pakistan.

In the first phase of the project investment was only attracted to power sector and

infrastructure development, he added.

Now “we are entering into second phase of CPEC, as industrial cooperation, which

provides enormous opportunities for investment in textile and agriculture. Moreover, in

the wake of China-Pakistan Free Trade Agreement (FTA) Phase-II bilateral cooperation

between two countries is widening by providing extended market access to Pakistani

product in Chinese market which has increased industrial base of Pakistan, adviser

highlighted.

Razak said Chinese companies should invest in whole value chain of textile, from cotton

to garment, for the development of sector and both countries should work for win-win

position.

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25 CITI-NEWS LETTER

He apprised the participant that China has already cooperated in manufacturing of

polyester yarn in Pakistan and eying for extended mutual cooperation in finished/value

added products of textile sector.

Head of CNTAC delegation appreciated the Pakistan’s business friendly environment for

better cooperation in industrial development, especially textile industry.

The visit of CNTAC aims to observe the existing business environment for future

investment in industrial development in Pakistan.

Home

EU-Mercosur Trade Deal Opens Opportunity For Textile And Clothing

Companies

(Source: Textile World, July 02, 2019)

EURATEX, the European Apparel and Textile Confederation, welcomes the conclusion

of negotiations for a comprehensive and ambitious Free Trade Agreement between the

European Union and Mercosur (Argentina, Brazil, Paraguay and Uruguay).

EURATEX has been actively engaged in the negotiation process to ensure an agreement

fit for textile and clothing companies, also preserving social and environmental

standards in the manufacturing of high-quality products. “Despite a challenging trade

environment, we are glad rules-based trade has prevailed” stated Alberto Paccanelli,

EURATEX president.

The EU-Mercosur FTA is the largest trade agreement ever concluded by the European

Union, covering a population of 780 million. According to the EU, this agreement will

save European companies over 4 billion euros in duties. For the textile and clothing

industry in particular tariffs have been very high, reaching 35% in Brazil.

“In 2018 EU exports of textile and clothing products to Mercosur were 460 million

euros and the elimination of tariffs will open further business opportunities for our

sector” added Paccanelli, “We look forward to a swift approval by the European Council

and the European Parliament.”

Home

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