Dollar rises as Fed cuts borrowing cost

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Arun Goyal | 05 May, 2008
The dollar rose against the euro and traded near a two-month high versus the yen on speculation the Federal Reserve will signal that it's close to pausing after six interest-rate reductions.

The US currency headed for its first monthly advance this year against the yen and euro as traders increased bets the Fed will stop lowering borrowing costs after the quarter-percentage point reduction.

The pound is set for its biggest monthly loss this year against the dollar after a central bank report showed mortgage approvals sank to the lowest level since 1999.

The dollar was at $1.5574 per euro on April 29 in New York, from $1.5657 on April 28, for a monthly gain of 1.4 percent. It was little changed at 104.09 yen. The euro fell to 162.10 yen from 163.11.

Sales slump:
The European common currency's decline accelerated as Deutsche Bank AG, the world's largest currency trader, reported its first quarterly loss in five years after writing down the value of loans for leveraged buyouts and asset-backed securities by 2.7 billion euros.

Pound weakens:
The pound extended losses against the euro and the dollar after the Bank of England said banks granted 64,000 loans for house purchase in March, down from 115,000 in the same month last year, as the credit-market freeze prompted banks to reduce lending.

The pound fell to $1.9743 per dollar, from $1.9914 on April 28, dropping 0.5 percent this past month. The British currency dropped to 78.89 pence per euro, from 78.62 pence.

Dollar bonds yields have improved:
Investors should sell the euro against the dollar over coming weeks because two-year European government notes have lost some of their yield advantage over equivalent U.S. Treasuries, said Citigroup Inc., one of the 10 biggest currency traders.

The yield difference, or spread, between the two securities has fallen to 1.49 percentage points, from 1.85 percentage points on March 31, the most since the euro was launched in 1999.

Temporary decline:
The US dollar has risen 2.7 percent from a record low against the euro of $1.6019 on April 22 when Fed Bank of Dallas President concerned that inflation may build into "a full-blown virus."

The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose to 72.85, from 72.50 on April 28. It fell to a record 70.698 on March 17.

Gains in the dollar may stall at 106.60 yen:
The resistance level for the dollar is a 38.2 percent reversal of its decline to a low of 95.76 yen on March 17 from a high of 124.13 yen on June 22, based on the Fibonacci series of numbers. Resistance is a level where sellers may outnumber buyers.

Procedure for Refund of 4% Special CVD - Undue Enrichment Certificate required:
The Central Board of Excise and Customs issued a clarification circular on 28 April 2008 to give the procedure for refund of 4% Special CVD. It may be recalled that refund of the CVD in VAT paid by a notification.

There were no cases of actual refund since field formations had many doubts on procedures. The intention of giving refund was also under cloud and many felt that the notification was only to placate the EU, US and Japanese complainants at WTO.

The Government had no intention of forking out the duty to the importers who paid the 4% VAT twice, once at the import stage to the Central Government and the second time as VAT to the State Government. The highlights of the procedural circular are:

The scheme of refund of 4% Additional Duty of Customs has been notified through an exemption notification, and hence, the conditions as prescribed only in the said notification will apply. All refund applications under the aforesaid notification shall be received by the concerned field formations in their Centralized Refund Section, and the applicants would be given proper acknowledgment. The status of these refund claims shall also be displayed in the online database of customs duty refunds maintained by the respective Commissionerates.

Time-limit: In the Notification No.102/2007-Customs dated 14.9.2007, no specific time limit has been prescribed for filing a refund application. It has been decided to permit importers to file claims under the above exemption upto a period of one year from the date of payment of duty. Necessary change in the notification is being made so as to incorporate a specific provision prescribing maximum time limit of one year from the date of payment of duty, within which the refund could be filed by any person. Unsold stocks would not be eligible for refunds.

Only a single claim against a particular Bill of Entry should be permitted to be filed within the maximum time period of one year. Filing of refund claim for a part quantity in a bill of entry shall not be allowed except when this is necessary at the end of the one year period. Further, since the Sales Tax (ST) / Value Added Tax (VAT) is being paid on periodical or monthly basis, even in case of bills of entry where the entire quantity of goods are sold within a month, all such cases shall be consolidated in a single refund claim and filed with the Customs authorities on a monthly basis. In other words, there would be a single refund claim in respect of one importer in a month irrespective of the number of Bills of Entry (B/Es) processed by the respective Commissionerate.
With the extension of time limit and the requirement to file claims on a monthly basis, Board feels that the number of refund claims should be manageable for disposal within the normal period of three months. Further, in the absence of specific provision for payment of interest being made applicable under the said notification, the payment of interest does not arise for these claims.

Documents to be enclosed with refund claim: In order to ensure sanction of refund properly, it is clarified that the document evidencing payment of ST/VAT (in original) duly issued by or acknowledged by the concerned ST/VAT authorities shall be submitted by the importer. A certificate from a Chartered Accountant or any other independent authority certifying payment of ST/VAT would not be acceptable in lieu of the original documents.

However, a certificate from the statutory auditor / Chartered Accountant, who certifies the importer’s annual financial accounts under the Companies Act or any statute, correlating the payment of ST/VAT on the imported goods (in respect of which refund is claimed) with the invoices of sale, would be required along with the original tax / duty payment documents as proof of payment of appropriate ST/VAT for the purpose of para 2(d) & (e) of the said notification.

Unjust enrichment: It is not the intention of the Government to allow the importer to recover the 4% CVD from the buyer as well as to claim refund of this amount from Customs. Hence, the principle of unjust enrichment needs to be examined in each case before sanction of refund under this notification.

A certificate from the statutory auditor / Chartered Accountant who certifies the annual accounts of the importer, that the burden of 4% CVD has not been passed on by the importer to the buyer and to fulfill the requirement of unjust enrichment.

It is clarified that the doctrine of unjust enrichment will apply to 4% CVD refunds Scheme under the said exemption notification issued in terms of Section 25(1) of the Customs Act, 1962.

It is clarified that only those cases where 4% CVD was paid on or subsequent to 14.9.2007, will qualify for refunds under this scheme subject to fulfillment of prescribed conditions.

In respect of the doubt that whether the stamping or hand-writing of declaration in the invoice would be acceptable for the purpose of fulfilling the condition as mentioned in para 2(b) of the said notification, it is clarified that a stamp on the invoice (to state that no CENVAT Credit is admissible) should suffice for the purpose of para 2 (b) of the said notification.
On the issue that in case of 4% CVD having been paid through DEPB Scrip, whether refund could be paid by cash, it is clarified that instead of refunding the duty in cash, the amount eligible for refund should be re-credited on the relevant DEPB Scrip.

Agro Trade Barriers Fall as Food Prices Push Doha:
The surge in world food prices is accomplishing what seven years of trade talks haven't: knocking down import barriers.

The Doha round of global trade negotiations has been stalled since 2001 because developing nations have refused to lower import tariffs that protect their farmers and rich countries won't give up farm-price supports. Now, import duties are being slashed from Brazil to Burkina Faso in response to prices that the World Bank says have risen 83 percent the past three years; subsidies in the US and Europe are falling.

Since early 2007, when cereal prices began rising, developing nations have taken a raft of measures to increase imports.

India removed a 36 percent import tariff on wheat flour, and Indonesia eliminated duties on wheat and soybeans. Peru jettisoned tariffs on wheat and corn. Turkey cut import taxes on wheat to 8 percent from 130 percent and on barley to zero from 100 percent. Mongolia scrapped its value-added tax on imported wheat and flour.

Burkina Faso suspended import taxes on four food staples in February after riots in the West African nation over price increases. And Brazil may remove its 10 percent tax on wheat imports. In all, at least 24 nations have reduced duties and value-added taxes, according to an April 9 World Bank report.

Falling subsidies:
In the US, farm subsidies are expected to fall below $8 billion this year, down from $13 billion in 2005, says David Orden, a senior research fellow at the International Food Policy Research Institute. European Union support of farmers fell by 10 billion euros ($15.7 billion) from 2004 to 2006, according to the Organization for Economic Cooperation and Development in Paris.

The current round of World Trade Organization talks was launched in Doha, Qatar, in 2001. The talks among the 151 WTO members have already collapsed twice, in large part over differences on how to cut farm subsidies and tariffs.

Trying again:
Trade negotiators are preparing to try again for a broad agreement in Geneva in the next month or two. A deal might add $100 billion a year to a weakening global economy by spurring trade and growth, according to the World Bank.

After years of protecting domestic production of food staples by penalizing imports, places like Indonesia and the Philippines, the world's largest rice importer, are suddenly welcoming American rice.

Food riots:
Already, rising prices have spurred unrest in Burkina Faso, Cameroon, Egypt, Indonesia, Cote d'Ivoire, Mauritania, Mozambique and Senegal, according to the United Nations. In Pakistan, government troops were deployed in February to guard flour mills. Four persons were killed during food riots in the southern Haitian city of Les Cayes.

WTO negotiators ought to keep all that in mind when they gather to try again in Geneva, and should take advantage of the lowered import restrictions to lock in new trade rules, says Joe Glauber, the chief US agricultural negotiator.