As per the finance ministry from September 21, 2020, importers need to furnish proof of 35 per cent value addition in goods from the country of origin to claim duty concession under free trade agreements FTAs), without which they will not get benefits.
A provision on verifying rules of origin of imports under FTAs was incorporated into the Customs Act during the budget session of Parliament in February 2020. The rules in implementing this were issued in August 2020. The Customs department will now tighten its inspection of imports of mobiles, white goods, set-top boxes, cameras and other electronic products, and agarbattis from countries with which India has FTAs.
The new rules will be a change from the present ones by which a ‘country of origin’ certificate, issued by a notified agency in the country of export, is produced by the importer, who has no additional obligation even though he claims considerable benefit.
The new rules mandate that goods must now undergo some appreciable transformation (as prescribed for products separately in the FTA by way of product-specific criteria). For example, if a mobile is exported from Indonesia to India, it would qualify to be of Indonesian origin only if it is made there and 35 per cent of its FoB (free on board) value is the Southeast Asian country’s contribution.
This move is aimed at preventing duty evasion through routing exports to India under FTAs, but the industry fears it will result in a compliance burden, as importers may not get the required documents from exporters.
As per sources from the finance ministry, such a step was necessary in view of the rising misuse and foul play in FTAs. Over the past five years, the Customs authorities have detected fraudulent claims of Rs 1,200 crore. It also became expedient because it did not benefit the country the way it was expected to.
FTAs were expected to be mutually beneficial to all partner countries, but this was not the case. While India’s exports to FTA partners remain almost flat, imports have risen rapidly, widening the trade deficit.
In the case of Asean (Association of Southeast Asian Nations), the merchandise trade gap had risen from $5 billion in 2010, when the Asean FTA was implemented, to more than $22 billion at present.
The same is the case with Singapore and the trade deficit with the country stands at more than $4 billion. The trade gap has also widened with Malaysia, Thailand, and Indonesia.
Moreover, an investigation has found that TVs, mobiles, set-top boxes, telecom network products, and metals from FTA countries did not meet the prescribed origin criterion. In 2019, the Directorate of Revenue Intelligence had detected a large-scale fraud by which areca nut from a non-FTA country was imported into India from an FTA partner, duly covered by incorrect certificates of origin.
Courtesy: Business Standard, Sept 19, 2020