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FTA misuse: FinMin directs customs for strict scrutiny of imports
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SME Times News Bureau | 18 Sep, 2020
Government has directed customs formations across the country for
strict scrutiny of all imports from free trade agreement (FTA) countries
to prevent entry of goods at concessional duty misusing the country of
origin rules.
The idea is to plug third country imports from
countries such as China reach ing India using the concessional duty or
zero-duty benefit available under FT As.
While India has signed
FTAs with several key countries, such as Japan, South Korea, ASEAN
members (which include Thailand, Singapore and Vietnam), it do es not
have a similar arrangement with China.
Finance ministry sources
said that from September 21, when new rules of orig in under FTAs comes
into force, customs officials would strictly verify all major import
consignments to check for any misuse of the trade agreement and would
also need proper verification documents to be provided by importers.
The
FTA imports, particularly of electronic items, refrigerators,
air-conditioner, camera, mobiles and telecom equipment, set-top box,
parts like head phones, camera modules, aggarbatti, and other items in
which rampant misuse is likely, would be under the lens and Importers
claiming benefits will face s trict scrutiny by customs.
From
September 21 the new rules - Customs (Administration of Rules of Origin
under Trade Agreements) Rules, 2020 or CAROTAR comes into effect that
casts a greater onus on the importer to satisfy customs officials that
the goods being imported and claiming FTA benefits meet the 35 percent
value addition in the country of export.
Preferential duty would
be denied if sufficient declaration is not given by the importer. Also,
if it is found that benefit has been wrongly availed in respect of a
consignment, the FTA benefit would be denied in subsequent consignments
of identical goods.
The customs department is explaining the new
Rules and necessary precautions that importers require to take to
comply with these Rules so as to avoid hassles later, said the Finance
Ministry Sources adding that stricter provisions on rules of origin have
been introduced as the domestic industry was claiming serious damage on
accounts of these imports and had been urging the Government to take
strict action to curb such irregular imports done by flouting FTA
provisions.
A look at trade with FTA countries makes this point
clearer. While India's exports to FTA partner countries has remained
flat, imports have risen rapidly with the trade deficit widening from $5
billion in 2000 when ASEAN FTA was implemented to more than $22 billion
now.
Finmin sources said that it will be the responsibility of
importers to ensure that the goods being imported by them should have
been only manufactured or produced on the foreign countries but also
minimum 35 percent value addition have taken place in those countries.
Now
the importer must possess all such proof and on being asked by the
Customs, he shall have to produce these proof demonstrating the
correctness of 35 percent value addition. Mere a certificate by the
exporters would not suffice.
If importers are not able to
satisfy the customs that good have been manufactured with at least 35
percent value addition, FTA benefits would be denied.
Fin Min
sources said that to ensure that FTA benefit is not misused, the rules
provide for temporary denial of preferential treatment to goods where
further verification has been initiated. In such cases the importer
shall have e ither to deposit full duty or furnish bank
guarantee/security equal to the benefit claimed in terms of duty
concession.
Also, if it is found that benefit has been wrongly
availed in respect of a consignment, the FTA benefit would be denied in
subsequent consignments of identical goods (in terms of country of
exports and exporter, etc.) and importer shall have to pay full
applicable duty.
Fin Min sources explained that the ASEAN FTA
allows imports of most of the items at nil or concessional basic customs
duty rate from the 10 ASEAN member countries.
Major imports to
India are coming from 5 ASEAN countries -- Indonesia, Malaysia,
Thailand, Singapore and Vietnam. The benefit of concessional customs
duty rate applies only if ASEAN member country is the country of origin
of goods. This means that a goods originating from China and routed
through these countries will not be eligible for customs duty
concessions under ASEAN FTA.
"The country of origin is
determined by application of certain set of conditions as prescribed in
the FTA agreement itself. In respect of goods, other than natural
products native to these countries, the required condition is that a
value addition of at least 35% of the export value of goods must have
been contributed by the ASEAN member country", added the sources.
"In
addition, the goods should undergo some appreciable transformation (as
prescribed for product separately in the FTA by way of product specific
criterion)", said the same Source, illustrating that if a mobile is
exported from, say, Indonesia to India, then it would qualify of being
Indonesian origin only if such mobile is made significantly in Indonesia
and 35 % of its FoB value is contributed by Indonesia.
At
present, a country of origin certificate, issued by notified agency in
th e country of export, is produced by the importer and there is no
additional obligation on importer to satisfy him of origin of goods even
though he claims substantial benefit.
Fin Min sources said that
investigation into FTA imports in last few years has revealed that the
rules of origin, under respective FTAs, were not being followed in the
true spirit. In a number of cases, it was discovered that ite ms from
Non-ASEAN countries were being diverted into India through ASEAN
countries with mere packing/repacking, assembly or some minor processes
and declaring 35% value addition or wrongly claiming significant
transformation in ASEAN member country.
Another source in the
know of the matter said that this practice has been rampant in
electronic items like mobile, TVs, set-top box, air conditioners,
electronic parts and telecom equipment. The FTA partner countries have
been exporting these goods without having the necessary technological
capacity to achieve required value addition.
Moreover, rules of
origin were flouted even in products such as aggarbatti, arecanut, black
pepper, etc. The Certificates of Origin were joyously issued by the
agencies in the country of exports without any accountability and if
verification is initiated, these agencies either do not respond or
responding casually.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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