A stringent scanning of imported goods will start from September 21 to curb rampant violations of “rules of origin” that have opened floodgates for dumping of Chinese goods in India through third countries such as Vietnam, Singapore and Indonesia with which New Delhi has free trade agreements (FTAs), two officials said requesting anonymity.
“The Customs are armed with the new mechanism of verification that kicks in from September 21. It gives them full authority to check all FTA imports such as mobile phones, white goods, set-top boxes, incense sticks, cameras and other electronic gazettes more closely,” said one of the officials, who works for the Union finance ministry.
The Central Board of Indirect Taxes and Customs (CBIC) on August 21 had notified — the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020, or CAROTAR, 2020 requiring detail disclosures by importers to claim concessional duty benefits under trade pacts such as FTAs. “The CAROTAR, 2020 shall come into force on September 21, 2020,” the CBIC order had said.
Interpreting the Customs’ notification, consultancy firm EY India said according to the new rule, importers need to furnish details of certificate of origin (CoO) in the bill of entry and make necessary declaration in a bid to claim preferential rate of duty. “The importer shall possess information to demonstrate the manner in which the origin criteria are satisfied and maintain all supporting documents for at least five years from the date of filing of the bill of entry,” it said.
The officials mentioned above said the Customs could also ask for supporting documents and information and when in doubt, deny the benefit of the FTA duty concession or allow it provisionally pending verification.
“The industry has repeatedly represented to the government to review the existing FTAs and take action to put a brake on their misuse,” the first official said, quoting finance minister Nirmala Sitharaman’s budget announcement this year.
She had said that undue claims of FTA benefits had posed a threat to the domestic industry and such imports require stringent checks.
Union minister for commerce and industry Piyush Goyal had also cautioned the Association of Southeast Asian Nations (Asean) to strengthen the “rules of origin” provisions to check the influx of Chinese goods in the Indian market.
Co-chairing the 17th Asean-India Economic Ministers Consultations, which was held on August 29, through video conference, Goyal had highlighted that the FTA has to be “mutually beneficial” and expressed the need to strengthen the rules of origin provisions, work towards removal of non-tariff barriers and provide better market access.
“In case of Asean countries, the merchandise trade gap has risen from $5 billion in 2010, when FTA was implemented, to more than $22 billion now,” a second official said.
“Our position of merchandise trade surplus with Vietnam and Singapore has reversed in the last three to four years. From a position of a surplus of $2 billion with Vietnam at the start of FTA in 2010, now India has a trade deficit of about $3 billion with it. While our trade deficit with Singapore stands at over $4 billion,” he said.
“The trade gap has also widened with Malaysia, Thailand and Indonesia. The painful part of this story has been that these FTAs have been misused widely to export goods to India in utter disregard to the ‘rules of origin’ requirement,” he added.
Vietnam has been exporting a large number of electronic items. Of late, electronics imports have started coming in from Indonesia as well. Thailand and Malaysia have also been exporting increased quantities of electronic and other goods to India, he said.
“Investigations have revealed that items such as TVs, mobile phones, set-top boxes, telecom network products, metals coming from FTA countries did not meet the prescribed rule of origin criterion,” he added.
In some cases, the Customs has detected that a few importers were smuggling restricted goods such as incense sticks in the guise of goods declared to be imported under an FTA, he said.
In the last five years, the Customs have detected fraudulent claims under FTA to the tune of Rs 1,200 crore, he added.