The Hindu Business Line : A search for the roots

THE country of origin certificate issued to a product imported serves several purposes. First, it discloses to the buyer the country of origin of the goods. It determines whether the product will enjoy preferential tariff rates, or be subject to anti-dumping duty measures to discourage imports. It also helps ascertain whether the goods come under quota restrictions. Besides, such certificates enable compilation of trade statistics.

Bilateral and multilateral agreements among countries provide for preferential tariff rates to enhance trade volumes. In such agreements, exports made from one member-country are given preferential treatment in the importing country, by way of low import duties. Usually, when these agreements come into operation, domestic industry becomes jittery, fearing that increased flow of goods from the other country would affect the sales of locally manufactured goods. The recent surge in vanaspathi imports from Sri Lanka into India is but one example.

On the other hand, anti-dumping duties are levied on products originating from a country when investigations establish that such products are dumped at below normal cost of production. Under such circumstances, products from such countries attract punitive duties to discourage their imports and protect the local industry.

It is in these circumstances that the certificate and rules of origin for issue of such certificates assume greater significance. Unscrupulous importers attempt to avoid anti- dumping duties or avail themselves of preferential duties by circumventing the procedures or exploiting the loopholes in the rules of origin. Repacking the goods of a third country and routing them through the preferred country is one method. And carrying out superficial operations without changing the character of the goods is another.

However, the Government's response to such attempts and the framing of general rules of origin to regulate imports has, thus far, been neither positive nor transparent. Today, with so much technological advancement, products are often the result of the efforts of several countries and, hence, the determination of country of origin is not that simple and is, to some extent, artificial.

What will constitute substantial transformation or what should be the minimum value addition are questions for which there are no concrete answers. The definition adopted by India in bilateral agreements for preferential treatment normally stipulate two conditions. One relates to minimum value addition in the export country, usually to the extent of 40 per cent, and the other to change in the tariff classification of the end-product at the four-digit level in the internationally accepted HSN Classification of products.

In the recently signed India-Singapore preferential treaty, these two conditions have been incorporated. But the countries forming part of Asean want India to adopt only the value-addition criterion. On the levy of anti-dumping duty, no definite rules of origin have been followed by India. Similarly, for non-preferential imports, too, there are no general rules of origin.

While rules of origin for preferential treatment can be worked out among the countries involved, non-preferential rules of origin have to be common among all the countries to ensure smooth trade flow among nations, without clearance delays and confiscation of goods at the point of import.

Attempts are being made to develop globally harmonised rules of origin. It is being conducted by a Committee on Rules of Origin in the WTO and a Technical Committee under the auspices of the World Customs Organisation in Brussels. The outcome will be a single set of rules of origin to be applied under non-preferential trading conditions by all WTO members in all circumstances.

In the meantime, for the present, Article 2 of the WTO agreement on rules of origin clearly specifies that until the work programme for the harmonised rules of origin is completed, the member-countries are required to ensure that a) their rules of origin do not create restrictive, distorting or disruptive effects on international trade; b) where the criterion of manufacturing or processing operation is prescribed, the operation that confers origin on the goods concerned is precisely specified; c) they are transparent; d) they are administered in a consistent, uniform, impartial and reasonable manner; and e) they are based on a positive standard, that is, they should state what does confer origin rather than what does not.

India has so far not followed any specific set of rules of origin, as required by the WTO in respect of non-preferential imports. This has often led to disputes and delays in clearance, with the Customs administration imposing anti-dumping duty or denying preferential duties by adopting subjective interpretation with regard to product origin. The recent hold-up of vanaspathi and porcelain tiles imports from Sri Lanka at several Indian ports is a case in point. There are instances where rules of origin applicable for preferential treatment were attempted to be applied to non-preferential imports.

As discussed, manufacturing, thanks to the outsourcing of the procurement of raw materials and components, is not confined to a single country.

Therefore, it is imperative that transparent and general rules of origin are in place. In the absence of such rules, bottlenecks and delays in the clearance of goods are likely.

(The author is a Chennai-based advocate.)

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