India is unlikely to tinker with its free trade agreement (FTA) with the 10-member Association of South East Asian Nations (ASEAN) to curb the sharp increase in import of gold jewellery from the region, particularly Indonesia.

The Commerce Ministry, which has been alerted by the Revenue Department about the sudden spurt in gold jewellery imports at preferential duties through the FTA route, wants strong steps to curb misuse of the treaty rather than to change its provisions.

“An FTA is an agreement between two sovereign governments and its terms can’t be changed at the drop of a hat. The only way to control the deluge is by ensuring that exporters are not flouting the prescribed value-added and rules of origin norms and allowing third country gold to come in,” a government official told BusinessLine .

The customs department has to see that certificates issued to gold jewellery exporters by the Indonesian government have been issued after due diligence, the official added.

Under the India-ASEAN free trade agreement in goods, gold jewellery can be imported at a preferential duty of 2 per cent (against 15 per cent from other countries), while the import duty on gold is 10 per cent. But the value added to local gold and imported gold while making jewellery has to compulsorily be 20 per cent and 35 per cent, respectively.

Import surge

In May, gold jewellery imports at 2 per cent duty from the ASEAN region, mainly from Indonesia and to some extent from Malaysia, increased to about six tonnes (6,000 kg), against just 400 kg in January.

“It is very difficult to value-add 35 per cent to gold, as it is a high-value metal. We are apprehensive that Indonesia may be flouting rules of origin norms by using gold from third countries, such as Dubai, without adding the required value,” the official said. New Delhi suspects that Indonesian jewellers may be importing gold scrap from third countries and determining the value-added by including costs for mining, refining and finally converting these into jewellery, while the actual value-added should just be the jewellery-making cost.

“Even if gold scrap is being imported by ASEAN countries from third countries, it has to be treated as foreign gold. By refining the gold, one cannot say that it originated in one’s country,” the official said.

The Revenue Department has already asked ASEAN countries to furnish bank guarantees in lieu of the duty benefits they enjoy while exporting jewellery to India till it is ascertained that the value-added and rules of origin certificates are genuine.

“We need to follow this up rigorously with Indonesia and also ensure that the vigilance procedure at our own ports is tight,” the official added.

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