Budget 2021

Making FTAs work: Measures to crack down on misuse welcome, but implementation is key

Amiti Sen New Delhi | Updated on February 01, 2020

To check undue claims of free trade agreement (FTA) benefits that are posing a threat to domestic industry, the government has planned a number of measures to clamp down on imports such as strengthening provisions related to safeguard duties and anti-dumping, and reviewing the rules of origin (ROO) requirements.

“It has been observed that imports under FTAs are on the rise. Undue claims of FTA benefits have posed a threat to domestic industry. Such imports require stringent checks. In this context, suitable provisions are being incorporated in the Customs Act,” said Finance Minister Nirmala Sitharaman in her Budget.

In the coming months, we shall review ROO requirements, particularly for certain sensitive items, so as to ensure that FTAs are aligned to the conscious direction of our policy, Sitharaman said.

However, the government may find it difficult to change the provisions of the ROO, which basically determine whether enough value addition took place in the FTA partner country to qualify as originating from there, in the pacts that have already been signed and implemented.

India will need to offer significant concessions in other areas of the FTA to a partner country if it wants to make the ROO provisions harsher, which may be a complicated process.

But, for future trade pacts, it could take a decision of not diluting ROO norms despite the world moving towards less stringent rules. In fact, one of the reasons why India recently decided to walk out of the proposed Regional Comprehensive Economic Partnership (RCEP) agreement with 15 other countries, including ASEAN and China, was that it did not support the relaxed ROO norms.

In line with global practices

The FM added that the government was strengthening provisions relating to safeguard duties which are applied when surge in imports causes serious injury to domestic industry. “The amended provisions shall enable regulating such surge in imports in a systematic way,” she said. The provisions for checking dumping of goods and imports of subsidised goods are also being strengthened for ensuring a level playing field for the domestic industry. These changes are in line with international best practices, Sitharaman said.

While the government should make efforts to strengthen implementation and determination of safeguard and anti-dumping duties, the fact that it cannot stray from the mechanism put in place by the World Trade Organization limits the effectiveness of such an attempt.

Published on February 01, 2020

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