Stringent rules on FTA import of white goods from September 21

Our Bureau New Delhi | Updated on September 15, 2020 Published on September 15, 2020

Customs to check misuse of relaxations made available under free-trade agreements

Come September 21, the Customs (Administration of Rules of Origin under Free Trade Agreements) Rules will come into effect. It aims to check misuse of relaxations made available under free-trade agreements (FTAs) and help the domestic industry

With the help of new mechanism of verification, the Customs Department will be watching FTA imports of items such as mobile phones, white goods, set-top box, incense sticks, camera and other electronic products more closely. As on date, India has over 40 trade agreements with various countries or trade blocks.

Sources in the Finance Ministry said that in last five years, the Customs have detected fraudulent claims under FTA to the tune of ₹1,200 crore.

The new rules are based on the provision made in the Customs Act through an amendment made this February. The rules have been framed to curb the practice of claiming concessional customs duty by routing non-originating exports to India through preferential trade countries.

It imposes significant new obligations on importers, who are now primarily responsible to provide information required by the Revenue authorities for evaluating claims for preferential rate of duty under trade agreements.

Importers will need to review current documentation relating to preferential imports under trade agreements and ensure obtaining requisite information from overseas exporters/suppliers including appropriate declaration, for evidencing fulfilment of ‘origin’ requirements.

According to Finance Ministry sources, FTAs were expected to be mutually beneficial to all partner countries. However, this is not the way trade under FTAs has progressed.

Widening gap

While India’s exports to FTA partner countries have remained almost flat under major FTAs, imports have risen rapidly. The trade deficit has widened.

In the case of ASEAN (Association of Southeast Asian Nations) countries, the merchandise trade gap has risen from $5 billion in 2010, when ASEAN FTA was implemented, to more than $22 billion now. This steep increase in trade deficit has become a serious cause of concern for the country.

“Our position of merchandise trade surplus with Vietnam and Singapore has reversed in the last 3-4 years. From a position of a surplus of $2 billion with Vietnam, at the start of FTA in 2010, India now has a trade deficit of about $3 billion with it,” a source said, while adding that the trade deficit with Singapore stands at more than $4 billion. The trade gap has widened with Malaysia, Thailand and Indonesia.

Sources also mentioned that 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. “Vietnam has now been exporting a large number of electronic items. These include smartphones, TVs, set-top box, digital camera, parts of mobiles, etc. Of late, electronics imports have started coming in from Indonesia, too. Thailand and Malaysia have also been exporting increased quantity of electronic and other goods,” said another source.

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Published on September 15, 2020
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