Now, importers must satisfy minimum 35% value addition in origin country to get FTA benefits

Our Bureau New Delhi | Updated on September 18, 2020 Published on September 18, 2020

The new rules have been put in place to curb the misuse of free trade pacts   -  Bloomberg

Move to curb misuse of FTAs; new rules to come into effect from Sept 21

Importers must satisfy the custom authorities that goods have undergone 35 per cent value addition in the origin country to claim duty exemption under Free Trade Agreements (FTA), Finance Ministry has clarified.

For example, if a mobile is imported from Indonesia to India, then it would qualify of being Indonesian origin only if such mobile is made significantly in Indonesia and 35 per cent of its FoB value is contributed by Indonesia.

This along with other provisions under Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 would put the imports of items such as mobile, white goods, set-top box, Agarbatti, camera and other electronic products under further scrutiny.

These new rules will come into effect from September 21.

Subsequent to Finance Minister Nirmala Sitharaman’s 2020-21 Budget proposal for ways to curb misuse of FTAs these Rules have been formulated. As on date India has over 40 FTAs with various countries or trade blocs such as European Union or ASEAN.

According to sources in the Finance Ministry, it will be the importers’ responsibility to ensure that the goods being brought by them should have been only manufactured or produced overseas and also minimum 35 per cent value addition has been done in that country.

The importer must possess all such proof and should produce if asked by the Customs authorities.

Misuse of FTAs

Investigation into FTA imports in the last few years has revealed that the rules of origin, under respective FTAs, were not being followed in the true spirit. This practice has been rampant in electronic items particularly.

The FTA partner countries have been exporting these goods without having the necessary technological capacity to achieve required value addition. Moreover, rules of origin were flouted even in products like aggarbatti, arecanut, black pepper, etc.

The Certificates of Origin were freely issued by the agencies in the country of exports without any accountability and if verification was initiated, these agencies either do not respond or respond casually.

The Asean FTA allows imports of most of the items at nil or concessional basic customs duty rate from the 10 Asean member countries.

Major imports to India come from five ASEAN countries — Indonesia, Malaysia, Thailand, Singapore and Vietnam. The benefit of concessional customs duty rate applies only if an Asean member country is the country of origin for the goods.

This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under Asean FTA.

“The country of origin is determined by application of certain set of conditions as prescribed in the FTA agreement itself. In respect of goods, other than natural products native to these countries, the required condition is that minimum value addition of the export value of goods must have been contributed by the ASEAN member country,” another source said while clarifying that in addition, the goods should undergo some appreciable transformation (as prescribed for product separately in the FTA by way of product specific criterion).

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Published on September 18, 2020
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