Gold-import curbs temporary, India assures Korea

India has assured South Korea that the restrictions on duty free gold imports from the country allowed under the existing bilateral free trade agreement (FTA) are a temporary measure to discourage importers from flouting norms and would be eventually removed.

“We understand that such import restrictions can’t be in place in perpetuity in a free trade pact. The South Korean government is upset with India over the measures put in place by the Directorate General of Foreign Trade. The Commerce Ministry has given its assurance that these would be removed as soon as its apprehensions on third-country imports coming into India are taken care of,” a government official told BusinessLine.

Many domestic players, however, are not in favour of lower duties from FTA partners as they say it distorts the local market.

“If the government wants to reduce import duty on gold, it should be done across the board. Duty free imports under FTAs create a parallel economy which only a few can take advantage of,” said Nitin Khandelwal of the All India Gems & Jewellery Trade Federation.

According to Surendra Mehta from the India Bullion and Jewellers Association, if the government decides to remove the restrictions on gold imports from South Korea, it would again result in distortion of the domestic market. “Gold is a sensitive item. It should not be part of free trade pacts,” he said.

Following a sharp rise in import of gold from South Korea through the FTA route after the implementation of the Goods and Services Tax (GST) in July, the DGFT issued a notification on August 24 stating that import of gold from the country needs government approval.

The surge took place as zero customs duty import of gold under the free trade pact with South Korea became more attractive as the additional 12.5 per cent countervailing duty earlier applicable on such imports was replaced by just a 3-per-cent GST.

Prior to GST, the government got around the situation of allowing duty free import of gold under the FTA with South Korea and Indonesia by imposing a 12.5 per cent excise duty on domestic gold jewellery which allowed it to impose an equivalent countervailing duty on imports.

As there is no provision for an excise duty in the GST regime, it was not possible to continue with the 12.5 per cent countervailing duty and it had to be replaced with a 3-per-cent GST.

“We had explained to our South Korean counterparts that the FTA was being misused and third country imports are flowing in which is affecting the domestic market. However, we have assured them that it would be removed soon as we realise their frustration about the terms of the FTA not being honoured,” the official said.

“It is not possible for India to continue with the restrictions as under an FTA an additional burden on a partner can be imposed only through mutual consent and with adequate compensation. Maybe the government is waiting for the Union Budget to be announced after which it would be removed,” a Delhi-based trade analyst said. Gold shipments from South Korea between July 1 and August 3 this year (before the DGFT imposed restrictions) spiked to $339 million against imports worth $70.5 million in 2016-17.