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Government to take measures to control misuse of FTAs

Sept. 15, 2020, 10:21 p.m.

New Delhi: In last few years misuse of FTA route has been on the rise to escape customs duty on imports. Domestic industry has been clamouring a foul play. The industry has repeatedly represented to the Government to review the existing FTAs and take action to put a brake on misuse of FTAs. Government has made its intentions clear. The Finance Minister while presenting this year’s Budget had announced it loud and clear that undue claims of FTAs benefits have posed threat to domestic industry and that such imports require stringent checks.

A new provision was introduced during the budget session in February this year in the Customs Act for strict verification of rules of origin of imports under FTAs to ensure that FTA benefits are taken correctly. The rules for implementation of this provision were issued last months. These newly notified Customs Rules for Administration of Rules of Origin under FTA will come into force on the 21st of this month. 

Fin Min sources said that FTAs were expected to be mutually beneficial to all partner countries. However, this is not the way the trade under FTAs has progressed. 

While India’s exports to FTA partner countries remain almost flat under major FTAs, imports rose rapidly. The trade deficit widened. In case of ASEAN countries, the merchandise trade gap has risen from 5 billion dollar in 2010, when ASEAN FTA was implemented, to more than 22 billion dollars 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 last three to four years. From a position of a surplus of two billion dollar with Vietnam, at the start of FTA in 2010, India now has a trade deficit of about 3 billion with it. Same is the case with Singapore and trade deficit with Singapore stands at more than 4 billion dollars. The trade gap has widened with Malaysia, Thailand and Indonesia. 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 smartphone, TVs, set-top box, digital camera, parts of mobiles, etc. Off late electronics imports have started coming in from Indonesia too. Thailand and Malaysia have also been exporting increased quantity of electronic and other goods. Investigation have revealed that items like TVs, mobile, set-top boxes, telecom network products, metals, coming from FTA countries did not meet the prescribed origin criterion. 

Last year, DRI detected a large-scale fraud wherein Arecanut from a third non-FTA country was being imported into India from a FTA partner country, duly covered by Certificates of Origin which was found to be incorrect. Similar misuse was found in black pepper, cocoa powder. Moreover, the imports from non-FTA countries are unscrupulously labelled as originating from such nations to claim FTA benefits. In some cases, the Customs has detected that a few importers were smuggling restricted goods such as Agarbattis in the guise of goods declared to be imported under an FTA.

In last five years, the Customs have detected fraudulent claims under FTA to the tune of Rs. 1,200 crore. Irregular imports under FTAs have caused serious injury to the domestic industry. 

Fin Min Sources said that new Rules for administration of Rules of Origin under FTA coming into force shall help in curbing the misuse of FTAs. New mechanism requires importers to exercise due diligence before importing the goods to ensure they satisfy the origin criterion for eligibility of duty concession under the FTA and declare this to Customs.

 

Sources said that the Customs may also ask for supporting documents and information and when in doubt, deny the benefit of the FTA duty concession or allow it provisionally pending verification. Strict timelines for verification from the exporting country would ensure that the misuse is stopped. It is learnt that Government extensive interactions are being held with officers working in field and the trade. 

Come 21st September, the Customs would be watching the FTA imports of items like mobile, white goods, set-top box, Agarbatti, camera and other electronic products more closely under new mechanism of verification that kicks in. 

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