India works with FTA partners for system to plug abuse of deals

The proposed system allows customs authorities to generate and exchange “country of origin” certificates, a key document based on which duty concessions available under Free Trade Agreements (FTAs) are claimed by importers and are granted by the authorities.

This will help the customs department in the receiving country to be sure of the document’s authenticity and to do away with the need to verify the document submitted by importers for grant of duty benefits. It will speed up the processing of shipments, one of the two persons cited above said.

The new system will also eliminate the abuse of FTAs as merchants will not be able to falsify documents and route products from other countries through trade deal partner nations to exploit duty benefits.

The Central Board of Indirect Taxes and Customs (CBIC) is working on implementing the system in 2023 under an agreement signed with South Korea last September for enhanced customs cooperation, the person said, and added India will start talking to other FTA partners countries, starting with Australia.

An email sent to the finance ministry on Friday seeking comments for the story remained unanswered at the time of publishing.

Earlier, the South Korean government had enabled the facility for India to access the country of origin certificates on a database to verify their genuineness.

“But we are now moving beyond that. We’ve entered into an agreement with the South Korean government so that both of us will generate the country of origin certificates electronically and exchange the same electronically. So, by the time the import is received in the other country, we would already have the relevant country of origin certificate, and know [if a document is falsified],” said the person. The arrangement with South Korea under the Comprehensive Economic Partnership Agreement is for sharing of product origin information to boost preferential trade.

“We haven’t started the discussion with other FTA partner countries, but we proposed to do that,” added the person.

The government has noticed two ways of FTA abuse by merchants: The first is the use of falsified documents and the second, more serious, violation is the use of false information in such certificates.

CBIC has noticed several suspected cases of the latter type in the case of FTA with Asean and is investigating them. These were detected after a macro analysis showed that the extent of value addition claimed by importers does not take place in the country of origin, as the basic raw materials for those products were imported. Use of such imports for manufacturing does not yield the required value addition in those products, the person quoted above said.

The government has noticed that in some cases, the country of origin certificate shows that the value addition norm has been met, but the cost elements that are used for determining value addition are highly exaggerated, said the second person cited above, who also spoke on the condition of anonymity.

The customs authorities seek to check such wrongful claims by requiring the importer to produce the information needed to justify the value addition claims under the CAROTAR (Customs Administration of Rules of Origin under Trade Agreements) Rules which were introduced in 2020.

The second person also said that India would specify in new FTAs that imports may be subject to these rules when the need is felt.