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India’s Customs Act Amendments Make Way for UK and EU Free Trade Agreements
Context:
To facilitate signing free trade agreements (FTAs) with developed nations like the UK and the European Union, the Union Budget 2024 has introduced amendments to the Customs Act.
About the Amendment:
- Liberalising compliance with rules of origin norms that typically guard against misuse of concessions agreed in a trade pact.
- The government on Tuesday amended the Customs Act, 1962 substituting ‘certificate’ of origin with ‘proof’ of origin.
- The fine prints of the Budget defined “Proof of origin” as a “certificate” or “declaration” in accordance with a trade pact.
- The amendments give Indian trade negotiators a choice as to which geography they wish to allow self-certification by foreign exporters.
About Rules of origin vs Proof or Origin:
- Rules of origin are the criteria needed to determine the national source of a product.
- While trade agreements help boost trade volumes with partner countries, it often risks a third country benefiting from the concessions resulting in a loss of revenue if rules of origin are breached.
- “Proof” of origin (if India decided so in an agreement) which is a wider term that
- includes a certificate of origin as well as a
- self-declaration in line with global Customs norms.
Need for Proof of Origin:
- Instances of Rule Breaches: India has experienced multiple breaches of rules of origin.
- Unusual Import Surge: The Global Trade Research Initiative (GTRI) reported a 60-fold increase in silver imports from the UAE, suggesting a possible violation of the India-UAE FTA’s rules of origin.
- Insistence on Certificate Authority: India continues to demand authority for issuing certificates of origin due to past issues with goods being diverted from countries like China through Indonesia and Vietnam.
- Eases Trade Agreements: The amendments simplify compliance, making it easier to negotiate and implement FTAs with developed countries like the UK and EU.
- Broadens Trade Opportunities: Allowing self-certification of origin can lead to better trade terms and expanded market access for India.
- Streamlines Processes: Replacing formal certificates with a broader “proof” of origin reduces bureaucratic barriers and speeds up trade procedures.
- Aligns with International Standards: The changes bring India’s customs practices in line with global norms, improving integration with international supply chains.
- The developed countries have good tracking systems, and the self-certification mode has already come into play in those countries for the FTAs they sign.
Concerns:
- Implementation Challenges: Ensuring effective oversight and enforcement of self-certification practices can be complex and resource-intensive.
- Potential for Trade Manipulation: There is a risk that goods could be rerouted through countries with lax regulations to exploit FTAs, undermining their benefits.
- Enforcement Issues: Past challenges with rule-of-origin enforcement, such as those faced with CAROTAR, could be exacerbated by the new amendments.
CAROTAR
- CAROTAR, introduced in 2020, is a set of regulations aimed at strengthening the enforcement of rules of origin under trade agreements, including the India-ASEAN FTA.
- These rules are known as Customs (Administration of Rules of Origin under Trade Agreements) Rules require importers claiming FTA duty benefits to obtain various documents from their vendors and submit at the time of importation.
- Several Southeast Asian countries such as Thailand subsequently raised concerns against CAROTAR norms in the India-ASEAN FTA review.
- Despite stringent rule of origin norms, the India-ASEAN trade gap in FY23 surged to $43.57 billion in favour of ASEAN countries, growing sharply by over 40 per cent compared to $25.75 billion in FY22.
