Imports under FTAs to be closely monitored from Sept 21 to avoid misuse of duty benefits

Now, compliance to the new ROO verification norms will be a must for availing FTA duty benefits and the Customs Department will seek all supporting documents for imports under FTAs.

The rules for implementation of this provision were issued in August and come into effect from September 21.

Sources in the Finance Ministry told CNBC-TV18 that FTAs were expected to be mutually beneficial to all partner countries. However, this is not how trade under FTAs has progressed. While India's exports to partner countries remain almost flat under major FTAs, imports have risen rapidly. The trade deficit has widened and in case of ASEAN countries, the merchandise trade gap has risen from $5 billion in 2010, when ASEAN FTA was implemented, to more than $22 billion now, sources said.

The steep increase in trade deficit is a major concern for the country, sources said and added that our position of merchandise trade surplus with Vietnam and Singapore has reversed in the last three to four years. From a position of a surplus of $2 billion 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. The trade gap has widened with Malaysia, Thailand and Indonesia as well.

Sources pointed out that the painful part of this story has been that these FTAs have been misused widely to export goods to India in utter disregard of the Rules of Origin requirement. Vietnam has now been exporting a large number of electronic items. These include smartphone, TVs, set-top boxes, digital cameras, mobiles parts etc.

Of late, electronics imports have started coming in from Indonesia too. Thailand and Malaysia have been exporting increased quantity of electronic and other goods.

Investigations have revealed that items like TVs, mobile phones, set-top boxes, telecom network products and metals coming from FTA countries did not meet the prescribed origin criterion. Last year, DRI detected a large-scale fraud wherein Areca nuts from a third non-FTA country were being imported into India from a FTA partner country, duly covered by the certificate of origin, which was found to be incorrect.

Similar misuse was found in black pepper and cocoa powder. Moreover, import from non-FTA countries are unscrupulously labelled as originating from such nations to claim FTA benefits. In some cases, Customs officials have detected that a few importers were smuggling restricted goods such as agarbattis in the guise of goods declared to be imported under an FTA.

Such irregular imports under FTAs have caused serious damage to the domestic industry.

Finance Ministry sources said that with the new Rules for Administration of Rules of Origin under FTA coming into force will help in curbing the misuse of FTAs. The new mechanism requires importers to exercise due diligence before importing goods to ensure they satisfy the origin criterion for eligibility of duty concession under the FTA and declare this to Customs Department.

Sources said that Customs officials 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 of goods from exporting countries would ensure that the misuse is stopped.