Curbing FTA abuse: Govt to tighten scrutiny of imports from September 21

Between FY18 and FY20, India’s trade balance with Vietnam swang from a surplus of $2.8 billion to a deficit of $2.2 billion, according to official data.Between FY18 and FY20, India’s trade balance with Vietnam swang from a surplus of $2.8 billion to a deficit of $2.2 billion, according to official data.

A broad range of imports, including of mobile phones, set-top boxes, camera and various white goods, will come under stricter scrutiny from September 21, as the government will enforce tougher customs rules to curb abuse of its free trade agreements (FTAs) with trading partners by unscrupulous elements.

Customs officials have long suspected that China may be diverting its supplies to India through Asean nations, abusing rules of origin, to illegally take advantage of duty-free market access under the FTA. Given the latest Indo-China border skirmish, the diversion may surge, they fear.

In fact, after Singapore and Hong Kong, Vietnam has emerged as the third Asian trade partner, which counts on massive Chinese investments, to turn its usual trade deficit with India into a decent surplus in a span of just three years. Between FY18 and FY20, India’s trade balance with Vietnam swang from a surplus of $2.8 billion to a deficit of $2.2 billion, according to official data.

The budget earlier this year had introduced a change in Section 28DA of Customs Act that pertains to procedures regarding claim of preferential rate of duty. To tighten the rules of origin of imported products, the revenue department last month stipulated that the importer or his agent, at the time of filing bill of entry, has to make a declaration that the purchased items qualify for preferential duty, and also produce certificates of origin. The claims can be rejected if the certificate of origin is incomplete or has any alteration not authenticated by the issuing authority or the certificate is produced after its validity period has expired, it said.

Finance ministry sources say investigations have revealed that items, including TVs, mobile phones, set-top boxes, telecom network products and metals, coming from FTA countries did not meet the prescribed origin criterion.
Also, various FTAs have only caused India’s trade deficit to soar.

For instance, in Asean case, the trade gap has risen from $5 billion in 2010, when the FTA with Asean was implemented, to over $22 billion now. Apart from Singapore and Vietnam, it has widened with Malaysia, Thailand and Indonesia as well. A part of supplies from these countries may have actually originated from other non-FTA destinations like China, customs officials suspect. The Customs have detected fraudulent claims under FTA of Rs 1,200 crore, while “irregular imports” have caused serious injury to local industry.

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