India is to bring in new enforcement measures to ensure that products imported under free trade agreements have the correct preferential rate of customs duties applied.

These new norms for rules of origin provision will come into effect on September 21st 2020 and mean inbound shipments can be checked if they are suspected to be low-quality products or goods being dumped by a third country that has illegally routed them through an FTA partner nation.

A notification has been given by India's Department of Revenue to the Customs Administration of Rules of Origin under Trade Agreements Rules, 2020, which "shall apply to import of goods into India where the importer makes a claim of preferential rate of duty in terms of a trade agreement", the Economic Times of India reports.

Getting around a major problem

The provision allows for a minimal level of processing in an FTA country, but should mean a country that has an FTA with India cannot simply dump goods from somewhere else there just by applying a new label.

This is a problem that is becoming more obvious as manufacturing and supply chains become more global. Even the World Trade Organization states that determining where a product originates from is difficult when "raw materials and parts criss-cross the globe to be used as inputs in scattered manufacturing plants".

However, when the implementation of trade policy measures such as tariffs and duties depends on information concerning the country of origin, it is a problem that must be addressed.

Indeed, rules of origin are particularly important in FTAs, which provide exclusive preferences to products from the countries involved in their signature.

As such, rules of origin requirements aim to ensure fairness and adherence to regulations by not only providing information on where goods come from in the first place, but also taking into account the degree of manufacturing or processing of these goods elsewhere by calculating the value it adds to them.

If the value added is of a certain percentage, the goods can legitimately acquire a new originating status in the country where the manufacturing or processing takes place.

On the other hand, if goods leave one country, arrive at a second and then are shipped to a third without any significant changes, they must be listed as having originated in the first.

India taking action

By bringing in more stringent checks on this, India intends to weed out shipments that are breaking the rules and have actually originated from somewhere other than the location stated on the label.

Its impetus for implementing these new measures may have been a recent raft of imports from China. Customs officials suspect China may be sending supplies of substandard goods to India via nations within the ASEAN agreement such as Vietnam, thereby illegally taking advantage of duty-free market access.

However, the changes will also impact a host of other countries that have FTAs in place with India - including Japan and Singapore - meaning businesses there may have to take note and amend their practices accordingly.

Under the new notification, importers or their agents must make a declaration under the bill of entry that the imported products qualify as originating goods under the FTA in order to claim a preferential rate of duty. They must also provide a relevant certificate of origin.

Should the certificate of origin be incorrect, incomplete, expired or have had any unauthenticated alterations, the claim for preferential rate of duty may be denied by the customs officer.

India's finance minister Nirmala Sitharaman had said in a recent Budget speech that the government would be reviewing rules of origin requirements, but action has been taken quicker than might have been expected.

She said illegitimate claims for FTA benefits are threatening domestic production and need to be subject to stricter controls.

However, business experts have warned it may be difficult for smaller Indian businesses that depend heavily on imports to comply with the new requirements.

For instance, they may have to bring in new operating procedures to ensure origin confirmation and examine manufacturing processes for value addition, all of which is likely to take time and money.

In addition, there could also be issues going forward concerning keeping suppliers' information confidential, critics fear.

It may be that the Indian government needs to make extra help available for these companies so they can avoid falling foul of the law without impacting too much on their bottom line.

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