As India ramps up FTAs, a new system in the works to stop concessions misuse

The government has proposed an amendment to Section 28DA of the Customs Act, 1962, in the Union Budget 2024-2025, replacing ‘certificate’ of origin with ‘proof’ of origin, allowing self-declaration. While the amendment could facilitate trade agreements with developed nations such as the UK and EU, which favour liberal customs norms, it could also increase the risk of breaches, experts said.

“The world is moving in one direction. In FTAs, self-certification is increasingly being incorporated, so we must move in the same direction. Countries that accept self-certification rely on their risk management systems to identify cases requiring verification. We are also working on this to ensure authenticity,” Agarwal said.

“In certain cases, we may also verify the value addition by referring the case to the country of export. If there is doubt, we can consult the exporting country based on risk assessment, but not in all cases,” he said.

He emphasised that the certificate of origin or self-declaration must be furnished as stated in the trade agreement which means that all FTA partners will not have the option of self-declaration and that trade negotiators would decide which geography would this norm be extended to.

The rules of origin ensure that importers provide adequate proof that goods claiming FTA tariff concessions meet all criteria. However, these rules impose additional conditions beyond the FTA agreement, Global Trade Research Initiative (GTRI) Founder Ajay Srivastava said.

“For example, the FTA text places responsibility on the certificate issuing authority to verify production details and value addition. However, the CAROTAR Rules require importers to have sufficient information about regional value content and product-specific criteria. Importers must provide this information as required by the CAROTAR rules or risk losing FTA tariff concessions. The rules state that having a certificate of origin from an Issuing Authority does not relieve importers of the responsibility to exercise reasonable care,” Srivastava said.

Experts point out that cumbersome procedures to meet value addition norms often lead exporters to forgo FTA concessions, resulting in low FTA utilization rates. Conversely, India has seen breaches of rules of origin, particularly in the India-ASEAN trade agreement.

The proposed deregulation in customs norms requires high integrity from exporters in the FTA nation, and that concessions worth Rs 75,000 crore to Rs 80,000 crore are given annually and that customs need to ensure benefits are correctly availed, MD-Price Waterhouse & Co LLP and former CBIC Chairman S Ramesh said.

He said that India insisted on authority to sign a certificate of origin because goods were being diverted from China and other countries through Indonesia and Vietnam. However, self-declarations are increasingly being adopted, and India cannot remain isolated.

A GTRI report highlighted a nearly 60-fold increase in silver imports last financial year from the United Arab Emirates (UAE), which is unusual since the country does not produce silver. This import surge may indicate a breach in the rule of origin finalised by India and the UAE under the FTA.