The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020) was officially issued on 21st August 2020 and will be implemented from 21st September 2020. Stakeholders including importers have been given 30 days to familiarise themselves with these new regulations.
Stricter Rules Under CAROTAR 2020
Under the new provisions, importers will have increased accountability in ensuring that imported goods adhere to the specified ‘rules of origin’. To avail benefits such as a reduced customs duty rate under Free Trade Agreements (FTAs), products must undergo a minimum value addition of 35% in the countries of their origin. This differs from previous rules where just a certificate of origin, provided by an approved agency in the exporting country, was enough to enjoy FTA advantages. This earlier rule was exploited in several instances where FTA partner countries falsely claimed production of goods without having the required technological capacity for the necessary value addition.
Reasons for Implementing Stricter Rules
Investigations into FTA imports in recent years have indicated that the ‘rules of origin’ were not being strictly followed. There are suspicions that China has been diverting its supplies to India through Association of Southeast Asian Nations (ASEAN) nations, manipulating rules of origin, to illegally take advantage of duty-free market access granted under FTAs. India’s most significant imports originate from five ASEAN member countries – Indonesia, Malaysia, Thailand, Singapore, and Vietnam. The diversion of supplies could increase considering the recent border tension between India and China.
Anticipated Impact of New Rules
These new rules will require importers to provide accurate information regarding the country of origin, properly apply for concessional duty and facilitate customs authorities in the seamless clearance of legitimate imports under FTAs. The enforcement of these rules will also shield the domestic industry from any potential abuse of FTAs.
About Free Trade Agreements (FTAs)
FTAs are agreements between two or more countries or trading blocs that primarily focus on eliminating or reducing customs tariffs and non-tariff barriers for considerable trade quantities between these nations. FTAs encompass the trade of goods such as agricultural or industrial products, services, intellectual property rights (IPR), investment, government procurement, and competition policy. India has signed FTAs with various countries, including Japan, South Korea, Sri Lanka, and ASEAN members.
Benefits of FTAs
Eliminating tariffs and some non-tariff barriers results in easier market access for FTA partner countries. Exporters prefer FTAs over multilateral trade liberalization as they receive preferential treatment compared to competitors from non-FTA member countries.
