The Customs (Administration of Rules of Origin under Trade Agreements) Rules, (CAROTAR) 2020
The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020), notified on August 21, came into force from September 21.
• The government has come out with norms for the enforcement of 'rules of origin' provisions for allowing preferential rate of customs duties on products imported under free trade agreements (FTA).
• The new norms have been framed with a view to checking inbound shipments of low quality products and dumping of goods by a third country routed through an FTA partner country.
• The Department of Revenue has notified the 'Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020' which came into force from September 21, 2020.
The new rules have been implemented particularly to check the unprecedented surge in almost duty-free import of Chinese goods through some of the 10 countries with which India has liberal trade arrangements under the Association of Southeast Asian Nations (ASEAN) FTA.
India signed the ASEAN FTA in 2009 with Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.
The ASEAN FTA allows imports of most of the items at nil or concessional basic customs duty rate from the 10 ASEAN countries and most of the imports are from five members—Indonesia, Malaysia, Thailand, Singapore and Vietnam.
The benefit of concessional customs duty rate applies only if an ASEAN member country is the ‘country of origin’ of goods. This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the FTA.
Currently, a ‘country of origin’ certificate, issued by a notified agency in the country of export, is produced by the importer and there is no additional obligation on them to prove the origin of goods.
New customs rules put the onus on importers to prove that goods enjoying concessional duty must have 35% value addition in the country with which India has a free trade agreement (FTA). If the importer fails, the importer will be denied FTA benefits for future consignments of identical goods.
These rules "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 ''rules of origin'' provision prescribes for the minimal processing that should happen in the FTA country so that the final manufactured product may be called originating goods in that country.
Under this provision, a country that has inked an FTA with India cannot dump goods from some third country in the Indian market by just putting a label on it. It has to undertake a prescribed value addition in that product to export to India. Rules of origin norms help contain dumping of goods.
The importer has to possess all relevant information related to country of origin criteria, including the regional value content and submit the same to the proper officer on request.
To claim preferential rate of duty under a trade agreement, the importer or his agent, at the time of filing bill of entry, has to make a declaration in the bill that the imported products qualify as originating goods for preferential rate of duty under that agreement; and produce certificate of origin.
The claim of preferential rate of duty may be denied by the proper officer without verification 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.
Under the CAROTAR regime, the declaration and verification criteria will become comprehensive for import under PTT. There are some changes in particulars of the bill of entry such as the declaration regarding satisfaction of originating goods (for PRD), CoO details, originating criteria “wholly obtained” (WO) or “Not wholly obtained” (NWO), accumulation or cumulation, back to back CoO or direct transport, etc.
During the course of customs clearance or thereafter, request for verification of certificate of origin from verification authority where there is a doubt regarding genuineness or authenticity of the certificate for reasons such as mismatch of signatures or seal when compared with specimens of seals and signatures received from the exporting country.
Implications and challenges
Identical goods from the same producer or exporter shall be liable to rejection of PTT without any verification due to contravention by the importer.
Terms like ‘reasonable care about accuracy and truthfulness’ of information and documents received from exporter and an officer’s ‘reason to believe’ to doubt such accuracy for further verification, are nowhere defined or explained which may lead to an arbitrary extension of the jurisdiction of the authorities.
Strict timelines are expected to be imposed on the submission of information by the importer and on the response by verification authority in the exporting country. Failure to adhere to such timelines may lead to rejection of PTT.
No reservations provided on obtaining the proprietary business information from the exporter/ producer.
The CAROTAR Rules 2020 can be seen as a motivator for the domestic industry as it aims to cut down on frivolous imports at a preferential rate. It also implicitly boosts the “Aatmanirbhar Bharat” campaign. It will be interesting to see whether this move will achieve its desired objectives by spotting suspicious claims under PTT or end up as another dent to India’s image on ‘ease of doing business’. It may well be a roller coaster ride for the government as well as the industry.