Importers must prove 35% value addition in origin country to get FTA benefits

Importers will have to provide proof of 35% value addition of goods imported through free trade agreements (FTA) to customs authorities, failing which duty benefits available under the agreement will be denied, government sources said.

Sources said that while the customs authorities were engaging with industry and associations to sensitize them about the changes to rules of origin that kick into effect from September 21 in order to avoid hassles later on, the larger effort of the government will be towards curbing the misuse of the agreements that are hurting domestic industry.

“Merely a certificate by the exporters would not suffice. If importers are not able to satisfy the customs that good have been manufactured with at least 35 percent value addition, FTA benefits would be denied,” a senior official said.

It will be the responsibility of importers to ensure that the goods being imported by them should have been only manufactured or produced on the foreign countries but also minimum 35% value addition have taken place in those countries. This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under ASEAN FTA, the official specified.

“In addition, the goods should undergo some appreciable transformation (as prescribed for product separately in the FTA by way of product specific criterion)”, said the same Source, illustrating that if a mobile is exported from, say, Indonesia to India, then it would qualify of being Indonesian origin only if such mobile is made significantly in Indonesia and 35% of its FoB value is contributed by Indonesia,” the official further explained.

The new rules will be a change from present rules where a country of origin certificate, issued by notified agency in the country of export, is produced by the importer and there is no additional obligation on importer to satisfy him of origin of goods even though he claims substantial benefit.

Customs authorities will closely scrutinize imports of mobile phones, white goods, set-top box, agarbatti, camera and other electronic products for preventing any misuse of rules of origin, officials had said earlier this week, so as to curb evasion of customs duty and rampant misuse of such agreements.

Another official said that investigation into FTA imports in last few years has revealed that the rules of origin, under respective FTAs, were not being followed in the true spirit. “In a number of cases, it was discovered that items from non-ASEAN countries were being diverted into India through ASEAN countries with mere packing/repacking, assembly or some minor processes and declaring 35% value addition or wrongly claiming significant transformation in ASEAN member country,” he said.

This practice has been rampant in electronic items like mobile, TVs, set-top box, air conditioners, electronic parts and telecom equipment, he added.