The commerce and industry ministry is exploring certain criteria which have been used in the trade pacts inked by developed countries.
“The terminologies used in the rules of origin are evolving rapidly and we are looking at those which are being used frequently, especially by developed countries. The idea is to check circumvention and cheap imports,” said an official.
Conditions such as minimal operations, de-minimise or tolerance, accumulation, accounting segregation, transitional arrangements and absorption or roll over principles are being considered, some of which are already in India’s FTAs.
Accounting segregation can be a criterion for products that are of the same kind, commercial quality, and technical and physical characteristics, and which cannot be distinguished from one another for origin purposes. The absorption or roll-up principle allows intermediate products to maintain their originating status when they are used for subsequent manufacturing operations.
The ministry has sought details from industry on the time and cost involved in getting origin certificates and is analysing the Canada-EU, and US-Canada-Mexico trade pacts to understand the ways in which these countries have benefited from FTAs.
The stricter rules will also aid imposition of trade remedies such as safeguard duties and antidumping duties to check imports.
While the rules of origin can be simple, as is the case with most of India’s FTAs as they are based primarily on wholly obtained criteria or 35% value added method, they can be intricate also for being different for different products in a specific agreement and varying across agreements.Rules of origin essentially define the parameters of the source of a good and form the very basis of duty reduction or restrictions in a trade agreement.
Duty concessions in a trade agreement are extended only to the goods which are ‘made in’ the exporting country.
The rules of origin prescribe the criteria that must be fulfilled for goods to attain origin status in the exporting country. Such criteria are generally based on factors such as domestic value addition and substantial transformation.
There have been several cases of violation of rules of origin under the India-Asean FTA and India Sri Lanka FTA that were flagged by customs authorities.
An evolved template for origin rules is crucial, as India recently signed trade pacts with the UAE and Australia and is negotiating similar pacts with the UK, EU and Canada, among others.
India’s imports in May shrank 6.6% on-year to $57.1 billion from $61.13 billion.