
Government of India, for some time, was thinking of restarting domestic production, reducing import dependence and promoting Make in India/ Assemble in India and Atmanirbhar Bharat Scheme. Customs (Administration of Rules of Origin under Trade Agreements) Rules 2020 are issued under the ‘Special Defense Measures’ of GATT/WTO rules and aims to supplement the existing operational certification procedures prescribed under different trade agreements, vis a vis compliance of ROO for claiming the tariff exemption or preference for imports into India.
Customs officials are of the view that China diverts its supplies to India through the Association of Southeast Asian Nations (ASEAN) nations, circumventing ROO, to take advantage of duty-free market access under FTA.
The CAROTAR rules are designed to restrict imports of third country which are routing to the Indian market via FTA partners thereby enjoying preferential tariff benefits.
Information sought under these rules will place more regulatory and compliance related burden both on import dependent and value chain led export-oriented sectors thereby making them noncompetitive in the global market.
Given the recent border standoff between India and China and focus on the Self-Reliant India Scheme, the import diversion may increase by Chinese exporters by routing or re-routing the shipment through ASEAN Countries with which China also has trade agreements. The Government of India frames these rules after noticing an increase of imports from Singapore and Vietnam, especially of the items where China is an established producer and these ASEAN Countries have negligible production and export capacity.
There are specific cases investigated, for example, the import of Vitamins C has increased manifold from Vietnam in the COVID-19 period wherein the largest producer of Vitamins C is China and Vietnam does not produce and export Vitamins in normal circumstances. Similarly, the import of Capital goods has also increased manifold from Singapore and Vietnam and it is anticipated that these capital goods have their origin in China and enter India via ASEAN countries by circumventing the Rules of Origin, thus causing injury to domestic industry along with revenue loss to the Government of India.
The CAROTAR Rules are primarily aimed at strengthening the compliance mechanism of existing Rules of Origin but are viewed by Industry as harbinger of gated globalization as these rules put the burden of compliance on importers only. These rules have come with expectations of protecting domestic industry from frivolous imports at preferential rates, but the provisions of these rules are regressive in nature and impose high cost on firms that participate in value chain led trade.
The CAROTAR Rules forbids natural justice as it proposes that duty preference benefits can be restored only prospectively on demonstrating that origin criterion is met; disallowing the benefits on previous such import consignment while it proposes for penalty and interest retrospectively and prospectively. Provisions related to mandatory and compulsory inspection of future consignment, resulting in higher time and cost through delay, demurrages, and detention charges.
Further, it also leaves significant leeway for witch-hunting by provisioning that previous consignment can be investigated and accounted for any duty foregone along with interest and penalty. The intent and content of CAROTAR rules clearly shows that India is gradually moving towards a protective regime for the domestic industry, away from the spirit of free trade based on comparative and competitive cost advantages.
References
-Saraswat V.K, Priya.P and Ghosh.A (2017), A Note on Free Trade Agreements and Thier Costs, NITI Aayog.
-Ghosh.N, Pal. P and Ray.R (2018), China-India relations in economic forums: Examining the regional comprehensive economic partnership. Observer Research Foundation Occasional Paper.
-Financial Express (2020), China factor: India’s trade with Vietnam swings from big surplus to large deficit.10 July.
-Hindu Business Line (2020), After severe shortage during lockdown, Vitamin C tablets flood markets.17 June.
-Times of India (2017), Smuggled Chinese Vitamin C seized in Mizoram., 12 August
-Swarjyamag (2020), India Cancels Palm Oil Imports From Nepal, Bangladesh; Signals Tough Action Against Misuse Of Free Trade Agreement. 13 May
-Financial Express (2020), CAROTAR Rules 2020: Will it cost importers more than gains? Check implications on trade. 29 September.
-Grossman, G. M. 1981. The Theory of Domestic Content Protection and Content Preference. Quarterly Journal of Economics 96(4): 583–603.