Rules of origin

2022 AUG 19

Preliminary   > Economic Development   >   Indian Economy and Issues   >   External sector

Why in news?

  • Recently, Central Board of Indirect Taxes and Customs (CBIC) issued a circular, stating that custom officers should be sensitive in applying CAROTAR (Customs Administration of Rules of Origin under Trade Agreements) Rules, 2020 and maintain consistency with the provisions of relevant trade agreements or its Rules of Origin.
  • Exemptions specified in a Free Trade Agreement (FTA) with regard to country of origin will prevail in case of conflict between revenue department and importer.

What is ‘Rules of origin’?

  • As per WTO: “Rules of origin are the criteria needed to determine the national source of a product”.
  • Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.
  • There is wide variation in the practice of governments with regard to the rules of origin.
  • GATT has no specific rules governing the determination of the country of origin of goods in international commerce

What are the CAROTAR Rules?

  • It set guidelines for enforcement of the ‘rules of origin’ for allowing preferential rate on imports under Free Trade Agreements.
  • They supplement the existing operational certification procedures prescribed under different trade agreements.
  • They were notified in August, 2020 by the Ministry of Finance.
  • Provisions:
    • An importer is required to do due diligence before importing the goods to ensure that they meet the prescribed originating criteria.
    • Importers will have to ensure that imported goods meet the prescribed ‘rules of origin’ provisions for availing concessional rate of customs duty under Free Trade Agreements (FTAs).
    • Importers have to prove that imported products have undergone value addition of at least 35% in the countries of origin.
  • Implications:
    • The domestic industry will be protected from misuse of FTAs.
    • Under these rules, 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.

PRACTICE QUESTION:

Consider the following statements:

1. GATT has no specific rules governing the determination of the country of origin of goods in international commerce

2. CAROTAR rules of India aim to protect domestic industry from misuse of FTAs

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

             C

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