Effective this Monday, New Rules of Origin for imports under FTA evoke sharp response; Raise concerns

NEW DELHI: To be implemented from Monday, the new “Rules of Origin” asking companies in India to disclose the production process undertaken of the imported good in the country of origin including the cost of each component/ingredient of exporters’ confidential information, has evoked a sharp response from multinational companies especially from East Asia and ASEAN.

Many have termed this Revenue Department’s new rules against the spirit of Foreign Trade Agreement (FTA) and Economic Partnership Agreement (EPA), which India has inked FTAs with many countries especially from Asia like Japan, South Korea, Singapore, and ASEAN members.

It is being feared that the FTAs and EPAs might become unworkable. And not all countries agree to the Indian government’s contention that 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.

Others have said that the new rules reflect a trust deficit between India and its trading partners as the foreign seller is being asked to disclose its proprietary and commercially sensitive information relating to the production process and materials used, to its Indian customers.

Issued on August 21, the Ministry of Finance’s notification No. 81/2020 specifying the new “Rules of Origin” comes into effect from September 21, 2020.

“To verify whether the certificate has been issued by the exporting country is one thing.  But to go behind the certificate and verify whether it has been correctly issued, reflects a trust deficit between India and its trading partners.  What is even worse is that the foreign seller is being asked to disclose its proprietary and commercially sensitive information relating to the production process and materials used, to its Indian customers.  This will make the FTAs unworkable,” said Reena Asthana Khair, Senior Partner, and Head International Trade & Indirect Taxation, Kochhar & Co. This renowned corporate law firm has a number of companies from the origin of Japan, South Korea, and other Asian countries as well as from across the world as its clients.

The industry is of the opinion that the government has framed norms for enforcement of “Rules of Origin” for imports under FTA at the time when the EU, USA, OECD, and Japan investment was trying to escape from China and was shifting their focus to the alternative destination to ASEAN or India.

While expressing his concern Nobuhiro Takahashi, Advisor, Suggestions Committee, Japan Chamber of Commerce and Industry in India (JCCII) recently wrote to the Prime Minister Office (PMO) seeking its intervention to roll back the directive issued on August 21.

He stated that the new move would not only affect the economic ties with the ally countries like Japan, it will also be detrimental to the defense and security concerns of India. He also has urged the PMO to move the Supreme Court against the notification and get it reversed.

“The revenue department notification might act against the Indian National Policy of Open market economy, and hindrance to invite FDI and ODA to India. The purpose of notification could be said as the intention of distrust of the compliance of Exporting Country, including Japan, with forcing Indian importing side to take confidential information of exporting countryside, like Japan,” Takahashi stated in his letter to PMO.

“At this moment, declaring the distrust on exporter in EPA and FTA towards all over the world through the notification will mislead the understanding of India’s National Policy, and it is feared that the FDI might go to ASEAN, not coming to India anymore. Obvious distrust attitude by the notice No81/2020 to the Foreign exporter’s compliance of data for the Country Origin toward the world, including Japan, would cause, no country to recognize India as ease of doing business and deregulation with Open Market Economy,” said Takahashi in his letter to the PMO.

Concerned with the new Rules of Origin, the Korean Chamber of Commerce and Industry (KOCHAM) organized an online meeting with its member South Korean companies to discuss the new regulation. As many as 270 Korean companies participate from across the world, which was an indication of the rising interest of these companies in doing business with India.

“We are well aware of the new origin rules in ‘Bill of Import’ for CEPA and other FTAs. In fact, recently, we held a webinar on this specific issue just today. Over 270 Korean companies participate from all over the world. First, it was surprising to see so many companies interested in doing business with India. At least sixty questions poured in. They were all technical questions asking about the procedures. Not one question was negative toward the new change,” said Hee-chul Jung, Secretary-General, Korean Chamber of Commerce and Industry (KOCHM) in India.

The hopeful Hee-chul Jung, said, “No doubt, there are many problems caused by Corona19 and the border dispute. Almost all the companies that KOCHAM approached raised issues. They were swiftly shared with the Indian government. Meanwhile, KOCHAM is advising members to try their best to observe new norms and cooperate to realize Atmanirbhar Bharat. KOCHAM thinks these issues are not easy for any government to solve and we wait patiently for the closest solution and answer for shared growth and mutual prosperity.

In her Budget speech early this year, the Indian Finance Minister Nirmala Sitharaman had declared the government would review ‘Rules of Origin’ requirements, particularly for certain sensitive items to ensure that FTAs are aligned to the conscious direction of our policy.

While sharing India’s concern, Sitharaman had also said that it has been observed that imports under FTAs are on the rise and undue claims of FTA benefits have posed threat to the domestic industry and such imports require stringent checks.