Starting September 21, the Customs department will raise its vigil on imports of mobiles, white goods, set top boxes, cameras and other electronic products, besides agarbattis from countries with which India has free trade agreements (FTA).
A new provision was introduced during the budget session in February this year in the Customs Act for strict verification of rules of origin of imports under FTAs. The rules for implementation of this provision were issued last month. These newly notified Customs Rules for Administration of Rules of Origin under FTA will come into force on September 21.
It is learnt that extensive interactions are being held by higher ups with officers working in the field and trade.
Finance ministry sources said misuse of the FTA route has been on the rise for the last few years to escape customs duty on imports.
The domestic industry, suspecting foul play, has repeatedly asked the government to review the existing FTAs and take action to put a brake on the misuse of these agreements.
Sources said that FTAs were expected to be mutually beneficial to all partner countries. However, this is not the way the trade under FTAs has progressed.
While India’s exports to FTA partner countries remain almost flat under major FTAs, imports have risen rapidly, widening the trade deficit.
Rolling out statistics, they said that in case of ASEAN countries, the merchandise trade gap had risen from $5 billion in 2010, when ASEAN FTA was implemented, to more than $22 billion dollars at present.
This steep increase in trade deficit has become a serious cause of concern for the country.
"Our position of merchandise trade surplus with Vietnam and Singapore has reversed in the last three to four years. From a position of a surplus of $2 billion with Vietnam, at the start of FTA in 2010, India now has a trade deficit of about $3 billion with it," one of the sources said.
Same is the case with Singapore and the trade deficit with the country stands at more than $4 billion. The trade gap has also widened with Malaysia, Thailand and Indonesia.
The painful part of this story has been that these FTAs have been misused widely to export goods to India in utter disregard of the Rules of Origin requirement.
Vietnam has been exporting a large number of electronic items. These include smartphones, TVs, set-top boxes, digital cameras, parts of mobiles, etc. Of late, electronics imports have started coming in from Indonesia too. Thailand and Malaysia have also been exporting increased quantities of electronic and other goods, officials said.
An investigation has found that items like TVs, mobile, set-top boxes, telecom network products, metals, coming from FTA countries did not meet the prescribed origin criterion. Last year, DRI detected a large-scale fraud wherein Areca nut from a third non-FTA country was being imported into India from aN FTA partner country, duly covered by Certificates of Origin which was found to be incorrect.
Similar misuse was also found in black pepper, cocoa powder. Moreover, the imports from non-FTA countries are unscrupulously labelled as originating from such nations to claim FTA benefits.
In some cases, the Customs department found that a few importers were smuggling restricted goods such as agarbattis in the guise of goods declared to be imported under an FTA, sources said.
In the last five years, Customs have detected fraudulent claims under FTA to the tune of Rs. 1,200 crore. Irregular imports under FTAs have caused serious injury to the domestic industry.