New Delhi: India is looking to increase the scrutiny of imports from Chinese companies or entities located in Association of Southeast Asian Nations (Asean) countries, said people with knowledge of the matter. New Delhi has information about China setting up new entities or acquiring defunct companies in countries such as Vietnam and using these shell enterprises to re-label and export goods to India, exploiting India’s free trade agreement (FTA) with Asean.
The government has also sounded out industry and importers to identify such shipments that abuse the FTA as it contemplates actions such as enhanced checks on country of origin certificates by customs authorities. The FTA with Asean allows lower tariffs on most manufactured goods. “There are large quantities of imports that are being routed under the Indian-Asean, India-Singapore Free Trade Agreement,” said a government official. “A number of these entities there are just engaged in re-labelling of goods for re-export to India.”
India is seeking to lower its dependence on imports and, following border hostilities with China, looking for ways in which it can reduce trade and business ties with its northern neighbour.
Need to Take Effective Measures
The identification of such entities will help the government take effective measures to curb imports through stringent checks of country of origin certificates. These certify where an item has been manufactured and the amount of value addition in the country from which they are shipped. Moreover, verification that exports were being carried out by a shell entity will allow India to make a case for strict country of origin rules, said the people cited above.
India’s imports from Asean rose 26% in FY19 against a 10% overall increase. Imports from Vietnam were up 43.3% to $7.2 billion. Customs and other revenue agencies can seek verification of country of origin certificates, which are issued by local trade bodies, from revenue authorities in the partner country. This was done in 2015 following a spurt in gold jewellery imports from Thailand.
“There are instances of round-tripping of imports in violation of the norms laid down in the FTAs,” said another government official.
Raising tariffs helps domestic industry only partially as importers resort to the FTA route that offers lower tariffs on 80% of goods. A Department of Economic Affairs study had earlier pointed out how FTAs with lenient rules of origin had benefited trading partners more than India.
The Manufacturers Association for Information Technology (MAIT), the lobby group for domestic electronics manufacturers, said it had flagged the issue of imports from Asean countries under FTAs, which primarily included electronic components, capital goods and inputs for other industries such as garments, fibre and yarn among others.
‘33% Value Addition’
“There needs to be a 33% value addition in goods coming from FTA countries, but if the sovereign in those countries (through customs) is validating that, verifying the origin of the products becomes a larger issue,” MAIT president Nitin Kunkolienker said. The first official cited above said, “A comprehensive strategy is being drawn up as part of the government’s initiative to move to self-reliance.” New Delhi’s broad plan on self-reliance focusses on cutting unnecessary imports — essentially goods that can be manufactured in the country but continue to be imported. A two-pronged strategy — fewer imports and greater domestic capability — is being drawn up. Industry has been asked to offer suggestions on how to enhance India’s manufacturing capability in the relevant areas.
Production-linked Sops
A list of products has been given to industry groupings to look at ways in which to cut imports from one country by diversifying the supply base and developing domestic base, said people aware of the matter. The government is willing to offer production-linked sops to some of the critical sectors.
“There is apprehension that a lot of Chinese companies are located in Asean countries purposely to take advantage of India’s FTAs with these countries. The government is aware of it,” said PHDCCI president DK Agarwal. “As chambers, we have represented that these are old FTAs, which are not to India’s advantage. Our imports have only gone up because of these FTAs. Therefore, these should be relooked at, scrapped and enter into new FTAs where terms are favourable to India.”
Source: indiatimes.com
