Reacting to perceptions that India has been on the losing side with free trade agreements (FTAs), the union budget has made changes to the customs act to insert certain unspecified obligations on the importer while expanding the ambit of preventing injury to domestic economy due to uncontrolled imports from just gold and silver today to any other goods in future.
"It has been observed that imports under FTAs are on the rise. Undue claims of FTA benefits have posed threat to domestic industry. Such imports require stringent checks. In this context, suitable provisions are being incorporated in the Customs Act," Finance Minister Nirmala Sitharaman said in her over two hours long budget speech in the Parliament on Saturday. "In the coming months we shall review Rules of Origin requirements, particularly for certain sensitive items, so as ensure that FTAs are aligned to the conscious direction of our policy."
FULL COVERAGE:Union Budget 2020
This follows the government's overall philosophy of curbing imports to encourage local manufacturing of merchandise in order to further the Make in India programme.
"A new chapter VAA is being incorporated in the Customs Act to provide enabling provision for administering the preferential tariff treatment under the Trade Agreements. The proposed section seeks to specifically provide for certain obligations on importer and prescribe for time bound verification from exporting country in case of doubt. Pending verification preferential tariff treatment shall be suspended and goods shall be cleared only on furnishing security equal to differential duty. in certain cases the preferential tax treatment may be denied without further verification," states the customs notification elaborating Sitharaman's comment in the budget speech.
"Clause (f) of the section 11(2) empowers the Central Government, for prevention of injury to the economy of the country by the uncontrolled import or export of gold or silver, to prohibit their import or export. This clause is being amended to include "any other goods" (in addition to gold and silver) in its ambit," the notofication added.
Additionally, Sitharaman also said the government was strengthening provisions related to safeguard and anti-dumping duties. These measures permitted under WTO guidelines are imposed in cases when a surge in imports in specific instances is reported from member countries. In the recent past, India has applied such measures on import of commodities such as steel, aluminium, automotive tyres and stainless steel from countries like China, Malaysia, Taiwan and Japan.
"We are also strengthening provisions relating to safeguard duties which are applied when surge in imports causes serious injury to domestic industry. Amended provisions shall enable regulating such surge in imports in a systematic way," Sitharaman said. "The provisions for checking dumping of goods and imports of subsidized goods are also being strengthened for ensuring a level playing field for domestic industry. These changes are in line with the international best practices."
The corresponding Customs notification to this stated that the countervailing duty rules at present provide for no provision of investigation in case of circumvention of countervailing duties.
"A provision is being incorporated in the Countervailing Duty Rules to enable investigation into case of circumvention of countervailing duty for enabling imposition of such duty. Certain other changes are being made for bringing clarity in the Rules," it said.
These moves, however, fly in the face of recommendations made by the chief economic advisor Krishnamurthy Subramanian in his Economic Survey 2020 that was tabled in the parliament only a day before on Friday. Subramanian had argued that India was a net beneficiary enjoying a trade surplus with most of its partners in the 14 free trade agreements that it has signed so far. He suggested India needed to be more open and less insecure while trading with the world at large.
"An apprehension is that most of the FTAs that India had signed in the past had not worked in "India's favour." The argument that is put forward is that the agreements led to worsening of India's trade deficit with the partner countries with which the agreements have been signed. This is the mercantilist way of evaluating the gains from trade," he wrote in the survey. "Manufactured products from India has clearly benefitted 122 Economic Survey 2019-20 Volume 1 from eight out of the fourteen trade agreements. Four of the agreements (SAFTA, BIMSTEC, Thailand and Sri Lanka) had no effect on exports of manufactured products while the bilateral agreements with Korea and Japan exerted a negative effect."
"The current environment for international trade presents India an unprecedented opportunity to chart a China-like, labour-intensive, export trajectory and thereby create unparalleled job opportunities for our burgeoning youth. As an India that harbours misplaced insecurity on the trade front is unlikely to grab this opportunity, our trade policy must be an enabler," he had added.