Page 37 - ELT_2nd_15th April 2020_Vol 372_Part

2020 ] RULE OF ORIGIN PROVISIONS : A MOVE TOWARDS PROTECTIONISM! A53

stages of production defines the country of origin of the goods. The “rules of
origin” provision prescribes for the minimal processing that should happen in
the Free Trade Agreement (FTA) country so that the final manufactured product
may be called originating goods in that country. Under this provision, 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. It has to undertake a prescribed
value addition in that product to export to India. Rules of origin norms help in
containing dumping of goods. India has inked FTAs with several countries in-
cluding Japan, South Korea, Singapore, ASEAN, and Malaysia. Under such
agreements, two trading partners significantly reduce or eliminate import duties
on maximum number of goods traded between them. An amendment was intro-
duced in Chapter VAA a Section 28DA is being added to Customs Act, 1962 that
pertains to procedures regarding claim of preferential rate of duty. The proposed
provision seeks to provide an obligation on importer for time bound verification
from exporting country in case of doubt. Finance Minister Nirmala Sitharaman in
her Budget Speech said that there is a huge increase in imports under Free Trade
Agreements (FTAs) to India are on the rise. Undue claims of FTA benefits have
posed threat to the domestic industry and such imports require stringent checks
she said. Government of India will also review an important provision of Free
Trade Agreements rules of origin for certain sensitive products such as electron-
ics, suitable provisions are being incorporated in the Customs Act.
This article argues that complex rules of origin, which differ across coun-
tries and agreements, can be a significant constraint on trade, a substantial bur-
den on customs, and a hindrance to trade facilitation. The nature of the rules of
origin can undermine the stated intentions of preferential trade agreements. The
next section discusses what is meant by “origin” and examines methods for de-
termining where a substantial transformation of a product takes place. The se-
cond section elaborates on the definition of preferential rules of origin and looks
at the rules of origin in existing preferential trade agreements. The third reviews
the economic implications of rules of origin, examines the links between rules of
origin and the use of trade preferences, estimates the costs of complying with
rules of origin, and analyses the use of rules of origin as a tool for economic de-
velopment. The final section provides some conclusions.
Defining Origin
When a product is produced in a single stage or is wholly obtained in
one country, such that there are no imported components, the country origin of
the product is relatively easy to establish. This applies mainly to “natural prod-
ucts” and to goods made entirely from them. Proof that the product was pro-
duced or obtained in the preferential trade partner is normally sufficient. For all
other cases in which two or more countries have taken part in the production of
the goods, the rules of origin define the methods for ascertaining in which coun-
try the particular product has undergone sufficient working or processing or has
been subjected to a substantial transformation. (In general, these terms can be
used interchangeably.)
A substantial transformation is one that conveys to the product its essen-
tial character. Unfortunately, there is no simple and standard rule of origin for
identifying the “nationality” of a product. Although rules relating to products
that are wholly obtained are usually relatively straightforward, this is not always
the case. A good example of how a rule for products that appear to be in their
EXCISE LAW TIMES  15th April 2020  53