India looks to lift ban on gold imports from S. Korea

India is looking at removing the ban on gold imports from South Korea at zero customs duty under the Comprehensive Economic Partnership Act (CEPA) as soon as it introduces a compulsory regional value content (RVC) requirement in the pact to prevent third country imports from flowing in.

“It has been almost a year since gold imports from South Korea were restricted following a surge in imports. South Korea is now getting impatient and wants a mutually agreeable solution. Tightening the rules of origin under the CEPA by introducing RVC requirement in addition to existing ‘change in tariff heading’ requirement could be a way out,” a government official told BusinessLine.

At present, the CEPA provides for only ‘change in tariff heading’ which means that if gold is imported from a third country into South Korea, it can be subsequently exported to India at zero per cent duty if the imports have changed form to the extent that they fall into a different tariff head categorisation.

The ‘change in tariff heading’ norm in the absence of a RVC norm did not result in adequate checks as it meant that gold bars and rods could be imported into South Korea and then exported to India if they were changed into, say, gold medallions. This requires negligible value addition.

“Now if a RVC norm of 35 per cent is introduced, it would mean that a value addition of 35 per cent to the gold item imported from a third country needs to take place in South Korea for it qualify for zero per cent import duty in India,” the official said.

New requirement

While both sides are ready for the introduction of the new requirement, India still needs to take a final call on the RVC percentage. “While the bullion industry wants a value addition of 35 per cent or more, the jewellers want it to be lower. We have to keep both interest groups in mind,” the official said.

In August 2017, the Directorate-General of Foreign Trade effectively banned import of gold from South Korea into India under the CEPA by placing it in the restricted list of products that can be imported only with government permit.

This was done as the introduction of the Goods & Services Tax on July 1, 2017, had made gold imports from South Korea at zero per cent customs duty much cheaper as the 12.5 per cent countervailing duty was replaced by just a 3 per cent GST. Other countries continued to pay a 10 per cent basic customs duty on gold.

Between July 1 and August 3, 2017, import of gold from South Korea increased by $339 million against import of $70.5 million in the financial year 2016-17.

“As South Korea is not a leading producer of gold or a big exporter, the rise in imports led India to conclude that third country shipments were finding their way in,” the official said.

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