The Centre is looking at striking a delicate balance in its efforts to check misuse of Free Trade Agreements (FTA) by unscrupulous importers and ensuring that their use by legitimate businesses is not discouraged.

“A task force could be set up under the Department of Revenue Intelligence with members from other Departments including Commerce and Industry. It will examine in detail what measures can be put in place to check fraudulent imports while not making the provisions so onerous that they act as a deterrent to genuine people from using the FTA route,” an official familiar with the matter told BusinessLine.

Finance Minister Nirmala Sitharaman, in her Budget speech, had pointed out that undue claims of FTA benefits were posing a threat to domestic industry and the government would take measures to clamp down on imports such as reviewing rules of origin (ROO) requirements.

ROO determine whether enough value addition took place in the FTA partner country for the import to qualify as originating from there. It is sometimes flouted by importers to wrongly claim that a particular import is originating from an FTA partner country so as to pocket the benefits.

The Customs Department, reportedly, is looking at retrospectively verifying costing data, value-addition compliance of imports and certificates of origin up to a period of five years from the date of import.

The government is also likely to look at the ROO provisions in some of the existing trade pacts, for instance the one signed with Bangladesh, and take a call on whether they need to be further strengthened, the official said.

TV industry concerns

The TV industry has been one of the key sectors that has been raising concerns about misuse of FTAs .

The Ministry of Electronics and Information Technology had last year informed the Lok Sabha that the value of import of televisions from Vietnam (which is part of the India-ASEAN FTA) saw a 37-fold increase to ₹2,317 crore in 2018-19, compared to ₹62 crore in 2017-18.

Overall, televisions worth ₹7,224 crore were imported in 2018-19 and China, Vietnam, Malaysia, Hong Kong and Taiwan were among the top five countries for such imports, according to the government data.

“This kind of scrutiny is much needed as some players have been misusing FTAs to import finished LED TVs. There have been incidents, where certain players have imported products with an origin of certificate that does not accurately reflect the country where these products have been actually manufactured,” said Avneet Singh Marwah, CEO, Super Plastronics Pvt Ltd (SPPL), that sells Kodak and Thomson-branded televisions in the country.

He added that rather than investing in domestic manufacturing these players rely heavily on imported finished TV sets from FTA countries.

However, an effort will also be made to ensure that any move to check FTA misuse does not end up penalising genuine users of the trade pacts and act as a disincentive for trading under the pacts.

“At present, FTA usage in India is already very low because the industry prefers to export and import through the normal route to avoid getting into the hassles of providing documents. The government needs to see that greater scrutiny of imports does not lead to discouraging genuine users of the FTA route,” the official said.