JUNE 13, 2024

By Neeraj Prasad, IRS (C & IT)

DETERMINATION of Country of Origin (CoO) for all imports as well as exports of goods is based on the concept of Rules of Origin (ROO), and are of two types - Preferential Rules of Origin and Non- Preferential Rules of Origin. While Preferential Rules of Origin are primarily adjuncts of Agreements between its countries or trade blocks extending most favoured/preferential treatment to each other; they are used to confer concessions to goods of the concerned parties. Non-Preferential Rules of Origin apply to imports from all countries other than those covered by preferential treatment for the purpose of appropriate tariffs, quotas, trade protection measures such as anti-dumping, safeguards & marking of goods, statistical purposes, etc.

The contours on which Country of Origin are to be determined are stated in the WTO Agreement on Rules of Origin, whose technical foundation are based on the principles enunciated in Annexure K of the revised Kyoto Convention, which is about simplification and standardisation of Customs procedures, negotiated under the aegis of World Customs Organisation.

Annexure K of the revised Kyoto Convention provides the basis for signatories to determine the origin, both of goods produced in more than one country, and goods which are produce of one country; For latter, the criteria of Wholly Obtained product is used, and for former the origin of goods is required to be determined with reference to the last / final country in which Substantial Transformation of the goods took place. Substantial Transformation is to be determined by applying one of three different methods on a standalone basis or in combination; percentage of value added; change in tariff heading; specified process of manufacture.

While India has a series of notified Preferential Rules of Origin as in the case of, Generalised System of Preferences (GSP), Global System of Trade Preferences (GSTP), SAARC Preferential Trading Agreement (SAPTA), Asia-Pacific Trade Agreement (APTA), India-Sri Lanka Free Trade Agreement (ISLFTA) and Indo-Thailand Free Trade Agreement etc. These arrangements / agreements prescribe Rules of Origin which have to be met for imports/ exports to be eligible for tariff preference. In the Finance Act of 2020, amendments have been made in the Customs Act to incorporate Section 28DA followed by Customs Administration of Rules of Origin under Trade Agreements Rules, 2020, which essentially prescribes requirements when an importer is making claim for preferential rate of duty, in terms of any trade agreement.

There is reference to Non-Preferential Rules of Origin in para 2.90 of the Handbook of Procedure of the Foreign Trade Policy. However, we are still to have a legally binding full-fledged Non-Preferential Rules of Origin regime, without which the basis for declaring the CoO for the entire gamut of Exim trade, remain inadequately addressed, and is a major regulatory vacuum.

The Ministry of Consumer Affairs, Food and Public Distribution has issued Consumer Protection (E-Commerce) Rules, 2020 which have come into force from July 23, 2020. The rules elaborate on their scope and applicability stating the duties and liabilities of the e-commerce entities, and of the sellers offering their goods or services through a marketplace e-commerce entity. The rules are fashioned on the draft National E-Commerce Policy released by the government in early 2019. Declaration of Country of Origin (CoO) has been made mandatory in these rules. Further, e-commerce companies have been directed to tag 'country of origin' on all items on their platforms by 30 September, 2020 by the Department for Promotion of Industry and Internal Trade (DPIIT). Further, the Legal Metrology (Packaged Commodities) Rules, 2011, requires a declaration of 'country of origin' or 'country of manufacture' or 'country of assembly' on the imported products, and the requirement of indicating origin of goods imported/exported has also been mentioned in Section 71 of the Geographical Indications of Goods (Registration and Protection) Act, 1999.

These developments, in many measures, are a result of a series of PILs which were filed in various HCs, amongst other emergent developments. In one of the PILs, Delhi High Court on July 01, 2020, issued notice to the Centre, in a case wherein the petitioner sought directions to the Centre to display the name of manufacturing country on E-commerce websites. Similar petition has also been filed in the Hon. SC. However, on what basis the CoO would be declared is an inadequately addressed issue, in our extant regulatory framework.

The provisions of HBP, Legal Metrology Act, Geographical Indicators Act, are inadequate as they don't contain all the elements which is necessary for having a comprehensive "Rules of Origin - ROO" regime in terms of the WTO Agreement on Rules of Origin, and Annexure K of the revised Kyoto Convention.

A HSN chapter wise joint Harmonization Work Programme for developing ROO criteria is being carried out under the joint aegis of WCO/WTO, but it appears, the joint Harmonization Work Programme which is in the works for a while now, is going to take some more time before all outstanding issues are finalised. Meanwhile, most of the major trading nations/blocs have already enacted their Non-Preferential Rules of Origin framework such as Australia, Japan, People's Republic of China, European Union etc.

We are lagging behind in the regulatory catch up on this issue by more than a decade now, in comparison to other major trading powers with whom we wish to compete. While having a legally binding Non-Preferential rules of Origin regime is certainly need of the hour, care would have to be taken that the framework is not complicated to implement, especially in terms of the substantial transformation criteria, and has a very definitive and empowered administrative mechanism for implementing it. Whatever be the approach adopted for legislating Non-Preferential Rules of Origin, it has to be an ambiguity free, comprehensive legal and administrative framework.

[The views expressed are strictly personal.]