Discussion Board

CAROTAR 2020

(Custom Administration of Rules of Origin under a Trade Agreement Rule)

1. A trade agreement is a contract/agreement/pact between two or more nations that outlines how they will work together to ensure mutual benefits in the field of trade and investment. It is an arrangement between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non-tariff barriers on substantial trade between them. It covers trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading, etc.). It also covers other areas such as intellectual property rights (IPRs), investment, government procurement, and competition policy, etc.
2. CAROTAR 2020 implement of the finance minister in her budget speech to product the domestic industry from misuse of FTAs (Free Trade Agreement). Section 28DA makes it incumbent upon an importer to possess sufficient information as regards how Country of Origin criteria, including the regional value content and product-specific criteria, specified in the Roo in the trade agreement, are satisfied. CAROTAR, 2020 has provided a form, containing a list of basic minimum information that an importer is required to obtain while importing goods under a claim of a preferential rate of duty. Therefore, in case there is a doubt concerning the origin of goods, the information should be first called upon from the importer of the goods, before initiating verification with the partner country.
3. Section 28DA of the Customs Act, 1962 further states that mere submission of a Coo shall not absolve the importer of the responsibility to exercise reasonable care to the accuracy and truthfulness of the information supplied. In case of failure of the importer to do so, the fact should be informed to the Risk Management Centre of Customs (RMCC) through written communication to enable compulsory verification of assessment of all subsequent import consignments. However, the compulsory verification of assessment should be discontinued once the importer demonstrates that he has established an adequate system of controls to exercise reasonable care as required under the Customs Act, 1962;
4. CAROTAR 2020 applies only when an importer ai importing goods claiming a preferential rate of duty following rules of origin (ROO) criteria and commitments specified under Indias Free Trade Agreements. These include FTAs such as India ASEAN FTAs, India Asia Pacific Trade Agreement (APTA), India-japan Comprehensive Economic Partnership Agreement (CEPA), India-Singapore CECA, and India-Thailand FTA. India has inked FTAs with several countries, including Japan, South Korea, Sri Lanka, and ASEAN members. Major imports to India come from five ASEAN countries Indonesia, Malaysia, Thailand, Singapore, and Vietnam. The ASEAN (Association of Southeast Asian Nations) FTA allows imports of most items at nil or concessional basic customs duty from the 10-nation bloc. It is a regional grouping that promotes economic, political, and security cooperation. It was established in 1967 in Bangkok, Thailand, with the signing of the ASEAN Declaration (Bangkok Declaration) by the founding fathers of ASEAN, namely Indonesia, Malaysia, Philippines, Singapore, and Thailand. Currently, it consists of ten members namely, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Chairmanship of the group rotates annually, based on the alphabetical order of the English names of Member States. The benefit of concessional customs duty rate applies only if an ASEAN member country is the country of origin of goods.

5. This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the ASEAN FTA. Importers will have to ensure that imported goods meet the prescribed ‘rules of origin’ provisions for availing concessional rate of customs duty under Free Trade Agreements (FTAs). Importers have to prove that imported products have undergone a value addition of at least 35% in the countries of origin. Earlier, merely a country of origin certificate, issued by a notified agency in the country of export was sufficient to avail the benefits of FTAs.
6. This was exploited in many cases, i.e. the FTA partner countries have been claiming to have produced the goods in question without having the necessary technological capacity for the required value addition. The investigation into FTA imports in the last few years has revealed that the rules of origin, under respective FTAs, were not being followed in the true spirit. Customs officials suspect that China diverts its supplies to India through the Association of Southeast Asian Nations (ASEAN) nations, abusing rules of origin, to illegally take advantage of duty-free market access under FTA. The ASEAN FTA allows imports of most items at nil or concessional basic customs duty from the 10-nation bloc. Major imports to India come from five ASEAN countries — Indonesia, Malaysia, Thailand, Singapore, and Vietnam.
7. The benefit of concessional customs duty rate applies only if an ASEAN member country is the country of origin of goods. This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the ASEAN FTAs the new rules will make the importer to correctly ascertain the country of origin properly claim the concessional duty and assist customs authorities in the smooth clearance of legitimate imports under FTAs. They were notified on 21st August 2020 by the Department of Revenue.30-day period was given to importers and other stakeholders to familiarize themselves with new provisions. Imports are required to maintain a record of basic minimum information specified in form of the CAROTAR 2020 and provide such information to customs authorities if requested. Customs authorities are also empowered to request any details or documents from importers in addition to the records maintained to verify the authenticity of the preferential tariff treatment claim which if not provided within a specified time would lead to denial of the claim to the importer. The bill of entry format has been modified so that importers can make the necessary declarations and provide the requisite information about the COO.
8. Request information and supporting documents from the importer concerning the claim for preferential tariff benefit during the course of customs clearance or thereafter. Request for verification of COO from Verification Authority of the exporting country, following the provisions of the FTA. Declare a COO as inapplicable and reject an importer’s claim of preferential tariff treatment without requesting verification from the Verification Authority of the exporting country in specified circumstances. The Principal Commissioner of Customs or the Commissioner of Customs can reject importers claim for preferential treatment without verification for the reasons to be recorded in writing, if

• The importer relinquishes the claim for preferential treatment; or
• The information and documents furnished by the importer and available on record provide sufficiently

9. evidence to prove that goods do not meet the origin criteria prescribed in the respective ROO. Without verification, the Principal Commissioner of Customs or the Commissioner of Customs

can reject a claim of preferential duty benefit, after recording reasons in writing, on identical goods imported from the same exporter or producer by any importer where it has been determined by the customs authorities that the criteria of ROO is not met by the exporter or producer. The claim could be restored prospectively if demonstrated by submitting information and details that the exporter or producer has undertook necessary modifications to meet the ROO criteria. Importers should consider implementing a recurring systematic and institutional procedure for obtaining details from exporters concerning every consignment imported on which preferential treatment under FTAs. the claim is made.

10. This will ensure the relevant information is automatically recorded and updated. Obtain an undertaking from the exporters before the arrival of each consignment that the origin criteria have been met and there is no change in the information/data shared with the importer based on which the COO is obtained. Obtain a health check report from the exporters of an independent agency (from an exporting country) at regular intervals in terms of the documents/information/data shared with the importer certifying that the criteria of ROO has been met
11. The importer can consider simplifying transactional structures so that it is easier to justify compliance of origin conditions (which becomes essential since FTA claims are bound to be subject to incremental scrutiny under the new regime). E.g. APTA does not clearly allow for third party invoicing, hence it would be preferable to have a direct agreement with a manufacturer located in APTA country. They supplement the existing operational certification procedure prescribed under different trade agreements (FTAs/PTA/CESA/CEPA).
12. The CAROTAR, 2020 and Rules of Origin notified for a trade agreement, broadly provide the following grounds for verification: In case of a doubt regarding the genuineness of the Certificate of Origin (Coo) such as any deficiency in the format of the certificate or mismatch of signatures or seal when compared with specimens on record. In case of a doubt on the accuracy of information regarding the origin, i.e. where doubt arises on whether the product qualifies as an originating good under the relevant Roo. Verification could also be undertaken on a random basis as a measure of due diligence. For this purpose, factors such as the quantum of duty being foregone, the nature of goods vis-à-vis the Country of Origin, commodities that are prone to misdeclaration of Country of Origin, compliance record of the importer, etc., may be given regard while selecting Coo for random verification
13. Its basic objective is the to accelerate economic growth, social progress, and cultural development to promote regional peace and stability, to promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific, and administrative fields. To assist each other in the form of training and research facilities in the educational, professional, technical, and administrative spheres. In the event, the rejection of preferential tariff benefit is by and officer below the rank of the Principal Commissioner of Customs or the Commissioner of Customs importer may appeal to the Commissioner (Appeals) within sixty days from the issuance of the decision following Section 128 and 128A of the Act. In case of an order passed by the Principal Commissioner of Customs or the Commissioner of Customs rejecting the claim for preferential tariff benefits the importer may file an appeal before the Appellate Tribunal under Section 129A of the Act within three months from the date of the order. Further, based on the facts and circumstance of the case, an

importer may also approach the High Court by filing a writ petition under Article 226 of the Constitution of India.

14. It will be interesting to see if any importers challenge the provisions of CAROTAR, 2020 on grounds such as inconsistencies with the letter and spirit of the provisions of the FTA, imposition of onerous requirements on importers concerning COO (which is an obligation on part of exporters) and lack of clarity in the CAROTAR, 2020 regarding COOs that will be granted preferential treatment. To accelerate economic growth, social progress, and cultural development to promote regional peace and stability, to promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific, and administrative fields. To assist each other in the form of training and research facilities in the educational, professional, technical, and administrative spheres.
15. Procedure for ascertaining the correctness of a claim of a preferential rate of duty. For ascertaining the correctness of a claim of a preferential rate of duty under a trade agreement, information may be sought from the importer during the course of customs clearance or thereafter. Likewise, a verification request may be made to an exporting country during the course of customs clearance of imported goods or thereafter. While the Customs Act, 1962 provides that information may be sought within a period of five years from the date of claim of a preferential rate of duty by the importer, this time limit is subject to any other time limit as may be specified for this purpose under the trade agreement. Further, it has also highlighted
16. The format of Coo as per Roo under various trade agreements, the period of validity, manner of obtaining the certificate, and the procedure for verification of origin. Communication of the authorized signatory details by the partner country through agreed channels. The facility of an online repository on ICES for storing signatures/seals to facilitate comparison by the assessing officers and alternate procedure for reference to CBIC for verification Mode of circulation of copies of specimen signatures and seals by DRI for the benefit of non-EDI customs locations Designation of Director, CBIC as the nodal point for taking-up verification of origin with partner countries Methods/steps to help reduce the time taken in the communication of requests for verification of preferential country.
17. CAROTAR 2020 needs we because the investigation into Free Trade Agreement imports in the last few years has revealed that the rules of origin under the respective free Trade Agreement were not being followed in the true spirit. its further impacts and requirements are given in the following paragraph, Preferential Trade Agreements are a widely practiced norm in international trade policy in recent times; India too, has its share of PTAs. For example, in 2009, India signed the ASEAN FTA with 10 nations including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam which entitled exports from such countries to India at a preferential rate of duty. But there are increasing trade irregularities and undue claims of Preferential Tariff Treatment by fraud and manipulation of the country of origin criteria. In order to check the undue claims under PTT and to bring in the requirement for stringent checks on imports of goods especially focusing on the Coo, the Government of India notified the CAROTAR Rules 2020 which came into effect on September 21, 2020. Under the CAROTAR regime, the declaration and verification criteria will become comprehensive for import under PTT.
18. There are some changes in particulars of the bill of entry such as the declaration regarding satisfaction of originating goods (for PRD), Coo details, originating criteria “wholly obtained”