1.1 One of the chief functions of Customs, as the guardian of the economic frontiers of the country, is to administer tariffs, valuation and origin regulations and, also, strike a fine balance with trade facilitation.
1.2 Bilateral and multilateral ‘Preferent Tr e Agreements’ have become a prominent feature, in the trading system, allowing preferential tariff treatment to partnering countries. Customs officer, at the port, is required to have sufficient knowledge of all existing trade agreements and ability to apply and implement the correct rules corresponding to each of trade agreements, under which the preferential benefit claim has been made.
1.3 With each such agreement laying down a unique set of trade rules, and with the proliferation of such agreements, there also being overlap of within multiple trade agreements, the role of customs officer has assumed much greater significance as well as has become equally challenging.
1.4 Under the overarching umbrella of such bilateral and multilateral trade agreements, Central Board of Indirect Taxes & Customs has a direct role to play in the following aspects-
At the time of Customs clearance
2. Rules of Origin
2.1 ”Rules of origin” are the criteria used to define where a product was made/obtained. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty (charged to counter export subsidies), and more. Rules of origin are, also, used to compile trade statistics, and for “made in..” labels that are attached to products.
2.2 GATT has no specific rules governing the determination of the country of origin of goods in international commerce. Before the Uruguay round, each contracting party was free to determine its own origin rules, and could even maintain several different rules of origin depending on the purpose of the particular regulation.
3. Types of Rules of Origin
3.1 Preferential Rules of Origin: Used to implement trade preferences.
3.2 Non-Preferential Rules of Origin: Used for ‘Most Favored Nation’ treatment, anti-dumping and countervailing duties, safeguard measures, origin marking requirements and any discriminatory quantitative restrictions or tariff quotas, as well as those used for trade statistics and government procurement.
4. WTO Agreement on Rules of Origin (Uruguay Agreement)
4.1 The Agreement on Rules of Origin aims at harmonization of non-preferential rules of origin, and to ensure that such rules do not themselves create unnecessary obstacles to trade. The Agreement sets out a work programme for the harmonization of rules of origin to be undertaken after the entry into force of the World Trade Organization (WTO), in conjunction with the World Customs Organization (WCO).
4.2 Through this Agreement, members commit to negotiate common rules of origin for all non-preferential trade purposes. The Agreement only sets out broad principles for launching the negotiations for the harmonization of non-preferential rules of origin. However, these negotiations are still ongoing, and therefore, there are no common rules of origin at the WTO.
5. The Harmonization Work Programme (HWP)
5.1 Article 9:2 of this Agreement provided that the HWP be completed within three years of initiation.
Its agreed deadline was July 1998. While substantial progress was made at that time in the implementation of the HWP, it could not be completed due to the complexity of issues. In July 1998, the General Council approved a decision, whereby, Members committed themselves to making their best endeavours to complete the Programme by a new target date, November 1999. However, due to various outstanding issues, this work is still under process.
5.2 The above work is ongoing at both the WTO Committee on Rules of Origin (CRO) in Geneva and in the WCO Technical Committee (TCRO) in Brussels.
(a) Overall architectural design
The CRO and the TCRO have established an overall architectural design within which the harmonization work programme is to be finalized.
i. Scope of Application;
ii. the Harmonized System;
iv. Determination of Origin;
v. Residual Rules of Origin;
vi. Minimal Operations or Processes;
vii. Special Provisions; and
viii. De Minimis;
Appendix 1: Wholly obtained goods;
Appendix 2: Product rules – substantial transformation; and
Appendix 3: Minimal operations or processes.
(b) Disciplines during the transition period
5.3 During the transition period (i.e. until the entry into force of the new harmonized rules) Members are required to ensure that:
(a) rules of origin, including the specifications related to the substantial transformation test, are clearly defined;
(b) notwithstanding the measure or instrument of commercial policy to which they are linked, their rules or origin are not used as instruments to pursue trade objectives directly or indirectly;
(c) rules of origin do not themselves create restrictive, distorting or disruptive effects on international trade and do not require the fulfilment of conditions not related to manufacturing or processing of the product in question;
(d) rules of origin applied to trade are not more stringent than those applied to determine whether a good is domestic, and do not discriminate between Members (the GATT MFN principle). However, with respect to rules of origin applied for government procurement, Members are not to be obliged to assume additional obligations other than those already assumed under the GATT 1994 (the national treatment exception for government procurement contained in GATT Article III:8).
(e) rules of origin are administered in a consistent, uniform, impartial and reasonable manner;
(f) rules of origin are based on a positive standard. Negative standards are permissible either as part of a clarification of a positive standard or in individual cases where a positive determination of origin is not necessary;
(g) rules of origin are published promptly;
(h) upon request, assessments of origin are issued as soon as possible but no later than 150 days after such request, they are to be made publicly available; confidential information is not to be disclosed, except if required in the context of judicial proceedings. Assessments of origin remain valid for three years, provided the facts and conditions remain comparable, unless a decision contrary to such assessment is made in a review, referred to in (j). This advance information on origin is considered as a great innovation of the Agreement;
(i) new rules of origin or modifications, thereof, do not apply retroactively;
(j) any administrative action in relation to the determination of origin is reviewable promptly by judicial, arbitral or administrative tribunals or procedures independent of the authority issuing the determination; such findings can modify or even reverse the determination;
(k) confidential information is not disclosed without the specific permission of the person providing such information, except to the extent that this may be required in the context of judicial proceedings.
6. Main components of preferential Rules of Origin in existing Trade Agreements:
6.1 While there are no harmonized preferential rules of origin, the existing trade agreements do follow the general principles as laid out in the Uruguay round Agreement on Rules of Origin. The main components have been listed and briefly explained to assist in comprehension of rules of origin under various existing bilateral and regional trade agreements. Each Trade Agreement, however, has its own set of Rules of Origin, and precise definition of each of the term listed below may vary. Customs officers are, therefore, advised to refer to the respective Rules of Origin also, as notified in terms of sub-section (1) of section 5 of the Customs Tariff Act, 1975.
(i) Originating Criteria
A good is originating if it is wholly obtained in the partnering country or deemed to be originating if it undergoes substantial transformation.
(a) Goods Wholly Obtained
The origin category of “Goods Wholly Obtained” covers the good which is entirely obtained, extracted, or produced in a single country, without incorporating any non-originating input material.
(b) Goods that are produced using non-originating materials, i.e. not Wholly Obtained
Goods under this category are required to undergo substantial transformation in a country for the good to be qualified as originating. Each Trade Agreement sets its own rules to define substantial transformation/sufficient working. However, broadly, there are three criteria used to define the originating criteria, which are used in various combinations or standalone, which are as given in the Table 35.1 below:
Table 35.1: Criteria used to define the originating criteria in Trade Agreements
|Change in Tariff
|This rule requires that non-Party goods, when used in manufacture of the final product, must undergo changes in tariff classification.
Depending upon Trade Agreement requirements, the changes could range from mere change at Sub Heading (HS six digit) level to change at Chapter (HS two digit) level.
Value Addition/Ad Valorem criterion
|Process Rule criterion||This rule requires the good, which is being considered as originating, to be produced through specific process in the originating country.|
(c) General Rule versus Product Specific Rules
Depending upon the Trade Agreement, either a single set of rule applies to all/most of the goods that are produced using non-originating materials and thus termed as “General Rules” or specific rules for the goods based on HS classification are framed and termed as “ Product Specific Rule”.
Note: There are Trade Agreements which provide option to an exporter to choose general or product specific rule to claim origin. In few cases however, general rule cannot be applied when a product specific rule is provided for. Customs officer should therefore read the Non-Tariff Customs notification to check for same.
(ii) Additional Provisions which influence Rules of Origin
The originating criteria under trade agreements are additionally influenced by other elements, which either restrict or broaden the application of same. A customs officer should therefore read all provisions as notified under the Customs Tariff Act, 1975, for each trade agreement. Some such elements which should be considered while inspecting a preferential claim or investigating are as listed below:
Cumulation allows for treating inputs, imported from or, processes carried out, in the partnering country, as originating in or done within the exporting country. In effect, imported inputs would be considered to be domestic for origin purposes. Level of such cumulation is defined under each Trade Agreement and may vary from agreement to agreement.
This provision allows that non-originating materials that do not satisfy an applicable rule may be disregarded, provided that the totality of such materials does exceed specific percentages in value or weight of the goods or otherwise said there is a certain tolerance to be applied with regard of the requirements to fulfil the origin criteria.
(c) Indirect Materials/ Neutral Elements
They are goods used in the production, testing or inspection of goods but not physically incorporated in the goods, such as goods used in the maintenance of buildings or the operation of equipment associated with the production of goods. These materials are either treated as originating or not taken into account while establishing criteria based upon value addition, depending upon the mutually agreed Rules of Origin between the contracting parties.
(d) Direct Consignment
Under normal conditions all trade agreements allow preferential tariff treatment to only those goods which are transported directly between Parties. However, in case a good is not transported directly, it should meet the conditions and be supported by documents, as laid out under Rules of Origin of the said Trade Agreement.
(e) Minimal Operations Rule
This rule lists processes or operations considered as insufficient to confer originating status, even if it meets prescribed value addition or/and tariff classification change criterion.
The absorption or roll-up principle allows intermediate products to maintain their originating status when they are used for subsequent manufacturing operations. This means that if a material which contains non-originating input(s) satisfies the applicable origin criterion and has acquired originating status, the entire material is treated as originating when assessing the origin of the subsequently produced product.
(iii) Document submitted as Proof of Origin:
Traditionally, all trade agreements have relied upon a CoO, issued by a competent body, as proof of origin and is a requirement to claim tariff preference. Elements like, the format and data, validity, security features, if any, are as prescribed under specific agreement.
Note: Following provisions (generally termed as the operational certification procedures) are specific to each agreement and, therefore, cannot be taken as a standard practice as there is a scope of variance from agreement to agreement –
i. Need to claim tariff preference at time of filing customs declaration.
ii. Need for original proof of origin at time of filing customs declaration.
iii. Validity of such document.
iv. Provision for rectifying minor errors in such document.
v. Time line of issuance of Proof of origin vis-a vis date of shipment. Retroactive documents can only be accepted, if specifically provided for in the Rules of Origin. It, also, defines the conditions and time period within which a proof origin can be issued retroactively.
vi. Options available, in case of loss of original document.
(iv) Verification of Proof of Origin
Rules of Origin for each trade agreement provides for mechanism for seeking details from exporting country, should a need be felt to supplement investigations done domestically to ascertain validity of origin of a good. The procedure and timelines for same are prescribed and vary from agreement to agreement. Rule 6 of CAROTAR, 2020 provides for timeline for receiving information from Verification Authority and subsequent finalization of preferential tariff claim based on information received.
[Notification No. 81/2020-Customs (N.T.) dated 21.08.2020]
Note: It is important to clearly state reasons for verification request and quote the rule under which same is sought. CBIC has issued detailed guidelines on this issue vide Circular No. 38/2020-Customs dated 21.08.2020.
[Circular No. 38/2020-Customs dated 21.08.2020]
7. Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 [CAROTAR, 2020]:
Finance Act, 2020 inserted Section 28DA in the Customs Act, 1962 so as to provide for proper administration of rules of origin under various trade agreements and to lay down procedure regarding claim of preferential tariff on goods imported into India. The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 [CAROTAR, 2020] have been notified vide notification No. 81/2020-Customs (N.T.) dated 21.08.2020 which prescribe form, time limit, conditions and restrictions, as provided in the section 28DA of the Customs Act, 1962. Some of the major provisions under the above-named rules provide for the following-
7.1 CAROTAR requires that the importer or his agent shall, to claim preferential rate of duty under an agreement, at the time of filing bill of entry, –
(a) make a declaration in the bill of entry that the goods qualify as originating goods for preferential rate of duty under that trade agreement;
(b) produce certificate of origin (CoO), covering each item on which preferential rate of duty is claimed;
(c) enter details of CoO in the bill of entry, namely: CoO reference number, date of issuance, originating criteria etc; and
(d) indicate status regarding accumulation/cumulation, third country (back-to-back) issuance of CoO and/or direct transportation of goods from country of origin, where applicable.
7.2 It, also, requires an importer to possess sufficient information about the origin of goods. In this regard, a form has been suggested for ease of reference, containing a list of basic minimum information, which an importer is required to obtain to claim preferential tariff under an agreement. This information is not required to be submitted with every bill of entry and needs to be presented only when an inquiry is made by a Customs officer.
7.3 In case of a doubt with regard to origin of goods, information is required to be first called upon from the importer of the goods, before initiating verification with the partner country, as maybe provided, under the respective trade agreement.
7.4 CAROTAR specifically provides for circumstances that may necessitate verification request pertaining to a CoO from concerned verification authority of partnering country during the course of customs clearance or thereafter, as detailed below, where:
(a) there is a doubt regarding genuineness or authenticity of CoO for reasons such as mismatch of signatures or seal;
(b) there is reason to believe that the country of origin criterion, stated in the CoO, has not been met or the claim of preferential rate of duty made by importer is invalid; or
(c) verification is being undertaken on random basis, as a measure of due diligence to verify whether the goods meet the origin criteria, as claimed.
7.5 For such verification requests, timeline for receiving information and subsequent finalization of preferential tariff claim based on information received even in cases where these timelines may not be provided in the related agreement are clearly spelled out.
7.6 Further, with a view to safeguarding rightful revenue, Clause 10 of Section 28DA of Customs Act, 1962 read with CAROTAR provide that preferential tariff treatment may be denied without verification under the following circumstances:
(a) the tariff item is not eligible for preferential tariff treatment;
(b) complete description of goods is not contained in CoO;
(c) any alteration in the CoO not authenticated by the Issuing Authority;
(d) CoO is produced after the period of its expiry.
8. List of Trade Agreements:
Table 35.2: List of Trade agreements
|1||Asia Pacific Trade Agreement (formerly known as
the Bangkok Agreement)
Cus dated 30.06.2018
|94/2006-Cus (N.T.) dated 31.08.2006||Value of
55% or PSR
|2||Free Trade Agreement Between the Democratic Socialistic Republic of Sri Lanka and the Republic of India||26/2000-Cus dated 01.03.2000||19/2000-Cus (N.T.) dated 01.03.2000||Value of
material <=65% + CTH
|3||Agreement between the Transitional Islamic State of Afghanistan and
Republic of India
|76/2003-Cus dated 13.05.2003||33/2003-
material <=50% + CTH
|4||India-Thailand Early Harvest
|85/2004-Cus dated 31.08.2004||101/2004-
or [40% +
|5||Comprehensive Economic Cooperation Agreement between Republic of India and Republic of Singapore||73/2005-Cus dated 22.07.2005; 74/2005-
Cus dated 22.07.2005; 75/2005-
Cus dated 22.07.2005; 10/2008-
Cus dated 15.01.2008
|59/2005-Cus (N.T.) dated 20.07.2005||[35% + CTSH] or PSR||Singapore|
|6||Agreement on South Asian Free Trade Area (SAFTA)||99/2011-Cus dated 09.11.2011; 68/2012-Cus dated 31.12.2012||75/2006-Cus (N.T.) dated 30.06.2006||[Value of
material <=60% + CTH] or PSR *10%
relaxation for Sri
|7||Preferential Trading Agreement between the Republic of India and the Republic of Chile||101/2007-
Cus dated 11.09.2007
|84/2007-Cus (N.T.) dated 17.08.2007||[Value of
material <60% +CTH] or PSR
|8||Duty Free Tariff Preference (DFTP) Scheme for Least Developed Countries||96/2008-Cus dated 13.08.2008||29/2015-Cus (N.T.) dated 10.03.2015||30% + CTSH||33 countries9F10|
|9||India- MERCOSUR Preferential Trade Agreement||57/2009-Cus dated 30.05.2009||56/2009-Cus (NT) dated 30.05.2009||Value of
|10||Comprehensive Economic Partnership Agreement (CEPA) between the Republic of India and the Republic of Korea||151/2009-
Cus dated 31.12.2009 152/2009-
Cus dated 31.12.2009
or [35% +
|11||Treaty of Trade
Nepal and the
Cus dated 01.10.2010
Trade in Goods
|46/2011-Cus dated 01.06.2011||189/2009-
Cus(N.T.) dated 31.12.2009
|35% + CTSH||Brunei
|13||Comprehensive Economic Partnership Agreement (CEPA) between the Republic of India and Japan||69/2011-Cus dated 29.07.2011||55/2011-Cus (N.T.) dated 01.08.2011||[35% + CTSH] or PSR||Japan|
|14||Comprehensive Economic Cooperation Agreement (CECA) between Republic of India and Malaysia||53/2011-Cus dated 01.07.2011||43/2011-Cus (N.T.) dated 01.07.2011||[35% + CTSH] or PSR||Malaysia|
|15||Comprehensive Economic Cooperation and
Partnership Agreement (CECPA) between Republic of India and Republic of Mauritius
|25/2021-Cus dated 31.03.2021||38/2021-
Cus(N.T.) dated 31.03.2021
|16||Comprehensive Economic Partnership Agreement (CEPA) between the Government of the Republic of India and the government of the United Arab Emirates||22/2022-Cus dated 30.04.2022||39/2022-Cus (N.T.) dated 30.04.2022||PSR||United Arab Emirates|
10 Afghanistan,Bangladesh,Benin,Burkina Faso,Burundi,Cambodia, Central African Republic, Chad, Comoros,Eritrea,Ethiopia,Gambia, Guinea,Guinea Bissau,Haiti,Lao PDR, Lesotho, Liberia, Madagascar,Malawi,Mali,Mozambique,Myanmar,Niger,Rwanda,Senegal,Somalia,Sudan,Timor Leste,Togo,Uganda,Tanzania,Yemen,Zambia
Source – Custom Duty Manual 2023