A new rule framed by India on determining the country of origin of a product is going to hurt Bangladesh’s exports to India and undermine the efforts to narrow large trade imbalance between the two neighbours, according to two government agencies.
The views came after the Indian authority issued a notification termed Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 in August.
Following the notification, the commerce ministry sought opinions from the Bangladesh Trade and Tariff Commission (BTTC) and the Export Promotion Bureau (EPB).
Both the agencies find that the new measure on rules of origin (RoO) are inconsistent with the trading agreements, particularly the treaty on the South Asian Free Trade Area (Safta).
The move would affect Bangladesh’s exports to India, which enjoyed a $4.68 billion surplus, they said.
It comes at a time when Bangladesh’s exports to the larger neighbour are gradually increasing.
Officials of the commerce ministry said the BTTC scrutinised the new rule in light of the Safta’s RoO and the Operational Certification Procedures (OCP).
The BTTC found that some of the provisions contradict with those with the Safta RoO and OCP.
The Safta, comprising eight members of the Saarc, came into force in January 2006 to increase intra-regional trade in South Asia, which accounts for about 5 per cent of the total trade of the region.
Under the Safta, most of the exports from the least developed countries, including Bangladesh, get duty-free entry to India based on a document termed as the certificate of origin (CoO).
The certificate is issued by the state agencies of exporting countries confirming the country of origin of the products. In the case of Bangladesh, the EPB issues the CoO.
India’s new measures on the RoO allow its customs authorities to seek information to examine the certificate issued by the state authority of the exporting country.
Officials of the commerce ministry said as the CoO is issued by a designated agency of the exporting country, such mechanism and rejection of the CoO go against the trust.
“It is a matter of trust. It shows that there is a lack of trust,” said BTTC Member Mostafa Abid Khan.
The BTTC, citing another provision of India’s new rules, said customs officials could deny the claim of a preferential rate of duty if a CoO is produced whose validity has expired.
However, the BTTC said there is a provision in the Safta OCP that the certificate could still be accepted even after the expiry of the validity period if there is a cause that is beyond the control of exporters.
Another provision requires importers to possess information supporting document of the RoO for five years. The BTTC said most of the information sought is already in the CoO and the issuing authority of the exporting country and exporters possess some other information and supporting documents.
The tariff commission said there is a provision in the Safta RoO that requires the issuing authority to retain the application for CoO and all related documents for two years.
“Neither the Safta RoO nor the OCP requires the exporters or the issuing authority to send this information to the importers,” said the BTTC in its report to the commerce ministry.
The tariff commission said the rule of the OCP provides for exchange of information upon request by importers. And there is also a provision that seeks to ensure that the exchange shall be confidential.
“Therefore, such a requirement is a complete departure from the Safta RoO and OCP,” said the commission.
The requirement to possess information of the exporters by the importers does not exist in any regional trade pacts, it said.
“Such a requirement will discourage exporters to avail the opportunity of preferential access and will constitute a very stringent trade-restrictive measure undermining the prime objective of the Safta.”
There is a provision in the new Indian rule that obliges the CoO issuing authority to furnish information as required.
The tariff commission said the provision extremely undermines the state authorities of exporting countries by denying the claim for preferential treatment using judgement on the evidence provided by the issuing authority.
“Such provisions are a gross violation of the Safta RoO and OCP,” it said, adding the provisions are inconsistent with Safta RoO and OCP and aim at discouraging import under the Safta.
It suggested the government take initiatives to request India to withdraw the rules.
The EPB said the new rules empower customs authorities to cancel preferential tariff benefit for exporters and importers and will put exporters in uncertainty.
As a result, there is a risk that export to India might fall, it said, adding that importers will feel discouraged to import as there is a risk of suspension of tariff benefit.
Bangladesh exported goods worth $1.09 billion to India and imported $5.77 billion worth of goods in the fiscal year 2019-20.
The trade gap might increase because of the new rules, the EPB said, calling for initiating diplomatic move and engaging the secretariat of the Saarc.
A senior official of the commerce ministry said the ministry would sit with stakeholders, particularly businesses to know their views.
The new rules will apply to all countries, he said.
Asif Ibrahim, a director of the Bangladesh Garment Manufacturers and Exporters Association, said the measures may be used to raise cases of dumping against exports from Bangladesh.