India’s duty-free rule jitters exporters, Commerce calls meeting 18 Nov

The commerce ministry has called a meeting of all stakeholders on 18 November to find ways to counter a new Indian customs rule that allows arbitrary power to Indian authorities to revoke duty-free access to Bangladeshi products without verifying certificate of origin of goods.

It is feared that the new rules will widen Bangladesh's trade gap with India again after it narrowed down in recent years.

The Indian rules also have the provision for suspension of preferential tariff while verification is pending. This may discourage Indian traders from importing goods from Bangladesh.

"We have called a meeting with the Export Promotion Bureau, Tariff Commission, NBR and businessmen on 18 November," said Commerce Secretary Md Jafar Uddin.

Earlier when the new rules were framed, the Export Promotion Bureau (EPB) had recommended to the Commerce Ministry that the Bangladesh government should first try to have India's Customs (Administration of Rules of Origin under Trade Agreements) Rules 2020 revoked through diplomatic channels.

To this end, Bangladesh should try to engage the South Asian Association for Regional Cooperation (Saarc) and the Asia Pacific Trade Agreement (Apta) secretariats, it said.

If diplomatic efforts fail, the government may consider using reciprocity measures to impose similar rules on importing finished products from India, it also suggested.

Officials said the National Board of Revenue (NBR) has already started working in this regard.

The commerce secretary further said diplomatic efforts would be made first so that Bangladesh's export to India was not hampered.

Trade gap

According to the EPB, exports from Bangladesh to India amounted to $1.09 billion in the 2019-20 fiscal year. Jute and jute products, leather and leather goods, vegetables and readymade garments are the main exports of Bangladesh.

In the last fiscal year, Bangladesh imported goods worth $5.77 billion from India.

Bangladesh's trade deficit with India stood at $4.76 billion in FY20. In FY19, it stood at $6.4 billion, while it was $7.75 billion in FY18.

Duty-free facility

Bangladesh, as a least developed country, gets duty-free facilities for export of all products to India, except for 25 liquor and tobacco goods. The facilities come as part of agreements including the Saarc Preferential Trading Arrangement (Sapta), the South Asian Free Trade Area (Safta), and Apta.

Under these agreements, the EPB issues and verifies certificates of origin for products exported to India. It also provides assurance that the rules of origin are being adhered to.

Bangladesh is now examining whether rules imposed nationally in India can hamper facilities granted under the multilateral trade agreements. Officials think the new Indian customs rules are contrary to these agreements.

How the new rules will affect Bangladesh's exports to India

To avail duty-free facilities for products exported to India, the EPB had so far issued certificates of origin until the new Indian customs rules came into effect on 21 September.

Before this new customs rule, the Indian authorities were verifying, through the EPB, any information needed before releasing goods imported from Bangladesh.

But the new rules say the Indian customs authorities will collect all information from Indian importers who will collect the information from the Bangladeshi exporters.

This, apart from giving the Indian customs authorities to decide on information obtained from importers and exporters to decide whether or not a certain product will be granted duty-free facility, will jeopardise the business confidentiality of Bangladeshi exporters.

The new Indian rules say that before unloading goods, Indian importers will have to fill in a form and submit it to customs officials of their country.

The form should state the prices of raw materials of products and the country(s) they have been imported from. It should also mention whether exporters, in case of sourcing the raw materials locally, have produced or imported those themselves.

The product manufacturing process and information on cost should also be recorded in the form. Earlier, exporters would give this information to the EPB, and the EPB would then provide it to the Indian authorities.

Under the new rules, importers will not get duty-free facilities if they fail to provide the necessary information. Also, during verification, Indian customs officials can release goods without duty-free facilities if they wish.

For the rules of origin verification, Indian importers have to give the required information to the customs authorities of their country within 60 days of being notified by the latter. The customs authorities can deny preferential tariff if the importer cannot comply with the request within that time.

Bangladeshi exporters will not be able to reply within the stipulated time if the Indian customs authorities delay the sending of verification requests. This will create a risk of decline in exports, observed the EPB.

Once a product of an exporting company fails to get duty-free facility, the Indian customs will never grant the facility to the product of that company.

What Bangladesh thinks about the new rules

Dr Mostafa Abid Khan, member (International Cooperation) of the Tariff Commission, told The Business Standard the new rules give Indian customs officials verification power by ignoring EPB certificates.

As a result, Indian importers may not import goods from Bangladesh to avoid trouble, he said.

EPB Vice-Chairman AHM Ahsan said the new customs rules are a kind of non-tariff barrier to the export of Bangladeshi goods to India.

He fears that this could reduce Bangladesh's exports to the neighbouring country and widen the existing trade deficit.

He added, "Making and implementing separate rules outside the agreements is in no way justifiable or logical."

Businesses concerned

"Such types of inspection rules will affect our exports, said Sharif Zahir, managing director of Ananta Apparels Ltd, one of the leading apparel exporters in Bangladesh.

Jute exporters will not be affected by the restrictions and the strong monitoring of the rules of origin but it may affect Bangladesh's readymade garment export as the sector depends on imported raw materials, said Mahmudul Huq, chief executive officer of Janata Jute Mills, one of the leading jute exporters to India.

"The product manufacturing process and its cost are the key secrets of a business, and asking for such information is not fair," he added.

India is trying to develop more protectionist policies which are absolutely contradictory in the reality of today's trade, said Ali Ahmed, chief executive officer of Bangladesh Foreign Trade Institute (BFTI).

"Every country is going to be more liberal in trade. It is a surprising move by the Indian government when they are in talks with the BFTI to sign a comprehensive export preferential agreement with Bangladesh."

He also said any rule formulated with the aim to protect a single country may affect others.