Ease of doing biz: Country of Origin self-certification

Himanshu TewariEconomic integration has over the past few decades become one of the fundamental factors for economic growth of a country or a region. Economic integration is the unification of economic policies between different countries through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the level of welfare, while leading to increase of economic productivity of the countries. Pattern and pace of economic integration is independently influenced each by technology, cultural tastes, and public policy. There are several stages in the process of economic integration, from a very loose association of countries in a preferential trade area, to complete economic integration, where the economies of member countries are completely integrated. Stages of integrationA free trade area which is the second stage of economic integration is a trade bloc whose member countries have signed a free trade agreement (‘FTA’). Such agreements involve cooperation between two or more countries to reduce trade barriers, import quotas and tariffs and to increase trade of goods and services with each other.Since, the members of a free-trade area do not have a common external tariff, to avoid tariff evasion (through re-exportation) the countries use the system of certification of origin commonly known as rules of origin (‘RoO’), which stipulate a minimum extent of local value addition and tariff transformation. Only goods that meet these origin criteria are entitled to benefits/ concessions covered under the FTAs.A Certificate of Origin (‘CoO’) is an important international trade document which establishes evidence on origin of goods imported into any country. There are two categories of CoO, namely, (i) Preferential and (ii) Non-preferential.• Non-preferential certificates of origin are the most common type of certificate. These certificates of origin see that goods do not benefit from any preferential treatment and do not emanate from a particular bilateral or multilateral free trade agreement. Chambers that are authorized to issue certificates of origin are most frequently authorized to issue non-preferential certificates of origin.• A preferential certificate of origin is a document attesting that goods in a particular shipment are of a certain origin under the definitions of a particular bilateral or multilateral FTA. This certificate is required by a country's customs authority in deciding whether the imports should benefit from preferential treatment in accordance with special trading areas or customs unions. India has signed several FTAs including multilateral and bilateral FTAs such as India - Association of South East Asian Nations (‘ASEAN’) Agreement, India Japan Comprehensive Economic Partnership Agreement (‘CEPA’), India Korea CEPA, Agreement on South Asia Free Trade Area (‘SAFTA’), Asia Pacific Trade Agreement (‘APTA’) etc. India is also negotiating serval other bilateral and multilateral agreements including the Regional Comprehensive Economic Partnership (‘RCEP’) a multilateral treaty among 16 countries in the Asia-Pacific region. Imports from member countries under these economic partnerships/ FTAs are entitled to reduced rates of customs duty. Correspondingly exports from India to these countries are also entitled to tariff concessions in the country of import. This is subject to the condition that the goods moving in these trade channels meet origin criteria, which can be substantiated through a CoO certificate. In India currently, CoO under various trade agreements are required to be obtained from agencies designated under the Foreign Trade Policy 2015-2020 (‘FTP’). A new optional system of self-certification of CoO (Approved Exporter System for Self-Certification of Origin) is being introduced by the Government. Manufacturer exporters who are also recognised by DGFT as status holders shall be eligible for the scheme. The scheme for self-certification will be restricted to the products that are manufactured by the exporter and listed in the SSI/ IEM/ IL/ LOI registration certificate. These products must also be listed in the application for recognition as approved exporter. Eligible exporters can apply for Approved Exporter and can appoint and authorise one of its senior personnel to sign the CoO certificate. DGFT has taken the obligation to train the exporter’s representative into the process of issuing of CoO. On being approved and trained, DGFT will put the details of the person on the website and set up the protocol with the partner country to accept the self certified CoO.Self-certification of CoO certificates are intended for various FTA’s that India has already signed/ proposes to sign with partner countries and also in relation to export to countries like USA and EU which grant GSP benefits to export from India. Starting with the India-Japan and India-Korea CEPAs, Regional Multilateral Trade Division (‘RMTR’) division of the Ministry of Commerce will coordinate with the concerned territorial division a renegotiation of the RoO chapter in all our FTAs to incorporate provisions for self-certification. The EU GSP will recognise self-certification by registered exporters from 1 January 2017. Provision for self-certification has already been built into India-EU and the India-European Free Trade Association (‘EFTA’) Broad based Trade and Investment Agreement (‘BTIA’). The scheme shall be operationalised whenever self-certification system in any of the above agreements is in place. RMTR Division shall inform the DGFT the date from which to operationalise the scheme upon which DGFT will issue the relevant notification. The scheme will support online application, digital signature, added security features as required by certain trade regions. The DGFT will provide periodic training and issue unique identification number for smooth function of the scheme. However, the self-certified CoO certificates will be subjected to periodic review/ audit to substantiate that the exported goods meet the origin/ value addition criteria at all times. This will entail establishing a robust origin management in the supply chain function and maintaining an auditable documentary trail. In conclusion self certification of CoO is an important step by the government in putting trust and confidence in the business community to undertake the responsibility which till now were being borne by Government or semi-government organization or trade bodies set up by the government. This also, is a definitive step towards enhancing ease of doing business in India. The possibility of issuing self-certified CoO seems promising and efficient besides being a matter of pride for being recognised as trusted entity in international trade.Author is partner, Indirect Tax, BMR & Associates LLP.With inputs from Dhiraj Agarwal, Manager, BMR & Associates LLP