‘Free trade’ is not automatic, it’s not always free and there are rules which must be complied with to access preferential customs duty rates at the borders, writes Leonie Ferretter.
The India-Australia Economic Cooperation and Trade Agreement (IA-ECTA) has been a long time coming for Australian and Indian Companies.
The IA-ECTA will enter into force on 29 December 2022 and is Australia’s 17th free trade agreement (FTA) and India’s 13th FTA.
As one of the fastest growing economies in our region, India represents significant opportunities for Australian exporters and those importers sourcing, or proposing to source, goods from India.
From India’s perspective, the IA-ECTA is expected to further grow the existing trade in sectors like minerals, cosmetics and wine and give a big boost to several other sectors of the Indian economy especially textiles, gems, jewellery and pharmaceuticals.
However, as all of us who deal with FTA(s) know, 'free trade' is not automatic, it’s not always free and there are rules which must be complied with to access preferential customs duty rates at the borders.
Rules of origin
- wholly obtained (e.g. animals, vegetables, minerals) or wholly produced using only materials obtained from India and/or Australia; or
- where the goods are using inputs from outside of India or Australia, such inputs must meet the rule relating to the change in tariff sub heading; and the goods must qualify for the value content criteria which cannot be less than 35 percent using the build up method or 45 percent using the build down method; and
- the consignment rule must be met.
Additionally, there may be certain product specific rules which apply irrespective of above rules of origin.
Product specific rules
Product specific rules come in a range of guises; they can be:
- change of tariff classification of non-originating materials;
- qualifying value content (QVC), using either build up or build down methods;
- both of the above.
Certificates of origin (COO)
Usually, a valid COO, or a copy of one, is required to be held by the importer at the time the goods are imported to claim preferential duty rates.
The certificate of origin must be issued by an approved issuing body and contain the prescribed data elements.
Where an importer is an Australian Trusted Trader, the requirement of having a COO can be waived (but not the requirement for the importer to satisfy itself that the goods meet the rules of origin).
In circumstances where a COO is not available at the time of importation of the goods, the Australian legislation provides for refunds of duty where the importer is able to provide one for retrospective shipments.
However, it is worth noting that the certificates cannot be issued more than 12 months retrospectively and are only valid for a period of one year. Therefore, in Australia, the time limit for a refund in this instance, would be reduced from four years to two years.
In India, the COO is required to be furnished at the time of clearance of goods. It is practically difficult to submit a COO subsequently to obtain refund of duties from the Customs Authorities in India.
Direct consignment rule
Another important rule, i.e. direct consignment, is the one that importers and exporters often overlook. To access the IA-ECTA the goods must be shipped directly to Australia or India from Australia or India.
Alternatively, if they are shipped to a third country – the goods must remain under customs control and they must not undergo any operation other than unloading, reloading, storing, repacking, re-labelling for the purpose of satisfying the requirements of Australia or India, splitting up or consolidating loads or any other operation necessary to preserve the goods in good condition or to transport the goods to the territory of Australia or India.
Therefore, where regional or global distribution centres are used in the supply chain, this becomes a critical point as not all distribution centres are customs controlled.
Duty rates of goods
FTA(s) do not automatically deliver a 'free' rate of duty. Rather, many goods duty rates are phased down over time.
Upon implementation, it is proposed that the IA-ECTA will eliminate 85 percent of tariffs on Australian exports (around AUD 2 billion per annum) and 96 percent of tariffs on Indian exports (approximately AUD 500 million). Australia already has a relatively low customs duty regime, with a range of available concessions for many goods.
Therefore, it is important to check the phasing rate schedule in the agreement to understand whether the goods being imported into Australia or India will be customs duty free.
Verification rules for preferential duty claims
The IA-ECTA contains specific verification rules which allows either Customs authority to undertake verification of preferential duty claims. These include:
- visitation to the producer or manufacturers site;
- access to relevant accounting records to verify claims of origin;
- denial of preferential duty claims where the rules of origin are not able to be verified.
Local regulations to avail FTA benefit
In India, it is mandatory for the importers to comply with a specific regulation, Customs (Administration of Rules of Origin under Trade Agreements) Rules, in order to claim benefits under any FTA.
The regulation requires importers to possess prescribed information (and often some more) and exercise reasonable care for claiming benefits under any free trade agreements. The key information to be maintained, inter-alia, includes:
- details on supplier’s production process(s); and
- regional value content details.
The information is required to be submitted only when an inquiry is made by a customs officer. Non maintenance of above information, may result in denial of preferential treatment of goods.
Managing technical barriers to trade
AI-ECTA provides for the facilitation of trade by ensuring that non-tariff measures do not create unnecessary obstacles to trade. The AI-ECTA contains commitments for both countries to make publicly available any proposed new or amended standards, technical regulations and conformity assessment procedures.
The agreement also provides for mutual recognition agreements for mutual acceptance of each other’s conformity assessment certifications and trade facilitation measures.
Client support for free trade agreement matters
Our trade and customs teams in Australia and India support our clients on all free trade agreement matters ranging from optimising trade benefits for supply chain, claim of origin benefits, the use of technology and training to ensure the highest levels of access to our agreements, defense of origin declarations before customs and litigation, if any.
Don’t hesitate to reach out to us for support on accessing this exciting agreement now and into the future.
Find out more
Identifying and navigating the bilateral opportunities and risks for Australian and Indian businesses.
Identifying and navigating the bilateral opportunities and risks for Australian and Indian