Release date: Sunday, August 18, 2024, 8:22 pm
Last updated: Sunday, August 18, 2024, 8:23 p.m.
India has sought a review meeting with the UAE to discuss certain provisions of the Comprehensive Economic Partnership Agreement (CEPA) in the backdrop of a recent surge in imports of the precious metal.
“When you sign an agreement, there are conditions attached. When you give preferential tariff rates, there are conditions attached. So the review will look at everything holistically — whether the rules of origin have been met, what is the next step,” India’s commerce secretary Sunil Bhaswal said.
“With regards to CEPA, there are two issues. One is value addition norms and the other is reduction (in customs duties). So, we are in discussion with CEPA and various issues are being discussed in the review,” Bhaswal said. “Once (the review) is completed, we will look at all the issues holistically.”
The UAE-India CEPA, which is expected to be operational in 2022, will provide tariff concessions of 1% and 7% respectively for gold and silver shipments from the UAE. However, to qualify for these concessions, local value addition of 3% is mandatory. Prior to the latest budget announced last month, these products were subject to a 15% tariff, making imports from other countries less profitable and shifting most of the trade to the UAE. The new budget has reduced tariffs on gold and silver to 6%, making it fair for other exporters as well. However, according to CEPA, the preferential tariffs will be further reduced in the coming years and then to zero, which will require review.
Currently, gold imports from Dubai attract a 5% duty, but in three years time, the duty will be reduced to zero if the alloy contains 2.0% platinum.
This will result in a significant decline in annual revenue, a shift in import operations from banks to a small number of private traders and the replacement of key suppliers with Dubai-based companies, according to a report by the Global Trade Research Initiative (GTRI).
“India should withdraw duty cuts on platinum, silver, diamond and gold jewellery and align value addition rules to remove profit margin from value added calculation in rules of origin. Ban conversion of more expensive product (silver bars) into cheaper product (silver grains) to misuse CEPA benefits. Stop import of sanctioned metals from Russia via Dubai. Revoke privileges on GIFT City precious metals exchange for misuse,” said Ajay Srivastava, founder, GTRI.
The GTRI report also noted that many imports do not meet the rules of origin requirements and therefore are not eligible for preferential treatment.
The UAE is India’s third-largest trading partner with bilateral trade standing at $83.65 billion in 2023-24. Silver imports also surged from $29.2 million in 2022-23 to $1.74 billion in 2023-24.
India has agreed to zero duty on unlimited platinum from Dubai, with customs duties set to be reduced to zero by 2026 from the current 5%. This is of major concern to India, because according to the World Customs Organization (WSO) classification rules, a metal containing just 2% platinum can be classified as platinum. Some companies are taking advantage of this and importing platinum that is actually 98% gold. This loophole allows unlimited import of gold from Dubai at zero duty, leading to a significant reduction in customs revenue and a decline in foreign exchange reserves.
Under CEPA, tariffs on silver will be reduced to zero over a 10-year period starting in 2022. Duty reductions on diamonds may also have a negative impact on the domestic industry. India imports rough diamonds, which are cut and polished domestically before being exported. To support this domestic industry, India imposes zero tariffs on rough diamonds and a 5.0% tariff on cut and polished diamonds.
However, under the India-UAE CEPA, cut and polished diamonds can be imported duty-free with just 6% value addition in Dubai. India’s global exports of cut and polished diamonds are worth $15.9 billion. Removing the 5% duty would severely squeeze profit margins in the domestic diamond industry. Indian manufacturers would struggle to compete with duty-free diamonds imported from Dubai, and many local businesses may be forced to close or relocate.