India-EU Free Trade Agreement: Key features and things to note

Earlier this year, India and the European Union (EU) had concluded the negotiations of a Free Trade Agreement hailed to be the “Mother of all deals”. Recently the text of the Agreement was released setting out the intricacies of the deal (albeit with a rider saying the text might undergo further revisions before it comes into force). This article analyses the text of the Agreement and provides a broad overview of the same.

TRADE IN GOODS

A key feature of this FTA is EU’s commitment to provide preferential tariff access to India to 97% of tariff lines covering 99.5% of trade value of India’s current exports to EU. India, on the other hand, is offering preferential tariff access to 92.1% of its tariff lines which covers 97.5% of the EU exports to India.[1]

Key labour-intensive Indian export sectors such as textiles, apparel, marine, leather, footwear, chemicals, plastics/rubber, sports goods, toys, gems, and jewellery will stand to benefit from the preferential tariff access to the EU market. Similarly, many of EU’s products imported into India including high technology goods, alcoholic beverages, luxury personal care and perfumery, specialty chemicals, gourmet foods etc. are likely to become cheaper in India, thereby benefitting consumers.

It is to be noted that preferential tariff benefits under the India-EU FTA will be available only to goods that qualify as originating under the Rules of Origin[2] set out under this Agreement. Broadly, a product will be regarded as originating if it:

a.       Is wholly obtained or produced either in India or in the EU; or

b.      Satisfies the applicable Product Specific Rules and all other requirements prescribed under the agreement.

The above is applicable equally for exports from India to the EU as well as for imports from the EU to India. The origin criteria are examined in greater detail below.

Wholly obtained goods

Wholly obtained goods[3] include plant and agricultural products grown and harvested within the territory of a Party, live animals born and raised there, products obtained from such animals, fish and marine products harvested under specified conditions, minerals extracted from the territory, waste and scrap fit only for raw material recovery, and goods manufactured exclusively from such products. These provisions are particularly relevant for agricultural, marine and natural resource-based products where origin can be established based on the source of the goods. Wholly obtained products are automatically conferred origin under the India-EU FTA. 

Goods which satisfy the Product Specific Rules

The purpose of the Product Specific Rules is to ensure that even if goods are not wholly originating in the Party country, still origin status can be conferred on them provided sufficient manufacturing or processing takes place within the territory of the Parties.

Such Product Specific Rules conferring origin have been set out for specific product classifications[4]. Depending on the product concerned, these rules may require any of the following conditions to be fulfilled:

        i.            achievement of a minimum Qualifying Value Content (that there should be a minimum value addition in EU / India); or

      ii.            a prescribed change in tariff classification (that there must be a change in classification of non-originating inputs qua the output. Depending on product, such a change could be required at the Chapter level, Heading level, or Sub-heading level); or

    iii.            a combination of both (i) and (ii) above; or

    iv.            a maximum value or weight of non-originating materials; or

      v.            follow a specific production process; or

    vi.            some other specific condition as has been set out in the Product Specific Rules.

Thus, the India EU-FTA does not follow the general pattern of specified value addition + Tariff change to confer origin benefit. The conditions are varied and depend on the product in question and its classification.  Thus, it is important to check and determine which is the origin condition applicable to product concerned, before deciding to avail the benefit.

Operations carried out must be beyond ‘minimal operations’

It is also important to bear in mind that the Rules of Origin further clarify that in order to confer origin, activities beyond minimal operations as mentioned in the Rules must be carried out. Thus, mere carrying out of minimal operations[5] like washing, cleaning, drying, packaging, repacking, simple assembly, dilution, polishing or mixing will not confer origin benefit, irrespective of whether or not the products satisfy the Product Specific Rules.

Direct consignment   

Furthermore, a fundamental condition for availing preferential tariff treatment is compliance with the direct consignment requirement[6]. Originating goods must generally be transported directly from the exporting country to the importing country. However, the agreement permits transit through one or more third countries, provided the goods remain under customs control and do not undergo any operations other than those necessary for storage, unloading or reloading, preservation, splitting or consolidation of loads, repacking, relabelling etc.

Proof of Origin

On import into India

When goods are imported into India, a “Statement of Origin” declaring that the goods are originating in the EU is required to be submitted. A Statement of Origin should be made out by an exporter or a producer of a product in the EU, demonstrating that the product is originating in the EU. The same must include information on the originating status of materials used in the production of the product.[7] It should be made in accordance with the template set out in Annex 3-C to the Agreement. The Statement of Origin must be submitted to the Designated Authority in EU, and the Authority will then make available this information with their Indian counterparts.

The Importer in India should also enter the details of the Statement of Origin in the bill of entry. The Importer should also possess information other than the Statement of Origin to demonstrate that the product is originating in the EU, only to the extent that such information is made available by the exporter.

It is unclear from the Agreement as to what is the additional information that the Indian importer must possess. However, it must be noted that of Section 28DA of the Customs Act, 1962 in India mandates that Indian importers keep the information as required under the Form-I prescribed by the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 handy in case the Customs Authorities require it to ascertain the origin of the goods. Form-I requires detailed information of value and origin of inputs used in manufacture of the exported product, the detailed value addition carried out in the exporting country etc. Thus, this could be the additional information which is contemplated in the India-EU FTA.

On import into the EU

In order to avail the benefit under the India-EU FTA when goods are imported into the EU, either of the following proof of origin can be used:

a.       A Statement of Origin issued by an “authenticated exporter” in India (similar to what is contemplated for exports from EU to India above); or

b.      Knowledge of the importer that the goods are originating in India. Such knowledge shall be based on information demonstrating that the product is originating and satisfies the requirements provided in the Rules of Origin[8].

Common provisions for import into both parties

The India-EU FTA provides that both parties shall put into place a procedure for authenticating the Statement of Origin provided by the authenticated Exporters[9]. Furthermore, in case the authentication procedure is not operational in a Party at the date of entry into force of this Agreement, the Issuing Authority of the exporting Party shall issue a Certificate of Origin[10] as proof that the goods are originating. Thus, at present further clarity is needed on what information will exactly be needed to demonstrate origin.

Other key provisions qua goods:

• Third party invoicing: The agreement also provides that preferential tariff treatment shall not be denied merely because it involves third-party invoicing module[11].

• Transitional arrangement: Even if goods are shipped prior to the entry into force of this Agreement, as long as the same are presented for customs clearance on or after the date of entry into force of this Agreement, FTA benefit can be claimed. 

• Retrospective claim: Importers are permitted to claim the FTA benefit up to a year after import (unless the laws in the importing country provide for a longer period).  

TRADE IN SERVICES

 Under the India-EU FTA, India's services offer, spanning 102 subsectors, addresses several key priorities of the EU, including professional, business, telecommunications, maritime, financial, and environmental services. Temporary stay of business visitors, intra-corporate transferees, contractual service suppliers etc. have been specifically laid down thereby providing a transparent and predictable regulatory framework, thereby encouraging greater European investment and facilitate the introduction of innovative service offerings in India.

Carbon Border Adjustment Mechanism (CBAM)

The India-EU FTA has maintained the integrity of CBAM. However, the Most Favoured Nation (‘MFN’) assurance has been extended, ensuring that any future flexibilities or concessions granted to third countries under CBAM regulations will automatically extend to India. The EU has also undertaken to engage in technical dialogue on the possibility to take into account the carbon price effectively paid in the India under a carbon emissions reduction scheme.

Conclusion

Overall, the India-EU FTA presents significant opportunities for Indians both in respect of trade of goods as well as services. Importers and exporters intending to avail the benefit of the India-EU FTA are advised to examine the Agreement closely, as a thorough understanding of its provisions is essential for securing the preferential benefits offered by the same. The Agreement in present form merely specifies guidelines on how to avail the benefit and does not go into the practical intricacies of the same. It is hoped that the Agreement, when it comes into force, will clarify the same.

[The authors are Partner and Principal Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys]

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[1] Factsheet - India and European Union Trade Agreement

[2] Chapter 3 to the India-EU FTA

[3] Article 3.3 of the India-EU FTA

[4] Annexure 3B to the India-EU FTA

[5] Article 3.45 of the India-EU FTA

[6] Article 3.15 of the India-EU FTA

[7] Article 3.18 of the India-EU FTA

[8] Article 3.21 of the India-EU FTA

[9] Annexure 3-D to the India-EU FTA

[10] Annexure 3-E to the India-EU FTA

[11] Article 3.20 of the India-EU FTA