GTRI suggests duty cuts withdrawal on silver, diamonds, gold jewellery under India-UAE FTA

New Delhi: With the government seeking a review of certain provisions of a free trade agreement with UAE, think tank GTRI on Friday asked for the withdrawal of duty cut concessions on platinum, silver, diamonds, gold jewellery, and tweak the rules of origin norms in the pact.

India and the United Arab Emirates (UAE) signed the Free Trade Agreement (FTA), officially dubbed as Comprehensive Economic Partnership Agreement (CEPA) on February 18, 2022, and implemented on May 1, 2022.

The Global Trade Research Initiative (GTRI) has earlier stated that the pact contains provisions for unlimited imports of duty-free gold, silver, platinum, and diamonds into India over the next few years and it would hurt domestic industry.

It has also alleged that there is a potential misuse of the rules of origin in the agreement and due to that India should review the CEPA. Meeting these rules are must to get duty concessions under the agreement.

In the review, it said India should focus on issues such as "withdrawing tariff cuts on platinum, silver, diamonds, and gold jewellery; adjusting value addition rules to exclude profit margins from the value addition calculations in the rules of origin; and banning the conversion of expensive products (silver bars) to cheaper ones (silver granules) to exploit CEPA benefits," the GTRI said.

It also asked the government to stop imports of sanctioned metals from Russia via Dubai and revoke special privileges to the Gift City bullion exchange due to misuse.

It added that the main goal of the review should be a reduction of large bullion imports and tightening the rules of origin to prevent misuse of bullion imports from Dubai.

"In FY24, 119.35 tonne of gold bars were imported valued at USD 7.62 billion. Silver imports from the UAE increased dramatically by 5853 per cent, from USD 29.2 million in FY23 to USD 1.74 billion in FY24," the report said adding the import of gold jewellery from the UAE has increased by 290 per cent from USD 347 million in 2022-23 to USD 1.35 billion in FY24.

To control large imports of gold and silver at reduced duties under the India-UAE CEPA, the government lowered import duties on gold and silver from 15 per cent to 6 per cent in the 2024 Budget.

However, it said that, since this only offered partial relief, with tariffs on gold and silver from Dubai set to drop to zero in the coming years leading to the rise in imports again.

Explaining its suggestions, GTRI Founder Ajay Sahai said that India has agreed to a zero tariff on unlimited quantities of platinum from Dubai, with the tariff set to decrease from 5 per cent today to zero by 2026 and this is a major concern for India because, according to WCO (World Customs Organisations) classification rules, any metal with just 2 per cent platinum can be classified as platinum.

"Some firms have taken advantage of this by importing platinum that actually contains 98 per cent gold. This loophole would allow unlimited gold imports from Dubai at zero duty, leading to a significant loss of customs revenue and a drain on foreign exchange reserves," he said.

For silver, it said that India agreed to eliminate the duty on silver to zero over 10 years starting in 2022 and the current concessional tariff on imports from Dubai is 8 per cent.

"With tariffs set to drop to zero in the next few years, imports would likely rise again unless the CEPA is renegotiated," Srivastava said.

The report said that the tariff concessions are negatively impacting India's jewellery industry as under the CEPA, India agreed to reduce tariffs on gold jewellery by 1 per cent each year, from 20 per cent to 15 per cent over five years, with a Tariff Rate Quota (TRQ) of 2.5 tonne.

Currently, the tariff or customs duty is 17 per cent with a TRQ of 2.3 tonne and the lower tariffs make imports from the UAE much cheaper than domestic products, making it hard for local manufacturers to compete, it added.

It also alleged that most imports do not meet rules of origin conditions and hence do not qualify for concessions.

"To supply silver granules to India, Dubai firms import silver bars from Russia and other countries, convert them into granules, and claim a 3.5 per cent value addition in this process. Less than 0.5 per cent value addition accrues in this process. Rest of value addition can be legally shown as profit and money can be laundered to show higher realisations," he said.

He added that the trades conducted at the Gift City exchange lack transparency, raising "serious" concerns about pre-arranged deals and invoice manipulation. PTI RR DR