India should seek to curb bullion imports from UAE, says GTRI
Sat Aug 17 2024
As India seeks review of the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE) it should aim at withdrawal of duty concessions on gold, silver, platinum and diamonds and tweaks in rules of origin norms, according to the Global Trade Research Initiative (GTRI).
The main goal of the review should be checking the surge imports of bullion from UAE after the pact became operational in May 2022 as it is distorting the trade, the trade policy think-tank said in its report.
Starting with smaller concessions the CEPA contains provisions for unlimited imports of duty-free gold, silver, platinum, and diamonds into India over the next few years. Under the CEPA silver from UAE could enter India at 8% duty if it had 3% value addition in the exporting country. This led to a surge in silver imports to $ 1.74 billion in 2023-24 from $ 29.2 million in 2022-23. Currently, gold can be imported from Dubai at 5% duty, but this will drop to zero in three years if the alloy contains 2% platinum. In 2023-24, 119.35 tonnes of gold bars were imported valued at $ 7.62 billion.
The recent budget has addressed the problem to some extent by decreasing the duties on gold and silver to 6% from 15% but this remedy will last for a limited period. Tariffs on gold and silver from Dubai are set to drop to zero in the coming years leading to rise in imports again, the government saw renegotiating the CEPA to revoke these tariff concessions as the only viable option.
“India should take back tariff cuts on platinum, silver, diamonds, and gold jewellery, adjust value addition rules to exclude profit margins from the value addition calculations in the rules of origin. Ban the conversion of expensive products (Silver bars) to cheaper ones (Silver granules) to exploit CEPA benefits. Stop imports of sanctioned metals from Russia via Dubai. Revoke special privileges to the Gift City bullion exchange due to misuse,” GTRI founder Ajay Srivastava said.
According to the report, India has agreed to a zero tariff on unlimited quantities of platinum from Dubai, with the tariff set to decrease from 5% today to zero by 2026. This is a major concern for India because, according to World Customs Organisation (WSO) classification rules, any metal with just 2% platinum can be classified as platinum. Some firms have taken advantage of this by importing platinum that actually contains 98% 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.
Under CEPA duty on silver will come down to zero over 10 years starting in 2022. Duty concessions on diamonds could also harm local industry. India imports rough diamonds, which are then cut and polished domestically before being exported. To support this local industry, India imposes zero duty on rough diamonds and a 5% duty on cut and polished diamonds. However, under the India-UAE CEPA, cut and polished diamonds can be imported at zero duty if they undergo just 6% value addition in Dubai. India’s global exports of cut and polished diamonds are worth$15.9 billion. Removing the 5% tariff will severely pressure the margins of the domestic diamond industry. Indian manufacturers will struggle to compete with zero-duty diamonds imported from Dubai, potentially forcing many local businesses to shut down or relocate.
The review should also aim to eliminate the profit element from Value addition calculations. 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% value addition in this process. Less than 0.5% 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.
It also asked the government to stop imports of sanctioned metals from Russia via Dubai as it violates US sanctions and revoke special privileges to the Gift City bullion exchange due to misuse. Trades conducted at the Gift City exchange lack transparency, raising “serious” concerns about pre-arranged deals and invoice manipulation.
Source: https://www.financialexpress.com/