With the government seeking a review of certain provisions of the Free Trade Agreement (FTA) with the United Arab Emirates (UAE), the think tank Global Trade Research Initiative (GTRI) on Friday called for the withdrawal of duty cut concessions on platinum, silver, diamonds, and gold jewellery, as well as a revision of the rules of origin norms within the pact.
India and the UAE signed the FTA, officially known as the Comprehensive Economic Partnership Agreement (CEPA), on 18 February 2022, with implementation beginning on 1 May 2022.
GTRI previously warned that the agreement allows unlimited duty-free imports of gold, silver, platinum, and diamonds into India over the coming years, which it argues could harm the domestic industry.
The think tank also alleged potential misuse of the rules of origin in the agreement, stressing the need for India to review the CEPA. These rules must be met to qualify for duty concessions under the agreement.
In its recommendations for the review, GTRI urged India to focus on key 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) into cheaper ones (silver granules) to exploit CEPA benefits."
Additionally, GTRI called on the government to halt imports of sanctioned metals from Russia via Dubai and revoke special privileges granted to the Gift City bullion exchange due to alleged misuse.
The think tank emphasised that the primary goal of the review should be to reduce large bullion imports and tighten the rules of origin to prevent the misuse of bullion imports from Dubai.
According to GTRI, in FY24, 119.35 tonnes of gold bars were imported, valued at $7.62 billion. Silver imports from the UAE surged by 5,853 per cent, from $29.2 million in FY23 to $1.74 billion in FY24. Gold jewellery imports from the UAE also saw a sharp increase of 290 per cent, rising from $347 million in 2022-23 to $1.35 billion in FY24.
In an effort to control the large imports of gold and silver at reduced duties under the India-UAE CEPA, the government reduced import duties on gold and silver from 15 per cent to 6 per cent in the 2024 Budget. However, GTRI noted that this only provided partial relief, as tariffs on gold and silver from Dubai are set to drop to zero in the coming years, potentially leading to another surge in imports.
Explaining its concerns, GTRI Founder Ajay Sahai pointed out 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. He highlighted a significant concern that, under World Customs Organization (WCO) classification rules, any metal with just 2 per cent platinum content 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," Sahai said.
Regarding silver, GTRI noted that India agreed to eliminate the duty on silver over 10 years starting in 2022, with the current concessional tariff on imports from Dubai set at 8 per cent. With tariffs expected to drop to zero in the coming years, GTRI warned that imports could rise again unless the CEPA is renegotiated.
The report also stated that the tariff concessions are negatively impacting India's jewellery industry. 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 tonnes. Currently, the tariff or customs duty is 17 per cent, with a TRQ of 2.3 tonnes. The lower tariffs make imports from the UAE significantly cheaper than domestic products, making it challenging for local manufacturers to compete.
GTRI also alleged that many imports do not meet the rules of origin conditions and therefore 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. The rest of the value addition can be legally shown as profit, and money can be laundered to show higher realisations," Sahai said.
He further added that trades conducted at the Gift City exchange lack transparency, raising "serious" concerns about pre-arranged deals and invoice manipulation.
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