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

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

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

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

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

In 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 value addition calculations in rules of origin; and banning conversion of expensive products (silver bars) to cheaper ones (silver granules) to exploit CEPA benefits," GTRI said.

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

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

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

To control large imports of gold and silver at reduced duties under India-UAE CEPA, government lowered import duties on gold and silver from 15 per cent to 6 per cent in 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 coming years leading to rise in imports again.

Explaining its suggestions, GTRI Founder Ajay Srivastava said that India has agreed to a zero tariff on unlimited quantities of platinum from Dubai, with 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 advant 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 duty on silver to zero over 10 years starting in 2022 and current concessional tariff on imports from Dubai is 8 per cent.

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

report said that tariff concessions are negatively impacting India's jewellery industry as under 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, tariff or customs duty is 17 per cent with a TRQ of 2.3 tonne and lower tariffs make imports from UAE much cheaper than domestic products, making it hard for local manufacturers to compete, it added.

It also alleged that most imports do t meet rules of origin conditions and hence do t qualify for concessions.

"To supply silver granules to India, Dubai firms import silver bars from Russia and or countries, convert m 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 trades conducted at Gift City exchange lack transparency, raising "serious" concerns about pre-arranged deals and invoice manipulation.