In its latest move to make the export process faster and easier, Indian government has introduced a welcoming change in its export policy. From January 1st 2017, a so-called self-certification system by exporters will come into force. The registered exporter system (REX) will replace the certificate of origin which is issued by accreditation agencies. Using this system, exporters will be able to directly offer their customers statements on origin by submitting information such as name and contact details through the internet. This new system will make utilization of the benefits under Generalized System of Preferences (GSP) less cumbersome and time consuming.

Generalized System of Preference (GSP) is a preferential tariff system extended by developed countries to developing countries. It involves reduced MFN Tariffs or duty-free entry of eligible products exported by beneficiary countries to the markets of developed countries. Importing country lays down the rules of origin which comprise a set of requirements laid down by the importing country, which must be fulfilled by a product to be eligible for preferential tariff treatment upon import in that country. Rules of origin are aimed at reserving, as far as possible, the benefit of the preferential system to the country for which it is intended, and to prevent third countries' goods from unduly exploiting the system. Only those products of a beneficiary country like India that fulfill the requirements of the rules of origin are considered eligible for preferential tariff treatment on import into the markets of developed countries. One of the key criteria of rules of origin is the ‘Origin Criteria’ which determines whether a product can be considered to have been originated in the beneficiary country, i.e. the country from where the goods are being exported.

The exported item needs to have the ‘certificate of origin’ that states it is manufactured in India. At present traders get this certification from accredited agencies – a process which takes time and involves cost. With this new self certification system, Indian exporters will be able to certify their goods to be exported to Europe as ‘Made in India’. This will be an immensely beneficial move for the exporters as it will help to reduce processing time as well as transaction costs. This will make doing business with India easier and will give a thrust to India’s foreign trade with the EU.

In terms of goods trade, the real issue for India was non-tariff barriers such as technical barriers like the EU imposing stringent labelling requirements and trademark norms, which have hurt India’s exports. Despite lower tariffs, exporters do not want to export through the Free Trade Agreement (FTA) route because of the complex paperwork such as certificate of origin associated with it. Self-certification will definitely encourage FTA utilization. With this new system towards self-certification, the Indian exports to the European Union may improve. Indian exporters will accrue benefits more than from just reduced transaction costs and faster processing time. New exporters can penetrate the market and established exporters can increase their market share and improve upon their profit margins.

As per the World Bank’s Doing Business report, the average cost of exports from India is $1,170 per transaction, nearly double that of Sri Lanka, the UAE and China. India is ranked 134 out of 189 countries in this report. Efforts towards export promotion through schemes and stimulus packages will not yield the desired results unless we substantially cut down the transaction costs. This new move of self-certification is one step towards building more efficient trade facilitation mechanism in India and thus, will help India meet its commitment to the World Trade Organization's trade facilitation agreement.

 

Shailja Kaushik | Blogger- Arsha Consulting

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