Duty concession on gold will be major concern for India under proposed FTA with Peru: GTRI

In such pacts, two trading partners either significantly reduce or eliminate customs duties on the maximum number of goods traded between them, besides easing norms to promote trade in services

New Delhi: Duty concessions on gold, which accounts for 80% of India’s imports from Peru, is the most challenging issue for New Delhi under the proposed free trade agreement with the South American nation, a report said. 

Economic think tank Global Trade Research Initiative (GTRI) said that gold, a high-value product with low volume, attracts a 10% basic customs duty in India, and even minor tariff concessions could lead to a significant increase in imports. India and the South American nation Peru are negotiating a free trade agreement to promote bilateral trade and investments between the two countries.

In such pacts, two trading partners either significantly reduce or eliminate customs duties on the maximum number of goods traded between them, besides easing norms to promote trade in services. The next round of talks is expected to start this week in Lima, Peru.

“Tariff concessions on gold, accounting for USD 1.8 billion or 80% of India’s imports from Peru in FY23, is the most challenging issue for India,” GTRI founder Ajay Srivastava said. He argued that after tariff concessions under the India-UAE free trade agreement, gold imports from the UAE, India’s second-largest gold supplier, doubled in 2023 compared to 2022.

“Peru, the fifth-largest supplier to India, could see a similar surge in gold imports if concessions are made,” the report said. In 2023, India’s global imports of unwrought gold are estimated at USD 43 billion, with Switzerland accounting for 40% of these imports, it said, adding that given Peru’s gold mines, its gold would easily meet any Rules of Origin criteria.

“FTAs offer concessions on effective duties rather than on the bound duty. Excluding gold from an FTA would violate the World Trade Organization’s Article XXIV, which requires duty cuts on substantial trade for FTAs,” Srivastava said. He also said that India’s bound duty on gold is set at 40%, but the current applied tariff is 10%.

“FTAs allow concessions in effective duties and not on bound duty. If the FTA does not include gold, it may not meet the WTO Article XXIV condition for FTAs to have duty cuts on substantial trade,” Srivastava said. Peru has a bilateral trade pact with major economies like the US, EU, China, Australia, and Singapore. It also has multi-country agreements with the Pacific Alliance (Chile, Colombia, and Mexico) and the Andean Community (Bolivia, Colombia, Ecuador).

These FTAs allow tariff-free imports of most products imported into Peru. “A notable aspect of Peru’s trade regime is its low tariff barriers, with a significant portion of items being duty-free. 70.4% of items in Peru’s tariff schedule are duty-free. The simple average tariff is 2.2%. This means tariff elimination will not result in substantial market access for Indian products,” the report said.

Courtesy: thehindu.com