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India is seeking a review meeting with the UAE to discuss certain provisions of the Comprehensive Economic Partnership Agreement (Cepa) on the backdrop of a recent surge in imports of precious metals.
“When you have agreements, you also have conditions. When you give a concessional rate there are conditions too, so in a review we will see everything holistically. How the rules of origin are being met or not, what is future course of action,” India’s Commerce Secretary Sunil Barthwal has said.
“As regards Cepa, there are two things — one is the value addition norms and second is reduction (of customs duties). So we are in discussion with them and there are various issues which are discussed under the review,” Barthwal said. “Once we get it (the review), then we will look at all the issues holistically.”
Under the UAE-India Cepa, operationalised in 2022, gold and silver shipments from the UAE enjoy duty concession of one per cent and seven per cent, respectively. However, three per cent local value addition is a must for availing this concession. Before the latest budget, presented last month, 15 per cent duties on these products made imports from other countries less lucrative, shifting a large part of the trade to the UAE. The new budget reduced the duties on gold and silver to six per cent, thereby levelling the field for other exporters. However, as per the Cepa, the preferential duties will come down further in the coming years and then settle at zero so the review becomes necessary.
Currently, gold can be imported from Dubai at five per cent duty, but this will drop to zero in three years if the alloy contains 2.0 per cent platinum.
This will lead to significant annual revenue losses, move import business from banks to a few private traders, and replace top suppliers with Dubai-based firms, a Global Trade Research Initiative (GTRI) report said.
“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.
The GTRI report also noted that many imports do not meet rules of origin conditions, hence do not qualify for concessions.
The UAE is India’s third-largest trading partner, with bilateral trade being valued at $83.65 billion in 2023-24. There was also a surge in silver imports to $1.74 billion in 2023-24 from $29.2 million in 2022-23.
India has agreed to a zero tariff on unlimited quantities of platinum from Dubai, with the tariff set to decrease from five per cent 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 two per cent platinum 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.
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 5.0 per cent 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 six per cent value addition in Dubai. India’s global exports of cut and polished diamonds are worth$15.9 billion. Removing the five per cent 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.
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