TaxTMI 
TaxTMI 
TaxTMI 
Introduction
In an increasingly interconnected global economy, Free Trade Agreements (FTAs) play a vital role in facilitating cross-border trade by reducing or eliminating tariffs. However, this liberalization creates a need to ensure that the benefits of preferential tariffs are extended only to goods that truly originate from the partner countries. This is where the Rules of Origin (RoO) come into play.
India, recognizing the challenges in administering RoO effectively and preventing misuse of FTAs, introduced the CAROTAR Rules (Customs Administration of Rules of Origin under Trade Agreements Rules), 2020. These rules mark a shift in focus from mere Certificate of Origin (CoO) to a more rigorous concept of Proof of Origin, increasing the accountability of importers and protecting domestic industry.
What Are Rules of Origin (RoO)?
Rules of Origin are legal standards used to determine the national source of a product. These rules are critical in:
- Applying preferential tariffs under FTAs or trade arrangements.
- Combating trade deflection, where goods are routed through FTA countries to avoid tariffs.
- Protecting domestic industry from unfair competition due to origin fraud.
RoO typically include two main criteria:
- Wholly Obtained: For products like minerals, agricultural goods, and fish that are entirely produced or harvested in one country.
- Substantial Transformation: When raw materials from multiple countries are used, the origin is determined by whether the final product has undergone significant manufacturing or processing in the FTA partner country (often assessed via value addition, change in tariff classification, or processing rules).
Certificate of Origin (CoO): The Traditional Method
A Certificate of Origin is an official document issued by an authorized agency of the exporting country, declaring that the goods exported comply with the origin criteria under the FTA.
While the CoO has been the cornerstone of determining preferential origin, it has its limitations:
- Potential for misuse, such as issuing CoOs for goods that do not qualify.
- Limited verification ability for Indian customs officials.
- Inadequate deterrence against third-country imports being routed through FTA countries.
These issues led to concerns of origin fraud, hurting Indian industries and reducing the credibility of FTA implementation.
The CAROTAR Rules, 2020: A Paradigm Shift
To address these challenges, India implemented the CAROTAR Rules on 21st September 2020, under Section 28DA of the Customs Act, 1962.
✅ Objective:
To provide a robust framework for customs verification of origin, ensuring that only genuine goods enjoy preferential duty benefits under FTAs.
Key Features of CAROTAR Rules
1. Importer Responsibility
Importers claiming preferential duty must now:
- Exercise reasonable care to ensure the goods meet RoO criteria.
- Possess basic origin-related information at the time of import (value addition, production process, etc.).
- Submit supporting documents to customs authorities on demand.
2. Verification Mechanism
If customs suspects origin fraud, they can:
- Initiate verification with the issuing authority of the exporting country.
- Deny preferential treatment pending clarification.
- Conduct field-level inquiry in some cases.
3. Enhanced Customs Powers
Customs officers have authority to:
- Scrutinize CoOs beyond face value.
- Seek additional information from importers.
- Withhold preferential duty benefits if proof is insufficient.
4. Timeline for Verification
Exporting country’s verification authorities must respond within 90 days. Otherwise, preferential treatment can be denied.
From Certificate of Origin to Proof of Origin: What Changed?
Aspect | Old (CoO Based) | New (CAROTAR - Proof Based) |
Document | CoO issued by foreign authority | CoO + supporting documentation and importer inputs |
Importer’s Role | Passive | Active duty to verify and possess origin data |
Customs’ Authority | Limited to verifying CoO format | Can scrutinize, verify, and demand further evidence |
Enforcement | Low | High – with penalties for misuse |
Transparency | Limited | Greater transparency and record-keeping |
Benefits of CAROTAR Rules
- ✅ Prevention of FTA misuse and routing of non-origin goods.
- ✅ Protection for Indian MSMEs from undercutting by ineligible imports.
- ✅ Improved due diligence among importers and intermediaries.
- ✅ Enhanced trust in India’s trade regime, aligning with global standards.
Challenges & Criticisms
- ⚠️ Increased compliance burden on importers.
- ⚠️ Risk of delays due to customs inquiries.
- ⚠️ Limited capacity of customs to handle all origin verifications efficiently.
- ⚠️ Potential friction with FTA partners over verification practices.
Conclusion
The introduction of CAROTAR Rules marks a significant step in tightening the administration of Rules of Origin in India. Moving from a simple Certificate of Origin to a more rigorous Proof of Origin model ensures that India’s preferential trade policies truly benefit the intended stakeholders. While the rules have increased compliance responsibilities, they are a necessary safeguard in the era of expanded FTAs and global value chains.
As India negotiates more FTAs with key partners like the UK, EU, and Canada, robust origin verification mechanisms will be essential to ensure trade integrity, fair competition, and economic sovereignty.
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