TaxTMI 
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TaxTMI 
Free Trade Agreements and Their Impact on Customs Duty Collections: A Double-Edged Sword for Revenue Authorities
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....ree Trade Agreements and Their Impact on Customs Duty Collections: A Double-Edged Sword for Revenue Authorities<br>By: - YAGAY andSUN<br>Customs - Import - Export - SEZ<br>Dated:- 1-7-2025<br>Exploring how Free Trade Agreements (FTAs) affect customs duty collections requires analyzing both macroeconomic policy effects and practical enforcement challenges. Heres a structured breakdown you can use f....
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....or an article or report: 1. Introduction Define Free Trade Agreements (FTAs): treaties between countries to reduce or eliminate customs duties and trade barriers. Purpose: Encourage trade, improve market access, and promote economic cooperation. Problem Statement: While FTAs foster trade, they also reduce customs duty revenue, posing a challenge to domestic fiscal and trade policy. 2. Underst....
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....anding the Link: FTAs and Customs Revenue A. Direct Impact: Duty Concessions FTAs often provide tariff concessions or exemptions on specific goods. Example: Under the India-ASEAN FTA, duties on many products were reduced to zero. Result: Reduced duty collections on eligible goods. B. Shift in Trade Patterns Imports are redirected from non-FTA to FTA countries (trade diversion), possibly at h....
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....igher economic cost. Importers choose FTA partners to take advantage of preferential duty rates, reducing duties even if alternatives exist. 3. India's Experience with FTAs and Duty Collections A. Key FTAs Affecting Customs Revenue India-ASEAN FTA India-Korea CEPA India-Japan CEPA India-UAE CEPA (recent) India-Mauritius CECPA B. Revenue Loss Estimates CAG and CBIC reports indicate that d....
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....uty foregone under FTAs has grown significantly, e.g., thousands of crores annually. Example: In 2021-22, duty foregone due to preferential tariffs crossed ?45,000 crore. C. Compliance and Revenue Leakage Abuse of Rules of Origin (RoO): mis-declaration of country of origin to fraudulently claim FTA benefits. Customs enforcement needs to verify certificates of origin (CoO) - a challenge with li....
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....mited data-sharing across countries. 4. Enforcement and Mitigation Strategies A. CAROTAR Rules, 2020 India introduced Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 to tighten scrutiny of origin claims. Empower customs officers to seek additional information and deny benefits if RoO conditions aren't met. B. Improving Data Analytics and Risk Profiling Use of A....
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....I and data analytics to detect suspicious trends in FTA claims. Linking CoO verification with import history and valuation patterns. C. Capacity Building and International Cooperation Train customs officers on RoO verification. Bilateral cooperation with FTA partners to prevent origin fraud. 5. The Bigger Picture: Trade-Offs and Policy Challenges Short-term Revenue Loss vs. Long-term Economi....
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....c Gains: While customs duties fall, FTAs may boost economic activity, consumption, and indirect tax revenue (GST). Impact on Domestic Industry: Inflow of cheaper imports under FTAs can harm local manufacturers if not backed by adequate safeguards. Need for Targeted FTAs: Focus on strategic sectors with reciprocal benefits. 6. Conclusion FTAs are a strategic policy tool, not just a trade facili....
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....tation mechanism. While they can lead to customs duty losses, their success depends on robust implementation, RoO enforcement, and domestic capacity-building. A balanced approach can turn FTAs from a revenue risk into a long-term economic opportunity.<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....