The Directorate-General of Intelligence and Investigation (I&I), Federal Board of Revenue (FBR), has detected massive misuse of Free Trade Agreement (FTA) signed between Pakistan and China, involving importers who submit wrong 'certificates of origin' to clear non-Chinese made goods from Pakistan's ports.
Sources told Business Recorder here on Saturday that the Directorate intercepted many consignments imported under the FTA, which were cleared by the customs department, but later verification of documents confirmed submission of forged 'certificates of origin'. The Directorate also intercepted consignments of other countries, which were cleared under Pak-China FTA by the "green channel" facility of the Pakistan Customs Computerised System (PACCs). However, only a few consignments involving misuse of the FTA had been detected by the customs department itself.
Under the Pak-China FTA, 2500 tariff lines have been allowed to be imported at concessionary rate of duty. However, it has been found that liberal import under the FTA has been allowed, without strict checking of the 'certificates of origin' to confirm whether the goods have been actually manufactured in China. The re-examination of different consignments, including mobile phones, showed gross misdeclarations and submission of wrong 'certificates of origin'. There is an immediate need of strict interpretation of the rules and regulations of the FTA to check misuse of the facility.
An interesting phenomenon, unearthed by the DG (I&I), showed that consignments had been shipped from Hong Kong along with 'certificates of origin' of China. "However, we are accepting goods coming from Hong Kong as part of the FTA with China. In cases of shipment from Hong Kong, customs department has to demand import documents confirming that the goods have been duly manufactured in China. Otherwise, Pakistan's customs department should ask for documents showing transit of such goods from China to Hong Kong to ensure that only Chinese goods are coming without payment of duties and taxes under the FTA. However, this aspect has not been properly checked by the customs department, which has now been highlighted by the DG (I&I) before the tax authorities. The documents must show that the goods are Chinese made but the same area remained unchecked by the customs department for some time".
According to sources, the FBR is examining a proposal to make it mandatory for the customs department to physically examine sensitive goods being imported under the FTA and these consignments must be physically checked to verify the certificates of origin and other import documents. Secondly, it has been proposed that the examination of the consignments should be done at the level of Deputy Collector or Additional Collector. It is expected that the FBR may issue a customs general order (CGO) or instructions to the field formations.
About the Pak-China FTA, sources clarified that if consignments are coming from Hong Kong, the same cannot be treated goods being cleared under the Pak-China FTA under the applicable laws.
Sources said that "consignments originating from other destinations need to justify transport from China in customs department". It has been observed that mobile phone sets not covered under the FTA have been released on duties/taxes by the concerned adjudicating authorities while phone sets which match the certificate of origin were granted benefits of the FTA. The sudden jump in the import of mobile phones under the Pak-China FTA could be judged from the data that 0.3 million mobile phones were imported during January-March 2009 as compared to around 3 million during the same period of January-March of 2010. The amount of duties and taxes is much lower in case of imports of mobile phones made during January-March of 2010 as compared to the same period last fiscal.
Some past cases detected by the agency showed that of 12 consignments of mobile phones cleared by the Air Freight Unit (AFU) at Islamabad Air Port, 6 consignments were massively misdeclared. This was unearthed during re-examination of the consignments by the agency. In another case, 14,000 consignments of mobile phones had been seized by the agency during re-examination of consignments where wrong 'certificates of origin' were submitted by the importers. In another case, three consignments were unearthed where 6000 mobile phone sets were seized, which were imported in violation of the FTA. Similar nature cases were also detected at the AFU Karachi.
It has to be confirmed that the model of mobile phone is being manufactured in China in line with the rules of origin notified under the Pak-China FTA. The "Assorted models" of Chinese mobile phones should not be allowed exemption under the FTA, as the description, brand and model of the mobile phone must match with FTA consignments.
Sources said that the Ministry of Commerce should conduct some study to check the revenue impact of the imports under the FTA as compared to exports of Pakistan items to China under the FTA. Till now, Commerce Ministry has not conducted any kind of scientific study to check the benefits obtained through the FTA vis-à-vis losses, if any. The Ministry should watch the interests of the country by analysing the impact of the FTA. The studies must specify that whether Pakistan has gained from the FTA signed with China or not ?
It is the stance of the agency that the importer availing benefits of the Pak-China FTA must submit the documents that the Chinese origin goods are being imported or transit through China to Hong Kong. In this regard, Pakistan's customs department can ask the importer to submit the transit documents of the goods which would avail benefits of the FTA.
Sources said that the DG (I&I) is also carrying out an exercise to determine the percentage of consignments cleared through PACCs or "One Customs" where misuse of Pak-China FTA has been detected. It would determine whether more checks are needed during clearance of consignments under the FTA through PACCs or "One Customs" system.
Recently, the agency intercepted a consignment of gas cylinders with clear mention of "Made in UK", but the same was cleared from the PACCs by availing the facility of Pak-China FTA. This showed that how the "green channel" facility of the PACCs has been misused for clearance of goods under the FTA arrangement.
Sources said that the agency detected a few cases to check misuse of the Pak-China FTA, whereas the actual quantum of misuse of the facility has yet to be determined. In view of past cases, it seemed that the actual misuse of the FTA is much more as compared to the intercepted consignments which were re-examined by the DG (I&I). The actual volume of misuse is much higher which needs to be checked by placing checks during examination of the consignments coming under the FTA.