Duty Concession on Gold Will Be Major Concern for India Under Proposed FTA with Peru: GTRI

Duty concessions on gold, which accounts for 80 per cent 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 on Sunday. Economic think tank Global Trade Research Initiative (GTRI) said that gold, a high-value product with low volume, attracts a 10 per cent 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 per cent 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 per cent 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 per cent, but the current applied tariff is 10 per cent.

“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 per cent of items in Peru’s tariff schedule are duty-free. The simple average tariff is 2.2 per cent. This means tariff elimination will not result in substantial market access for Indian products,” the report said.

Negotiations for the agreement started in 2017, and the fifth round concluded in August 2019. The talks were paused due to the coronavirus pandemic. During 2022-23, the bilateral trade between India and Peru stood at USD 3.12 billion (exports USD 866 million and imports USD 1.4 billion).

India exported goods worth USD 865.91 million to Peru, and imported goods valued at USD 2.25 billion. Key Indian exports to Peru include motor vehicles/cars (USD 282 million), cotton yarn (USD 101 million), electrical and electronics (USD 51.3 million), machinery (USD 50.2 million), tyres (USD 17 million), and pharmaceuticals (USD 87.3 million), while imports items include gold (USD 1.77 billion), copper ores and concentrates (USD 391 million), silver (USD 14.5 million).

Peruvian businesses are also looking to export agricultural products like avocados, fresh grapes and blueberries, and natural resources like calcium phosphates to India. India and Peru (34.2 million population) are over 17,000 Km apart.

The long-distance and smaller size of Peru’s economy, with the primacy of ores and minerals, are the major reasons for the low bilateral trade. India, with a gross domestic product (GDP) of USD 3,750 billion, far surpasses Peru’s GDP of USD 268 billion, indicating a much larger economy.

In global trade, India’s exports for 2023 amounted to USD 760 billion, significantly higher than Peru’s exports, which stood at USD 66 billion. Similarly, India’s imports were also higher, totalling USD 840 billion, compared to Peru’s imports of USD 56 billion.