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How country of origin rules should be implemented

By Rahul Narayan

To no one’s surprise, e-tailers are apparently requesting for greater time and clarity to comply with the mandate to impose country of origin on products sold online.

There are many reasons to mandate that sellers display the country of origin on products sold. First, this would check abuse of Free Trade Agreements and Preferential Trade Agreements. Second, this would assist in exploring avenues such as anti-dumping actions to ensure that the rules of free trade are not abused. Third, consumer choice, including boycotts, are aided by such declarations.

There are also reasons to be cautious about imposing blanket rules. First, there is a lack of clarity as to how a country of origin is to be determined considering that raw materials and assembly may take place in multiple countries. Second, since e-tailers are usually resellers, compliance would take place abroad limiting the ability of importers to implement. As such sellers ought not to be made liable for things beyond their reasonable control. Third, compliance would increase costs and paperwork and needs economic analysis. Fourth, this needs time to implement and special dispensation may be necessary for a transition period.

The following steps are now needed for successful implementation of the mandate:

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1. Government rules need to clarify how a country of origin is to be determined for the purposes of the mandate. In the absence of this, the mandate will be ineffectual and won’t serve any purpose Every jurisdiction that imposes a mandate such as this has rules to provide guidance on implementation. As on date, e-tailers may disclose a product to be made in multiple jurisdictions because some manufacturing took place in each. Disclosure in this manner serves no purpose at all. The government must mandate rules to determine one country of origin, perhaps by imposing a percentage of value being added in one jurisdiction to determine country of origin.

In order to assist the manufacturers, the government may also consider setting up an authority to clarify the political aspects of this determination for products made in disputed areas such as Israeli settlements in the Palestinian territories, or in the Crimea or even PoK.

2. The mandate ought to have a de minimis component in the sense that sale of products that are below a particular value ought to be exempt from this law as should be sellers who are small-time operators. Strict compliance has costs that may drive smaller operators out of business, which was never the intent of the law.

For particular commodities and markets, it makes no economic sense to impose strict labelling requirements. If labelling increases the prices of essential commodities, a short term exemption would be in order to avoid economic distress. Sellers must be allowed an opportunity to show this to regulators.

3. There is no reason to discriminate between e-tailers and physical retailers on the issue of the mandate. Every single justification for imposing the mandate on e-tailers applies with the same vigour to others. The e-commerce rules impose discriminatory burdens on e-tailers in comparison to others. Such discrimination is unlikely to withstand constitutional scrutiny. The same rules should apply across the board.

4. The government should permit a realistic time frame for implementing the mandate and provide guidance for a transition period. In order to ensure that no disruption takes place, a 6-month time frame or so may be realistic. Further, for goods that have already been imported before such rules and for which implementation is not possible, it may make sense to provide a one-time exemption or a small token fine.

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5. The mandate imposes an obligation on Indian importers for actions of foreign manufacturers. This necessarily implies that for most e-tailers and sellers, the mandate can be implemented only with the co-operation and assistance of exporters and manufacturers in third countries. Thus, if the declaration by a seller has not been correctly made, it would be almost impossible for an Indian importer to be able to verify the same independently. As such a best efforts standard or a due diligence standard should be deemed to be sufficient compliance with the mandate. Excessive or harsh implementation of the mandate would impose real economic costs on sellers and on the price of products which would be counter-productive.

Four important principles to regulate economic policy are — certainty, clarity, reasonableness and non-discrimination. The country of origin mandate must be implemented keeping these in mind.

Rahul Narayan is an Advocate-on-Record in the Supreme Court of India. He has appeared in matters involving the right to privacy, access to internet, intermediary liability and digital rights. He also advises companies and institutions on issues relating to compliance with technology law, and cyber frauds. He can be reached at Rahulnarayan@lawfirst.in.

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