Yarn Scam Unraveled: Indian yarn illegally enters Pakistan via Dubai.
In a major development, Pakistan's Customs Intelligence and Investigation (I&I) department has blocked all yarn imports from the United Arab Emirates (UAE) after uncovering a scheme involving illegal Indian yarn imports disguised as Thai goods. This news has exposed a complex web of deceit, highlighting policy loopholes and raising concerns about the misuse of trade agreements for both India and Pakistan.
What’s fuelling the illegal practice?
While the news focuses on Indian yarn, the practice of misdeclaration through Dubai might involve other countries as well. This necessitates broader investigations to identify the extent of the problem and the countries involved. There are several reasons for this mal practice.
- High import duties on Indian yarn in Pakistan:Pakistan levies high import duties on Indian yarn compared to yarn from Thailand due to trade protection measures, making it cheaper for some to import Indian yarn indirectly through Dubai, where duties are lower. This incentivizes importers to misdeclare the origin to evade taxes.
- Lax verification procedures: The incident exposes potential weaknesses in Pakistan's import verification procedures, allowing for forged documents and false declarations to go undetected. The current system relies heavily on self-declaration and documents issued by third parties like the Dubai Chamber, making verification challenging.
- Lax enforcement: Limited manpower and resources at customs authorities leave room for exploitation by unscrupulous importers.
Using SAFTA as a shield for illegal trade
The South Asian Free Trade Agreement (SAFTA) aims to liberalize trade between member countries, including Pakistan and India, Thailand. However, in this case, importers are misusing SAFTA benefits by falsely claiming Thailand as the origin to bypass higher duties applicable to Indian yarn. This undermines the spirit of the agreement and raises concerns about its effectiveness in preventing such malpractices.
The modus operandi is simple. Yarn is manufactured in India's Kola region. The yarn is shipped to Dubai, often with falsified documents declaring it as Thai origin. Importers obtain fabricated certificates from the Dubai Chamber of Commerce, falsely stating the yarn's Thai origin.
The yarn is then shipped to Pakistan, with importers claiming duty-free entry under SAFTA based on the forged documents.
Ways to curb this trade
While, the report doesn't explicitly mention any actions taken by Dubai to restrict this practice, cooperation between Pakistani and Dubai authorities could be crucial in addressing the issue, including:
Information sharing: Sharing trade data and intelligence to identify suspicious shipments. Collaboration between customs authorities of India, Pakistan, and Dubai can facilitate information sharing and joint investigations.
Joint investigations: Collaborating on investigations to expose fraudulent practices and identify those involved.
Stricter verification procedures: Implementing stricter checks on origin documents and certifications. Dubai authorities can implement stricter verification procedures for issuing certificates of origin, ensuring adherence to actual production locations.
Technological solutions: Blockchain technology can be explored to create a tamper-proof record of product origin, improving transparency and traceability.
The yarn scam highlights the complexities of trade between India and Pakistan, where high tariffs and potentially weak verification procedures create opportunities for exploitation. Addressing this issue requires cooperation between both countries, as well as stricter verification measures and potential revisions to trade agreements to prevent misuse. Further investigation and data analysis are crucial to fully understand the scope of this practice and devise effective solutions.