Self-certification system in ASEAN

Self-certification system in ASEAN January 21, 2014 Hirotoshi ITO Senior Economist (Asia Region) Japan External Trade Organization (JETRO)

Cross-regional FTAs in the world The number of FTAs across the world stands at 252, as of July 1, 2013. After 2000, but with the exclusion of 2001, more than 10 FTAs have come into force every year. As the WTO Doha Round entered a period of stagnation, four mega FTAs were initiated. These were the TPP, Regional Comprehensive Economic Partnership (RCEP), Japan-EU FTA/EPA, and Transatlantic Trade and Investment Partnership (TTIP) between the US and EU. Figure : Mega FTAs in the world (negotiations underway) U.S.-EU FTA (TTIP) Japan-EU EPA Japan-China- South Korea FTA South Korea EU China Japan Canada U.S. Regional Comprehensive Economic Partnership India ASEAN *Singapore, Malaysia, Vietnam, and Brunei are involved in TPP negotiations. Australia/NZ Mexico Peru Chile Colombia Free Trade Area of the Asia-Pacific Trans-Pacific Partnership agreement (TPP) Pacific Alliance *21 APEC members Copyright 2013 JETRO. All rights reserved. 禁無断掲載 2

FTA Coverage in Major Countries/Regions Figure: FTA coverage for major economies(2012) (Unit: %) FTA coverage rate Countries/Regions with FTA is in force (Exports + Imports) Exports +Imports Exports Imports 1st 2nd 3rd Japan 18.9 19.8 18.2 ASEAN 15.3 India 1.0 Mexico 0.9 USA 39.4 46.4 34.7 NAFTA 29.0 Korea 2.6 DR-CAFTA 1.6 EU27 Total trade 73.6 75.9 71.4 EU 63.3 Switzerland 2.6 EEA 1.6 External trade 26.9 29.8 24.2 Switzerland 6.8 EEA 3.9 Turkey 3.5 Korea 35.3 38.1 32.2 ASEAN 12.3 USA 9.5 EU 9.3 China 16.6 13.3 20.4 ASEAN 10.3 Taiwan 4.4 Chile 0.9 India 18.3 22.2 15.9 ASEAN 9.7 Japan 2.5 Korea 2.3 Singapore 62.2 64.4 60.9 ASEAN 23.0 China 10.3 United States ASEAN 59.7 59.4 60.0 ASEAN 24.5 China 13.3 Japan 10.6 Notes: (1) FTA coverage rate is the ratio of trade with countries/regions for which the FTA is in force (as of the end of June 2013), as a fraction of total trade. The rate is based on trade statistics for 2012. (2) Figures for China do not include Hong Kong (8.8%) and Macau (0.1%). Sources: Materials from individual governments, DOT (IMF), trade statistics. 8.6 Copyright 2013 JETRO. All rights reserved. 禁無断掲載 3

Towards the establishment of AEC AFTA ASEAN Economic Community (AEC) (to be established in 2015) Elimination of tariffs and non-tariff barriers Free flow of goods, investment, services, free movement of skilled workers 1993 AFTA begins ASEAN 6 Thailand, Singapore, Brunei Malaysia, Indonesia, Philippines 2002 2003 Reducing imposed tariff rates to 0-5% except for certain items Reducing all tariff rates to 0-5% 2010 Eliminating all tariffs (Eliminating tariff rates for 60% of items) 2015 Vietnam 2006 0-5% Eliminating all tariffs Myanmar, Laos Cambodia 2008 0-5% 2010 0-5% (Moratorium for some items will be approved by 2018) Copyright 2013 JETRO. All rights reserved. 禁無断掲載 4

Future of FTA Network Completion of ASEAN+1 accords China took effect India took effect Korea took effect Australia, NZ took effect Japan took effect RCEP Japan, Korea, China ASEAN+3 (EAFTA) ASEAN+6 (CEPEA) Wider regional integration APEC (FTAAP) U.S. Canada Mexico Peru Chile Hong Kong Taiwan Russia PNG Among the ASEAN 10 countries, Myanmar, Cambodia and Laos are not APEC members TPP Viet Nam Brunei Japan Malaysia Singapore Canada US Mexico Peru NZ Australia Chile Copyright 2013 JETRO. All rights reserved. 禁無断掲載 5

ASEAN + 1 FTA s Certificate of Origin FTA Certificate of Origin Operational Certificate Procedure 1. ASEAN (ATIGA) Form D Third Party Certification 2. ASEAN- China (ACFTA) Form E Third Party Certification 3. ASEAN-Japan (AJCEP) Form AJ Third Party Certification 4. ASEAN-Korea (AKFTA) Form AK Third Party Certification 5. ASEAN-India (AIFTA) Form AI Third Party Certification 6. ASEAN-Australia-NZ (AANZFTA) Form AANZ Third Party Certification Rules of Origin in ASEAN +1 FTAs FTA Wholly Obtained General Rules Product Specific Rules (PSRs) CTC RVC CTC RVC Process Criteria 1.ATIGA CTH 40% 40% 2.ACFTA 40% 40% 3.AJCEP CTH 40% 40% 4.AKFTA CTH 40% 40-60% 5.AIFTA CTSH 35% 6.AANZFTA CTH 40% 40% Copyright 2013 JETRO. All rights reserved. 禁無断掲載 7

Self-Certification in ASEAN (ATIGA) Self-Certification (SC) : Enables certified exporters to make out invoice declarations on the origin of goods. The core concept is the shift of responsibility from the government to the private. Objectives of SC: Facilitate intra-asean international trade Promote regional production network Promote increased usage of the ATIGA scheme Reduce cost of doing business(money and time saved) Enhance ASEAN competitiveness Background: The Joint AEM-22 nd AFTA Council (Aug 2008) welcomed the new initiative to set up a mechanism to apply a one blanket Certificate of Origin (CO) to products originating in ASEAN ASEAN originating products can move freely within ASEAN without the requirements of presenting all supporting documents for each consignment. Work Plan toward Operationalization of Self-certification by the Joint AEM-23 rd AFTA Council (Aug 2009) Copyright 2013 JETRO. All rights reserved. 禁無断掲載 8

Two Pilot Project towards 2015 First Self-certification Pilot Project (1 st SC PP) MOU on the Pilot Project for the Implementation(MOU of the 1 st SC PP) by Brunei, Malaysia and Singapore on 30 August 2010. Start of the implementation on 1 November 2010. Thailand joined the 1 st SC PP on 28 October 2011. Myanmar is planning to join the 1 st SC Extension of the 1 st SC PP until 31 December 2015 as per the decision of the 26 th AFTA Council Meeting (Aug 2012) Second Self-Certification pilot (2 nd SC PP) Signing of MOU by Lao PDR, Indonesia, and the Philippines on 29 August 2012 Thailand decided to join in 2 nd SC, Vietnam is also planning to join. Entry into force of the implementation of the 2nd SC PP MOU on 10 May 2013. But It has not yet implemented at present. Industrial circles are expecting that ASEAN wide self-certification reflects the flexibility of the system (1 st SC PP). Copyright 2013 JETRO. All rights reserved. 禁無断掲載 9

Key differences of the two OCPs Key differences 1 st Self-certification PP 2 nd Self-certification PP 1. definition of a certified exporter: Rule 1 (6) Certified Exporter means an exporter duly authorized to make out Invoice Declarations on the origin of a good exported 2. Documents for declaration Rule 1 (d) Invoice declaration means a declaration, according to the model duly established, made out by a certified exporter on an invoice or any other commercial document, which describes the goods concerned in sufficient detail to enable them to be identified, on the origin of goods covered by the document in question ; 3. limitation of numbers of authorized signatories 4. submission and circulation of authorized signatories and list of products - (No limitation on numbers of authorized signatories per company) - (Not required) Article 1(5) Certified Exporter means a producer duly authorized to make out invoice declarations on the origin of a good exported Article 1(6) Invoice declaration means a declaration as to the origin of the goods exported made by a certified exporter on an invoice, in accordance with Rule 12B of the Annex of this MOU Rule 2.3 (d) (d) list of authorized signatories and their respective specimen signatures, not exceeding three (3) persons per company; It is required only under the OCP of the 2 nd SC PP that such information should be submitted and communicated to the ASEAN Secretariat. Copyright 2013 JETRO. All rights reserved. 禁無断掲載 10 sources: ASEAN Secretary

Key differences of the two OCPs Key differences 1 st Self-certification PP 2 nd Self-certification PP 5. Consignment with less than 200.- USD value. An Invoice Declaration can be made out by any exporter provided that the total value of consignment does not exceed USD 200.00 FOB It is only stated only under the OCP of the 1 st SC PP (Rule 13 (3) ) There is no such arrangement in the 2 nd SC PP 6. information required in the invoice declaration Prescribed declaration statement. The exporter of the product(s) covered by this document (Certified Exporter No.) declares that, except where otherwise clearly indicated, the products satisfy the Rules of Origin to be considered as ASEAN Originating Products under ATIGA (ASEAN country of origin:..) with origin criteria:. In the declaration statement, It is required only under the OCP of the 2 nd SC PP (Rule 12 b) that the HS code and the signature over printed name of the authorized signatory of the company. 7. third party invoicing (TCI) The exporter shall indicate third country invoicing and such information as name and country The certified exporter can use the conventional CO Form D if they want to use the third country invoicing arrangement under the 2 nd SC PP which is set out in Rule 23 of the OCP Copyright 2013 JETRO. All rights reserved. 禁無断掲載 sources: ASEAN Secretary 11

General Selection Criteria Regular exporter with reasonable transaction value. Good past track record with integrity Good compliance over time using current certification system.. Regularly applying for COO under ATIGA Products are critical to support a single market and production base Reputation for good financial management and financial viability. Good record keeping facilities for audit and inspections Enough trained personal understand and calculate ROO requirements. The selected exporters/ importers will need to attend outreach sessions to participate with officials to enhance Self-Certification Having a history of using the ATIGA Form D (Brunei) Not blacklisted by any authority or agency (Malaysia) Must agree to share the update information (Brunei). Certified exporters of the 1st SC PP Thailand Singapore Malaysia Brunei 10 41 83 Number of Certified Exporters 118 Copyright 2013 JETRO. All rights reserved. 禁無断掲載 sources: ASEAN Secretary, 1 st SC PP Member Countries 12

Challenges for 2015 i. Participation of non-participating Member States in the pilot projects (Cambodia, Myanmar, and Viet Nam); ii. Convergence of the Operation Certification Procedure (OCP) of the two pilot projects; iii. Larger number of Certified Exporters to take part in the pilot projects. iv. Modifying the system to suits the needs and convenience of the users v. Inclusion of ASEAN-wide Self-certification in ATIGA, and implement by end of 2015 Copyright 2013 JETRO. All rights reserved. 禁無断掲載 13

ASEAN - JAPAN Economic Relations Japan is the principal investor in ASEAN, account for 15% of total FDI in ASEAN. Increasing number of FJCCIA members (more than 5,500 as of June 2013) shows Japanese companies strong commitments in ASEAN. Foreign Direct Investments Stock in ASEAN (from extra-asean) at the end of 2012 Others 44.9 Unit: Share (%) 6.9 15.5 FDI in ASEAN (at 2012 end) From extra-asean US$ 1,128,351 million in 2012 7.6 EU China Korea Japan USA 10.0 15.0 The number of member companies of FJCCIA Country (Source) Prepared by JETRO based data from IMF (Source) Prepared by JETRO based data from JCC in ASEAN countries. Note 1: FJCCIA stands for the Federation of Japanese Chambers of Commerce and Industry in ASEAN. 2: Total numbers include regional chambers(e.g,cebu in the Philippines, Danan in Vietnam, East Java, Bandon and Bali in Indonesia). The member companies of FJCCIA was 4,447 In 2010., 4944 in 2011. 3: FDI data is based on BOP (excluding intra-asean FDI) Copyright 2013 JETRO. All rights reserved. 禁無断掲載 15 June 2013 June 2012 Brunei 3 3 Cambodia 144 91 Indonesia 631 594 Lao PDR 56 41 Malaysia 568 556 Myanmar 107 56 Philippines 674 604 Singapore 772 675 Thailand 1,479 1,379 Viet Nam 1,213 1,035 Total 5,647 5,034 The outstanding position of Japanese investment in each ASEAN members by ranking in 2012(*3) Country Rank Share Thailand 1 63.5% Vietnam 1 51.0% Malaysia 1 13.4% Philippines 2 23.9% Cambodia 3 18.5% Indonesia 3 10.0%

FTA/EPA use by Japanese companies Use of existing (in force) FTAs/EPAs (only companies involved in export/import) Proportions of firms using FTAs/EPAs in 2013 (totals by industry) Total (n=2,490) Large (n=1,572) SME (n=918) (%) Textiles (n=78) Motor vehicles/motorcycles (n=285) Wood/Pulp (n=22) Food (n=87) Chemical/Pharmaceutical (n=249) General machinery (n=112) Wholesale/Retail (n=637) Rubber/Leather (n=40) Iron/Nonferrous metals/metals (n=184) Transport (n=66) Electric machinery (n=300) Precision machinery (n=45) Construction (n=57) Communications/Software (n=39) 13.3 10.5 10.3 Note: n denotes number of firms involved in export/import 28.0 34.3 36.4 43.8 42.5 41.3 41.2 50.6 47.3 56.8 54.5 54.0 45.2 0 10 20 30 40 50 64.1 0 10 20 30 40 50 60 70 (%) Note 1: The proportions in the two figures on the top are calculated as the ratio of firms that are using at least one FTA or EPA to firms that are involved in either export or import, or both. Copyright 2013 JETRO. All rights reserved. 禁無断掲載 Source: Survey of Japanese-Affiliated Companies in Asia and Oceania (FY 2013) 16 (%) Proportions of firms using FTAs/EPAs in 2013 (totals by country/region) Trend in FTA/EPA use by firms located in ASEAN 50 40 Indonesia (n=170) Korea (n=93) New Zealand (n=42) Malaysia (n=150) Thailand (n=566) Laos (n=15) India (n=219) Australia (n=89) Singapore (n=171) Cambodia (n=17) Vietnam (n=295) Taiwan (n=66) China (n=345) Philippines (n=113) HK & Macau (n=105) 30 19.7 19.3 20 1016.0 16.7 (%) 23.0 19.7 29.7 24.1 40.3 35.0 43.8 40.7 40.4 37.2 38.9 40.4 0 2006 2007 2008 2009 2010 2011 2012 2013 Export 60.6 58.1 52.4 49.3 49.1 46.7 43.8 43.8 43.3 41.2 36.6 28.8 25.5 24.8 16.2 0 20 40 60 80 Import

Voice from Users: Case 1 In total MFN based tariff amount, 84% of the tariff duty has been saved due to active use of FTAs/EPAs On the other hand, issued number of CoO also piles up to 12,000 per year Introduction of Self-Cert Scheme provides; Reduce the troublesome paperwork No waiting time to issue COO No risk to miss to utilize FTA (especially by air) Copyright 2013 JETRO. All rights reserved. 禁無断掲載 17

Voice from Users : Case 2 Various trade bottlenecks have been solved by introducing Self-Cert scheme. Re-invoice in Japan, Singapore and Thailand is quite familiar process for Japanese Companies in ASEAN Increasing amount of land logistics (e.g. Yangon to Bangkok) require faster documentation 1. Documents delay COO delay (ex. Send cargo to Jakarta (5 days) at weekend (-2 days)), at importing customs requires following process, both of which lead to additional costs a. Customs clearance by MFN rate - Reimbursement process takes 3 months in general b. Stock the goods at warehouse Introduction of Self-Cert Scheme provides; Saving 2-3 days of COO application No documentation delay No huge additional desk work Re- Invoice 2. Re-Invoicing Re-invoicing process are exclusively conducted in Japan. Applying SC 2 scheme forces to develop totally different accounting system. Only SC 1 Scheme can be applied Copyright 2013 JETRO. All rights reserved. 禁無断掲載 18

Our Cooperation for SC Implementation Disseminating Seminar (Oct 22, Bangkok) No. of Participants: Approx. 350 (both Japanese and Thailand Companies) Organizer: FJCCIA, JETRO, AMEICC Secretariat Lecturers: JETRO, Thai Customs, MOC of Thailand, ASEC and WCO Comments from the floor (ex.) We ll start internal discussion on introducing SC (Manufacturers (home appliance)/trading Company) High likely to introduce SC soon (Trading Company/Manufacturer (chemical)) If we can export/import by self-cert, all process will become easy and comfortable (Manufacturer (auto-parts)) Study Tour to MOC (Oct 22, Bangkok) No. of Participants: 16 (4 officials from each CLMV country) Visited MOC of Thailand to study application /verification process of SC Capacity Building WS (Oct 24-25, Phnom Penh) No. of Participants: Approx. 40 (from issuing authority/customs) Organizer: MOC of Cambodia, FJCCIA, JETRO, AMEICC and Japan Customs Lecturers: Customs (M, T, J), Issuing Authorities (M, T), ASEC, WCO etc. Copyright 2013 JETRO. All rights reserved. 禁無断掲載 19