Free Trade Agreements (FTAs) with Indonesia Mike Lee FTA Unit, Trade Services & Policy Group 07 November 2013
Topics 1. What is a Free Trade Agreement? 2. Singapore & ASEAN s FTA Network 3. Benefits of FTAs to Businesses 4. Applicable Business Models 5. Rules of Origin (ROO) 6. Application Procedures to use FTAs 7. FTA Resources 2
Free Trade Agreement A Free Trade Agreement (FTA) is a legally binding agreement between 2 or more countries to reduce or eliminate barriers to trade in, and facilitate the cross border movement of, goods and services between the territories of the Parties. 3
Singapore & ASEAN s FTA Network
Singapore s Network of FTAs 20 FTAs in Force with 31 Trading Partners ASEAN Jan 1993 New Zealand Jan 2001 Japan Nov 2002 EFTA *EFTA - Switzerland, Liechtenstein, Norway, Iceland, Jan 2003 Australia Jul 2003 US Jan 2004 ASEAN-China (TIG) Jul 2005 (TIS) Jul 2007 (Investment) Feb 2010 Jordan Aug 2005 India Aug 2005 S. Korea Mar 2006 **TPSEP - Brunei, Chile, New Zealand May 2006 Panama Jul 2006 ASEAN-Korea (TIG) Jun 2007 (TIS) May 2009 (Investment) Aug 2009 China Jan 2009 ASEAN-Japan (TIG) Jan 2009 Peru Aug 2009 ASEAN-India (TIG) Jan 2010 ASEAN-Australia & New Zealand Jan 2010 Costa Rica July 2013 GCC Sep 2013
ASEAN s FTAs ASEAN Members: Brunei Indonesia Malaysia Philippines Singapore Thailand Cambodia Laos Myanmar Viet Nam ASEAN ASEAN-China ASEAN-Korea ASEAN-Japan ASEAN-India ASEAN-Australia & New Zealand 6
Benefits of FTAs to Businesses
A Comprehensive FTA covers Trade in Goods Tariff concessions for eligible exports Trade in Services Improve market access for committed sectors Remove quantitative restrictions for committed sectors Increase business travel convenience Investment Protection Remove discriminatory pre-investment conditions Generally free transfer of capital & funds Greater foreign investment opportunities for committed sectors Safeguard against government expropriation Provide alternative dispute settlement mechanisms Intellectual Property Protection Mutual Recognition of Standards & Qualifications Government Procurement Reinforce partner countries commitment to protect Intellectual Property rights Reduce duplicative testing Harmonise product standards Mutually recognise professional qualifications Opportunity to bid for government tenders above a stipulated threshold amount 8
FTAs reduce / eliminate import duties. Cost of Goods to Importer CIF Value of Product Paid by importer to importing customs authority Import Duty Sales Tax / Valueadded Tax Excise Tax FTAs reduce import duties Imposed on both locally produced and foreignproduced goods 9
.and increase price competitiveness of products Example: Exporting HS Code 1516 2029 (Vegetable Fats & Oils) to Indonesia Without FTA ASEAN ASEAN- China ASEAN- AU-NZ ASEAN- India Import duty in Indonesia 10% FTA Preferential Rate 2013 NA 0% 0% 0% 7% Export Value $1,000,000 Duty Payable to importer $100,000 $0* $0* $0* $70,000* Importer s Total Cost of Goods (CIF and Import Duty) $1,100,000 $1,000,000 $1,000,000 $1,000,000 $1,070,000 Savings to importers No savings $100,000 $100,000 $100,000 $30,000 * Product has to meet the Rules of Origin under respective FTAs. 10
Applicable FTA Business Models
Preferential Certificate of Origin (PCO) and Direct Shipment Using ASEAN Trade In Goods Agreement (ATIGA): PCO: Form D Manufacturer in ASEAN Country (eg. Singapore) Importer in ASEAN Country (eg. Indonesia) enjoys tariff concessions Flow of invoice - Flow of goods -
Back-to-Back Certificate of Origin Arrangement Using ATIGA : Original Form D Back-toback Form D Manufacturer in ASEAN Country (eg. Vietnam) Importer/Exporter in intermediate Country (eg. Singapore) Importer in ASEAN Country (eg. Indonesia) enjoys tariff concessions Singapore companies who export products not manufactured in Singapore to another ASEAN member state can still benefit from the FTA provided that the last place of substantial manufacture is in an FTA member state. The Back-to-back CO will not contain details of the manufacturer.
Back-to-Back CO Arrangement Using ATIGA: Original Form D 100 units Back-toback Form D 60 units Importer in FTA Country (E.g. Vietnam) Manufacturer in FTA Country (E.g. Indonesia) Distribution Centre (E.g. Singapore) 40 units Back-toback Form D Importer in FTA Country (E.g. Thailand) 14
Third Party Invoicing Using ATIGA: Manufacturer issues invoice to company in third country. Third Party (Singapore) Company in third country issues invoice to importer. Manufacturer in Malaysia Original Form D Importer in Indonesia enjoys tariff concessions
Compare: Back-to-Back with Third Party Invoicing Back-to-Back Third Party Invoicing
Rules of Origin (ROO)
Rules of Origin ROO is an objective set of criteria set up to determine a product s originating status. Guiding principles for determining whether a product originates from Singapore: 1. Wholly obtained, or 2. Have undergone substantial transformation (for manufactured products) To enjoy originating status from Singapore, Singapore must be the country in which the last substantial transformation of the product takes place. 18
Rules of Origin: Wholly-Obtained Examples of wholly-obtained or Produced entirely in the Party: (a) plant and plant products harvested, picked or gathered there; (b) live animals born and raised there; (c) products obtained from live animals; (d) products obtained from hunting, trapping, fishing, aquaculture, gathering or capturing conducted there; (e) minerals and other naturally occurring substances, extracted or taken from its soil, waters, seabed or beneath their seabed; (f) products taken from the waters, seabed or beneath the seabed outside the territorial waters of that Party, provided that that Party has the rights to exploit such waters, seabed and beneath the seabed in accordance with international law; (g) products of sea fishing and other marine products taken from the high seas by vessels registered with a Party or entitled to fly the flag of that Party; (h) products processed and/or made on board factory ships registered with a Party or entitled to fly the flag of that Party, exclusively from products referred to in sub-paragraph (g) above; (i) articles collected in the territory of that Party that can no longer perform their original purpose nor are capable of being restored or repaired and are fit only for disposal or recovery of parts of raw materials, or for recycling purposes; (j) goods obtained or produced in a Party solely from products referred to in sub-paragraphs (a) to (i) above. 19
Rules of Origin: Substantial Transformation Substantial transformation is said to have taken place if the product satisfies the following condition(s): 1. Change in Tariff Classification Rule or 2. Value Added Rule or 3. Process Rule 20
Simple/Minimal Operations ASEAN- China FTA Rule 7: Minimal Operations and Processes Operations or processes undertaken, by themselves or in combination with each other for the purposes listed below, are considered to be minimal and shall not be taken into account in determining whether a good has been wholly obtained in one country: (a)ensuring preservation of goods in good condition for the purposes of transport of storage; (b)facilitating shipment or transportation; (c)packaging* or presenting goods for sale. *Excludes encapsulation which is termed packaging by the electronics industry. 21
Overview of ASEAN FTAs Rules of Origin (ROO) Back-to-back Certificate of Origin Third Party Invoicing Certificate of Origin AFTA ACFTA AKFTA AJCEP AANZFTA AIFTA Wholly Obtained; RVC 40% FOB or Change in tariff Heading (4-digit) ; Product Specific Rules (PSR) RVC = Regional Value Content Wholly Obtained; RVC 40% FOB; - Wholly Obtained; RVC 40% FOB or Change in tariff Heading (4-digit); Wholly Obtained; RVC 40% FOB or Change in tariff Heading (4-digit); Wholly Obtained; RVC 40% FOB or Change in tariff Heading (4-digit); Wholly Obtained; RVC 35% FOB and Change in tariff Subheading (6-digit) PSR PSR PSR PSR - Form D Form E Form AK Form AJ Form AANZ Form AI 22
Application Procedures
Application Procedure for Preferential Certificate of Origin (CO) 1. Factory Registration Manufacturer must apply for registration of the factory with Singapore Customs (SC) SC will visit the factory to note: Manufacturing operations; Machinery and manpower &; Updated production and book records 2. Prepare Manufacturing Cost Statement Manufacturer to prepare manufacturing cost statement for each product in order to prove local value content and/or change in tariff heading meets the Rules of Origin as stated in respective FTA Usually valid for one year 3. Apply for Preferential Certificate of Origin After SC approval of cost statement Manufacturer to apply for Preferential CO from SC for each shipment Preferential CO usually valid for one year Manufacturer to sign on CO and send original copy to importer for importer to claim tariff concession Details available at http://www.customs.gov.sg/leftnav/trad/certificates+of+origin.htm 24
Steps to Obtain Tariff Concessions Step 1: Understand the trade flow of your product Step 2: Find out the HS code of your product Step 3: Check that product is offered tariff concessions under the FTA. Step 4: Check that your product satisfy the Rules of Origin Step 5: Comply with documentary requirement 25
FTA Resources
FTA Website (http://www.iesingapore.com/fta) 27
FTA Website (legal texts) 28
ASEAN s FTAs (ASEAN Secretariat Website) http://www.asean.org/communities/asean-economiccommunity/category/free-trade-agreements-with-dialogue-partners 29
More Resources on the Internet FTAs and Singapore s network http://www.iesingapore.com/fta http://www.asean.org Preferential Certificate of Origin Procedures & Guide to Rules of Origin: http://www.tradexchange.gov.sg http://www.customs.gov.sg 30
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