Free Trade Agreements (FTAs) with Indonesia

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
Jordan
Aug 2005
New
Zealand
Jan 2001
India
Aug 2005
ASEAN-Japan
(TIG) Jan 2009
EFTA
Japan
Nov 2002
S. Korea
Mar 2006
Peru
Aug 2009
*EFTA - Switzerland,
Liechtenstein, Norway,
Iceland, Jan 2003
**TPSEP - Brunei, Chile,
New Zealand
May 2006
ASEAN-India
(TIG) Jan 2010
Australia
Jul 2003
Panama
Jul 2006
US
Jan 2004
ASEAN-China
(TIG) Jul 2005
(TIS) Jul 2007
(Investment) Feb 2010
ASEAN-Korea
(TIG) Jun 2007
(TIS) May 2009
(Investment) Aug 2009
ASEAN-Australia & New Zealand
Jan 2010
Costa Rica
July 2013
China
Jan 2009
GCC
Sep 2013
ASEAN’s FTAs
ASEAN
Members:
Brunei
Indonesia
Malaysia
Philippines
Singapore
Thailand
Cambodia
Laos
Myanmar
Viet Nam
ASEAN
ASEAN-Japan
ASEAN-China
ASEAN-India
ASEAN-Korea
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
•
Reinforce partner countries’ commitment to protect Intellectual Property
rights
Mutual Recognition of
Standards &
Qualifications
•
•
•
Reduce duplicative testing
Harmonise product standards
Mutually recognise professional qualifications
Government
Procurement
•
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
Import Duty
Paid by
importer to
importing
customs
authority
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
Import duty in
Indonesia
FTA Preferential
Rate 2013
ASEANChina
ASEANAU-NZ
ASEANIndia
0%
7%
$0*
$70,000*
10%
NA
0%
0%
$1,000,000
Export Value
Duty Payable to
importer
$100,000
$0*
$0*
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
* Product has to meet the Rules of Origin under respective FTAs.
$30,000
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)
Flow of invoice Flow of goods -
Importer in ASEAN
Country (eg. Indonesia)
enjoys tariff concessions
Back-to-Back Certificate of Origin Arrangement
Using ATIGA :
Original
Form D
Manufacturer
in ASEAN Country
(eg. Vietnam)
Back-toback
Form D
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:
Back-toback
Form D
Importer in
FTA Country
(E.g. Vietnam)
Original
Form D
60 units
100 units
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.
Manufacturer in
Malaysia
Third Party
(Singapore)
Original
Form D
Company in third
country issues
invoice to
importer.
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
ASEANChina 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)
AFTA
ACFTA
AKFTA
AJCEP
AANZFTA
AIFTA
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
RVC ≥ 40% FOB
or
RVC ≥ 40%
FOB;
RVC ≥ 40%
FOB or
RVC ≥ 40% FOB
or
RVC ≥ 40%
FOB or
RVC ≥ 35%
FOB and
Change in
tariff Heading
(4-digit);
Change in tariff
Heading
(4-digit);
Change in
tariff Heading
(4-digit);
Change in
tariff
Subheading
(6-digit)
PSR
PSR
PSR
Change in tariff
Heading
(4-digit) ;
Product Specific
Rules (PSR)
-
PSR
-
Back-to-back
Certificate of
Origin






Third Party
Invoicing






Form D
Form E
Form AK
Form AJ
Form AANZ
Form AI
Certificate of
Origin
RVC = Regional Value Content
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
Thank You
www.iesingapore.com