The ASEAN-CHINA FTA and its Impact on Business

The ACFTA classifies goods into four categories:

a) Normal Track Goods (NT Goods);

b) Appendix 1 Normal Track Goods (Appendix 1 Goods);

c) Sensitive Track Goods (ST Goods); and

d) Highly Sensitive Track Goods (Highly ST Goods).

Normal Track Goods

NT Goods comprise all goods that do not fall within the other categories in (b) - (d) above. ASEAN 6 (i.e., Thailand, Philippines, Malaysia, Singapore, Brunei Darussalam and Indonesia) and China have committed to reduce the tariffs for NT Goods according to the following time frame:

Table 1: Tariff Reduction Commitments for Chinaand ASEAN 6

X = Applied MFN Tariff Rate ACFTA Preferential Tariff Rate

2005 2007 2009 2010

X 20% 20 12 5 0

15% x < 20% 15 8 5 0

10% x < 15% 10 8 5 0

5% < x < 10% 5 5 0 0

X 5% Standstill 0 0

The remaining four ASEAN members (i.e., Cambodia, Lao PDR, Myanmar and Vietnam (the CLMV countries) are to be granted more time to reduce and eliminate tariffs on NT Goods. Their tariff reduction commitments are as follows:

Table 2: Tariff Reduction Commitments for Vietnam

X = AppliedMFNTariff Rate ACFTA Preferential Tariff Rate

2005 2006 2007 2008 2009 2011 2013 2015

X 60% 60 50 40 30 25 15 10 0

45% X < 60% 40 35 35 30 25 15 10 0

35% X < 45% 35 30 30 25 20 15 5 0

30% X < 35% 30 25 25 20 17 10 5 0

25% X < 30% 25 20 20 15 15 10 5 0

20% X < 25% 20 20 15 15 15 10 0-5 0

15% X < 20% 15 15 10 10 10 5 0-5 0

10% X < 15% 10 10 10 10 8 5 0-5 0

7% X < 10% 7 7 7 7 5 5 0-5 0

5% X < 7% 5 5 5 5 5 5 0-5 0

X < 5% Standstill 0

Table 3: Tariff Reduction Commitments for Cambodia, Lao PDR and Myanmar

X = Applied MFN Tariff Rate ACFTA Preferential Tariff Rate

2005 2006 2007 2008 2009 2011 2013 2015

X 60% 60 50 40 30 25 15 10 0

45% X < 60% 40 35 35 30 25 15 10 0

35% X < 45% 35 35 30 30 20 15 5 0

30% X < 35% 30 25 25 20 20 10 5 0

25% X < 30% 25 25 25 20 20 10 5 0

20% X < 25% 20 20 15 15 15 10 0-5 0

15% X < 20% 15 15 15 15 15 5 0-5 0

10% X < 15% 10 10 10 10 8 5 0-5 0

7% X < 10% 7* 7* 7* 7* 7* 5 0-5 0

5% X < 7% 5 5 5 5 5 5 0-5 0

X < 5% Standstill 0

* Myanmar shall be allowed to maintain ACFTA Rates at no more than 7.5% until 2010.

Appendix 1 Goods

Tariffs on Appendix 1 Goods are to be reduced at a slower rate and are only to be eliminated by January 1 2012 for ASEAN 6 and China, and January 1 2018 for CLMV countries.

Sensitive Track Goods

ST Goods are currently not subject to tariff reduction commitments. However, China and the ASEAN countries have agreed to review the list of ST Goods in 2008 with the objective of negotiating tariff concessions for such goods.

Products placed in the ST Goods list include:

Table 4: ST Goods

Country Products

Brunei Darussalam Footwear, household appliances, communication devices, furniture

Cambodia Agricultural products, textiles, household appliances, furniture

China Coffee, rice, chemical products, photographic films, paper products, wool, buses, car spare parts

Indonesia Tobacco products, salt, chemical products, textiles, bicycles, car spare parts

Lao PDR Agricultural products, motorcycles

Malaysia Chemical products, car tires, wooden products, textiles, footwear, iron / steel, buses, cars

Myanmar Tea, rice, maritime products, alcoholic beverages, cigarettes, chemical products, cars, buses, motorcycles, agricultural products, fruits

Philippines Agricultural products, chemical products, textiles, car spare parts

Singapore Samsu

Thailand Footwear, household appliances

Highly Sensitive Track Goods

Highly ST Goods are currently not subject to tariff reduction commitments. There are no plans to negotiate tariff concessions regarding Highly ST Goods at this point.

Products placed in the Highly ST Goods list include:

Table 5: Highly ST Goods

Country Products

Brunei Darussalam Diesel engines, cars, motorcycles, bicycles

Cambodia Agricultural products, tobacco, textiles, furniture

China Rice, sugar, palm / soya bean oil, smoking tobacco, paper products, satellite TV receivers

Indonesia Chemical products, diesel engines, rice

Lao PDR Beer and other alcoholic beverages, cars

Malaysia Dairy products, agricultural products, rice, tobacco / cigarettes, iron, steel, cars

Philippines Agricultural products, chemical products

Singapore Beer

Thailand Agricultural products, tobacco

ST and Highly ST Goods - Reciprocal Tariff Rate Treatment

ST Goods and Highly ST Goods are subject to "reciprocal tariff rate treatment". In order for an ST Good or Highly ST Good from an exporting country to enjoy ACFTA preferential duty rate, the tariffs imposed on that good in the exporting country must be no more than 10%. The tariff rate applicable to the ST goods shall be the tariff rate of the exporting country or the NT tariff rate for the same tariff line in the importing country, whichever is higher, provided that this rate is not higher than the MFN tariff rate applicable to the product in the importing country.

The following examples illustrate how this rule operates:

• Product is wholly obtained from Country A. Product is an ST Good in Country A. The current ST rate in Country A for this product is 9%.

• In Country B, the applied MFN tariff rate for Product is 10%. Product is an NT Good in Country B. The NT rate is 5%.

• In Country C, the applied MFN tariff rate for Product is 0%.

Applying the reciprocal tariff rate treatment, Product exported from Country A to Country B will be subject to a 9% duty rate. However, the duty rate for Product exported from Country A to Country C is 0% since the reciprocal tariff rate cannot be higher than the applied MFN rate in the importing country.

Rules of Origin (ROOs)

Wholly Obtained and Value-added ROOs

In order to be eligible for ACFTA tariff preferences, products will have to satisfy certain ROOs. ROOs for ACFTA may be classified into two categories:

a) Products wholly obtained in a country that is a signatory to the ACFTA; and

b) Products not wholly produced or obtained in a signatory to the ACFTA but which satisfy a value-added rule. The value-added rule may be expressed using the following formula:

Therefore, the ACFTA content: 100% - non-ACFTA material = at least 40%

Final manufacturing or processing operations must also be completed in an ACFTA member country.

Cumulation

The ACFTA ROO also allows for cumulation. Raw materials produced in any ACFTA country will be treated as being of ACFTA origin even though they are produced outside the country where the finished goods were manufactured. Such raw materials would be included as materials of ACFTA origin for the purposes of the value-added ROO calculation.

Minor Operations

Minor operations - e.g., measures to ensure preservation of goods, transportation facilitation, and packing or presenting the goods for sale - are considered to be minimal and will not be included in the ROO calculations.

Product-specific ROOs

The ACFTA signatory countries further agreed to implement product-specific ROOs. The ACFTA provides that product-specific ROO negotiations should have commenced from January 2005. However, at present, there are no product specific ROOs.

Direct Shipment Requirement

There is a direct shipment requirement as well. The finished goods need to be directly shipped from the exporting country to the importing country in order to qualify for the tariff concessions.

There are, however, exceptions to this requirement. If finished products are transported through one or more intermediate non-ACFTA countries before arriving in China, they will still qualify for ACFTA tariff concessions if the indirect shipments were for geographical reasons or for reasons related exclusively to transport requirements. However, the finished goods must not enter into trade or consumption in that transit country and they must not undergo any operations except unloading or reloading.

Form E Certificates of Origin

A Certificate of Origin (Form E) needs to be obtained for ACFTA tariff concessions. Each ACFTA member country will appoint a central authority to be in charge of issuing Certificates of Origin for qualifying goods prior to their export. In China, local Entry-Exit Inspection and Quarantine Bureaus are to be in charge of issuing such Certificates of Origin. Certificates of Origin will be issued after a factory inspection has been carried out to determine if all relevant requirements are satisfied.

Market Economy Status

ASEAN grants China full market economy status under ACFTA. Actual production cost data must now be used in anti-dumping investigations initiated against Chinese imports in ASEAN.

Other Measures Affecting Trade in Goods

The parties agreed to incorporate the WTO principle of transparency (Article X of GATT 1994) into the ACFTA. Therefore, non-WTO ASEAN member states such as Vietnam and Lao PDR will now need to comply with WTO transparency standards.

There are currently no specific commitments with regard to non-tariff barriers and quantitative restrictions. Instead, ACFTA member countries have agreed not to maintain any quantitative restrictions unless otherwise permitted under WTO disciplines.

Endnote

1 ASEAN consists of Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.