WP13 (OCT 2016)

OBELS WORKING PAPER No.13 , Oct 2016

ATIGA and its implication on the cross-border trade Asst. Prof. Khin Maung Nyunt1, Ph.D School of Management, MFU The ASEAN Free Trade Area (AFTA) was signed in 1992 and the Common Effective Preferential Tariff Scheme (CEPT) was initiated in 1993. The Protocol to Amend the Agreement on CEPT-AFTA for the Elimination of Import Duties was adopted in 2003 followed by the entry force of the ASEAN Trade in Goods Agreement (ATIGA) in 2010. In the latter, the ATIGA rates will apply instead of CEPT. For the ASEAN-6 (Brunei, Indonesia, the Philippines, Malaysia, Singapore and Thailand), 99.2% of tariff lines indicate ATIGA tariff rate (or CEPT rate) of 0% in 2014, while 90.8% of tariff lines of Cambodia, Lao PDR, Myanmar and Vietnam (CLMV) show ATIGA rate of 0% in 2015. In average, the share of ATIGA 0% tariff lines across ASEAN Member States (AMS) have reached 96.0% by 2015. In addtion, CLMV has flexibility rules for extending tariff elimination for some sensitive products up to 7% of tariff lines until 2018.

It notes that not all traded goods among the AMS will be eligible for ATIGA tariff preferences and it depends on two main types of goods as set out in ATIGA. Figure 1 Type of Goods and Sources of Trade Preferences

Source: Author’s illustration.

1

Priority to current post, Dr. Khin Maung Nyunt worked as a Senior Economist at the ASEAN-Australia Development Cooperation Program Phase 2, the ASEAN Secretariat, Jakarta, Indonesia for the period 2010-2016.

The ‘wholly obtained or produced goods’ in AMS receives benefit of tariff reduction under ATIGA. However, ‘not wholly obtained or produced goods’, exporters and manufacturers have the option to apply either the regional value content (RVC) criterion or the change in tariff classification (CTC) criterion to gain benefits under ATIGA. (1) Wholly Obtained or Produced Goods Goods obtained or produced in the exporting Member State from products are identified as follows: a) Plant and plant products, including fruit, flowers, vegetables, trees, seaweed, fungi and live plants, grown and harvested, picked or gathered in the exporting Member State, b) Live animals, including mammals, birds, fish, crustaceans, mollusks, reptiles, bacteria and viruses, born and raised in the exporting Member State, c) Goods obtained from live animals in the exporting Member State, d) Goods obtained from hunting, trapping, fishing, farming, aquaculture, gathering or capturing conducted in the exporting Member State, e) Minerals and other naturally occurring substances, not included in a) to d), extracted or taken from its soil, waters, seabed or beneath its seabed, f) Products of sea-fishing taken by vessels registered with a Member State and entitled to fly its flag and other products taken from the waters, seabed or beneath the seabed outside the territorial waters of that Member State, provided that that Member State 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 Member State and entitled to fly the flag of that Member State, h) Products processed and/or made on board factory ships registered with a Member State and entitled to fly the flag of that Member State, exclusively from products referred to in g), i) Articles collected there which 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, and j) Waste and scrap derived from production in the exporting Member State; or used goods collected in the exporting Member State, provided that such goods are fit only for the recovery of raw materials.

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(2) Not Wholly Obtained or Produced Goods If a good isn’t part of ATIGA’s list of 2000 goods with specific requirements, exporters and manufacturers have the option to apply either the RVC or CTC based on the following conditions: i. if the goods have a RVC of not less than 40% – determined using one of the two methods mentioned under ATIGA. ii. if all non-originating materials used in the production of the goods have undergone a CTC at four-digit level HS classification.

Thus for the good of AMS to be eligible for ATIGA tariff preferences, first goods need to meet the ROO requirement. For AMS’s trade with non-ASEAN members e.g. ASEAN +1, nonpreferential rate known as most favoured nation (MFN) rate also can used known as the ATIGA or ASEAN+1 Free Trade Agreement (FTA) rate. A choice of tariff rate may depend on the margin of preferences (e.g. the difference between MFN rate and ATIGA preferential rate) and the costs of preference utilisation. The lower the margin of preferences, or the higher the costs of preference utilisation – the lower is the incentive for traders to use the preferential rate.

Thus the CEPT scheme reflects actual ‘preference utilization’ which indicated still very low in 2010 for most ASEAN countries based on available data. To claim for preferencntial tariff, the exporters need to apply for a ‘certificate of origin’ (CO) known also as “Form-D’ under ATIGA. While the value of imports by ASEAN-9 under CEPT using Form-D, increased from USD 9.2 billion in 2005 to USD 26 billion in 2010, preference utilization rates range from almost zero for Myanmar (0.5 percent), Brunei (3.3 percent) and Lao PDR (3.4 percent), to a modest level for Malaysia (11.1 percent), Vietnam (13.4 percent), Indonesia (19 percent), and Thailand (22.6 percent). Only imports by Cambodia and the Philippines points to significant preference utilization rates of 47.1 percent and 41.1 percent, respectively. It suggests the need for AMS to claim more the opportunities of benefits by using effectively Form-D under ATIGA in the future.

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Figure 2 ATIGA Tariff and MFN Rates of ASEAN6 and CLMV 14 12

11.58

11.50

10

10.10

10.05

5.65

9.23

8.93

8.93

8.93

5.58

5.57

5.37

5.55

5.55

3.00

2.61

2.47

percent

8 6 4 2

5.87 4.44

5.83 3.69

1.32

0.79

0.79

0.05

0.05

1.69 0.05

1.37 0.04

1.33 0.04

2007

2008

2009

2010

2011

2012

2013

2014

0

CEPT CLMV

CEPT ASEAN6

MFN CLMV

MFN ASEAN6

Source: The ASEAN Secretariat, ASEAN Integration Report 2015.

Rules of Origin Rules of Origin (ROO) aim to contribute to preference utilisation as well ase market integration efforts. These include the introduction of advance-rulings, the simplification of Operational Certification Procedures (OCP) for ATIGA ROO, and other trade facilitative processes such as harmonisation or alignment of national procedures.

Figure 3 ATIGA and System of Preferences

ATIGA

*ROO *Accumulation Princple *De Minimis *Product Specific Rules

Self-Certification System

Trade Preferences

Trade Preferences

Source: Author’s illustration.

Accumulation Principle The accumulation principle is also applied to the agreements in relation to ROO. It allows countries’ producers and exportrs to a trade agreement to share production and jointly comply with the relevant ROO provisions. For producers within ASEAN, this principle allows materials to be sourced from all ASEAN member states without forgoing tariff reductions.

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De Minimis The de minimis principle allows goods which have non-originating materials and are unable to meet their relevant CTC requirements to enjoy preferential tariff treatment. Certain goods can be considered originating under the ATIGA if: (a) the value of all non-originating materials used in its production do not undergo the required change in tariff classification does not exceed 10% of the FOB value of the good, and the good meets all other applicable criteria for qualifying as an originating good; (b) the value of non-originating materials shall be included in the value of non-originating materials for any applicable RVC requirement for the goods.

Product Specific Rule Product Specific Rules (PSRs) under ATIGA focuse on applicable rules for those particular products of partucular industry or sector. It seems to be more liberal in practice, contributing to easier compliance. The list of applicable PSRs under ATIGA is set out in Annex 3 of the Agreement.

Self-Certification Self-Certification under ATIGA allows trusted traders/exporters who are qualified, can self certified the origin in Invoice Declaration or other commercial documents (i.e. Billing Statements, Delivery order, Packing list) instead of ‘certificate of origin (CO)’ known also as ‘Form D’. The self-certification aims to reduce the costs associated with ‘Form D’ application and facilitate trade that encourage freer flow of ASEAN originating goods and competitiveness. It has been implemented through the first and the second Pilot Projects in AMS. Trade Facilitation Key trade facilitation measures (TFM) comprise of reforming the ATIGA Rules of Origin, implementing trade facilitation work programmes, developing the ASEAN Trade Repository, addressing the issues of non-tariff measures, developing the ASEAN Single Window, the signing of the ASEAN Agreement on Customs in 2012 and harmonisation of standards, as well as pursuing mutual recognition arrangements (MRAs).

There are three specific initiatives under transport facilitation, namely: (i) the ASEAN Framework Agreement on the ASEAN Facilitation of Goods in Transit (AFAFGIT); (ii) the ASEAN Framework Agreement on the Facilitation of the Inter-State Transport (AFAFIST); and (iii) the ASEAN Framework Agreement on Multimodal Transport (AFAMT).

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Figure 4 Trade Facilitation Measures under ATIGA

Trade Facilitation

Goods in Transit Transport

Inter-State Transport

ASEAN Trade Repository

Multimodal Transport

NTM, NTB ASEAN Single Window

Customs MRA (PIS)

Source: Author’s illustration.

ASEAN Trade Repository The establishment of an ASEAN Trade Repository (ATR) in AMS for documenting trade and customs laws and procedures for public access, has been authorised under Article 13 of ATIGA. Most AMS have completed their National Trade Repository web portals.

Non-Tariff Measures On the removal of Non-Tariff Barriers (NTB), it has been performed in accordance with the agreed Work Programme on NTB elimination. The NTB will be eliminated by 2010 for Brunei Darussalam, Indonesia, Malaysia, Singapore and Thailand by 2010; by 2012 for the Philippines; and by 2015 with flexibilities up to 2018 for the CLMV. AMS are currently reviseing NTM inventory using WTO-consistent United Nations Conference on Trade and Development (UNCTAD) Classifications. However, quantitative data are not available to identify the number of ASEAN NTMs identified as NTBs. Based on the WTO Integrated Trade Intelligence Portal (I-TIP Goods) lists including the 10 AMS, six categoris of Technical Barriers to Trade (TBT) are classified as follows: Antidumping (ADP); Countervailing (CV); Quantitative Restrictions (QR); Safeguards (SG); Sanitary and Phytosanitary (SPS); and Special Safeguards (SSG).Table 1 reports notified measures of AMS.

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Table 1 Notified Non-Tariff Measures (I: initiate, F: in force) ADP CV QR SG SPS SSG TBT Total I F I F I F I F I/F I F 0 0 0 0 0 0 0 2 1 0 2 0 5 0 0 0 0 0 0 0 0 0 0 2 1 3 20 15 0 0 0 10 16 53 42 0 78 14 248 0 0 0 0 0 0 0 1 0 0 1 0 2 8 19 0 0 0 2 0 27 6 0 205 6 273 0 0 0 0 0 0 0 0 0 0 1 0 1 10 0 0 0 43 0 0 36 17 0 28 11 135 0 0 0 0 43 0 0 36 17 0 28 11 135 4 34 0 0 59 2 2 205 18 0 523 22 869 0 0 0 0 0 1 1 43 23 0 44 7 119 33 68 0 0 102 19 26 486 249 7 1126 62 2178 Source: The ASEAN Secretariat, ASEAN Integration Report 215.

BRN CAM IDN LAO MYS MMR PHL SGP THA VNM Total

Table 1 highlights that the largest areas of TBTs account for 1,188 measures although only 62 are in force, and SPS (accounting for 735 measures, with 249 in force).

ASEAN Single Window The ASEAN Single Window (ASW) has being implemented through an integrated platform of partnerships among government agencies and end-users, such as economic, transport and logistics operators in the movement of goods. The Natrional Single Window (NSW) will facilitate cross-border trade by enabling electronic data exchange for cargo clearance and release.

The AEC Blueprint targeted the operationalisation of NSWs in the ASEAN-6 by 2008 and the CLMV by 2012. A more comprehensive and binding Protocol on the Legal Framework to Implement the ASW was finalised in September 2014, and signed in 2015. It constitutes the legal aspects of the implementation of the ASW in the AMS. Customs Trade facilitation measures under the Customs are dentified comprehensively in ATIGA. The objectives are to ensure predictability, consistency and transparency in the application of AMS customs laws; to promote efficient administration of customs procedures and expeditious clearance of goods; to simplify and harmonise customs procedures and practices; and to promote cooperation among customs authorities. These measures cover pre-arrival documentation, risk management, the application of IT, customs valuation, Authorised Economic Operators, Post Clearance Audit and advance rulings. ASEAN is also 6

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using its own ASEAN Harmonised Tariff Nomenclature (AHTN), which is an 8-digit nomenclature, based on the 6-digit HS. The use of the AHTN facilitates trade negotiations at more detailed product levels.

Standards and Conformance Standards, technical regulations and conformity assessment procedures (STRACAP) and conformance contribute the trade attributye. But it has also been cited as the most important classes of NTMs. Harmonisation of standards and technical regulations in ASEAN is governed by the ASEAN Guidelines on STRACAP. The ASEAN Guideline on Conformity Assessment provides mutual recognition of conformity assessment among the AMS. Moreover the ASEAN Consulative Committee on Standards and Quality (ACCSQ) looks into legal metrology issues concerning trade supporting the technical infrastructure programme in ASEAN, including common procedures on legal metrology such as the ASEAN Common Requirements on Pre-packaged Products and Common Verification Procedures for Nonautomatic Weighing Instruments. Inter-laboratory comparison programmes have also been conducted on mass and on volume measurement standards among the AMS. Integration of Priority Sectors The Integration of Priority Sectors (IPS) covers originally 11 PIS, namely electronics, eASEAN, healthcare, wood-based products, automotive, rubber-based products, textiles and apparel, agro-based products, fisheries, air travel and tourism. The logistics sector was added as the 12th PIS in 2006.

Measures tinclude harmonising standards, developelopmnt and implementation of harmonised regulatory schemes as well as develop MRAs. These reflect electrical and electronic equipment, medical devices, pharmaceutical products, cosmetics, automotive and auto parts, prepared foodstuff, building and construction materials, traditional medicines and health supplements, and rubberbased products. More detailed consideration on sanitary and phytosanitary (SPS) measures are found in four natural resource-based PIS. The most relevant common NTM measures with respect to PIS, that need to remove NTM are classified under 15 categories viz.: (1) Tariff Elimination; (2) NTMs; (3) ROO; (4) Customs Procedures; (5) Standards and Conformance; (6) Logistics Services; (7) Outsourcing and Industrial Complementation; (8) ASEAN Integration System of Preferences ; (9) investment; (10) Trade and Investment Promotion; (11) Intra-ASEAN Trade and Investment Statistics; (12) Intellectual Property Rights; (13) Movement of Persons; (14) Facilitation of Travel; and (15) Human Resource Development.

Natural Resource-Based (NRB) PIS

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There exists four NRB-PIS, namely agro-based products, fisheries, rubber-based and woodbased products. The PIS Roadmaps set out a list of agreed measures for priority implementation based on common issues and sector-specific measures identified at 8-digit AHTN level. It varies from 270 products for rubber-based products to 106 for agro-based products. The number of products covered as a proportion of the total number also varies from 100% of all eligible products for fisheries to 11.9% of agro-based products.

ASEAN Trade in Goods Agreement (ATIGA) under AEC Blueprint 2025 will continue to work on two key activities: simplify and strengthen the implementation of the ROO and accelerate and deepen the implementation of TFM. In conclusion, the implications for the cross-border can be drawn the following section. The AEC activities are viewed in some countries as a government initiative in the absence of private initiated one. By weighting welfare gains and losses of ASEAN integration, the private sector has become profoundly to realize the possible benefits that can be obtained under the commencement of AEC in 2015. The ‘wholly obtained or produced goods’ under ATIGA reflect main products that are traded particularly at the borders. The accomplishment of PIS (12 sectors) roadmap has highlighted that the use of effective of the above mentioned ATIGA measures would encourage substantially the inflows of the foreign direct investment (FDI) in AMS based on the country’s level of development and preparedness. The attainment of benefits under AFTA by the private sector, among others, are critically associated with the effective use of trade principles, tools and measures such as the effective use of trade preference scheme and the effective TF measures provided by the public sector; the innovations in private sector; and the public-private partnership in the NRB and PIS, which are calling for in the immediate future.

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References ASEAN Secretariat and the World Bank. (2013) ASEAN Integration Monitoring Report, a Joint Report by the ASEAN Secretariat and the World Bank, Jakarta.

ASEAN Secretariat. (2015) ASEAN Integration Report 2015, the ASEAN Secretariat and the World Bank, Jakarta.

ASEAN Secretariat. (2015) ASEAN Trade Good in Good Agreement, the ASEAN Secretariat and the World Bank, Jakarta.

The ASEAN Secretariat. (2015) ASEAN 2025: Forging Ahead Together, Jakarta

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