Mike Lee

FTA Unit, Trade Services & Policy Group 07 November 2013

Free Trade Agreements (FTAs) with Indonesia

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

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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.

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Singapore & ASEAN’s FTA Network

Costa Rica

July 2013

Singapore’s Network of FTAs – 20 FTAs in Force with 31 Trading Partners

ASEAN

Jan 1993

New

Zealand

Jan 2001

Japan

Nov 2002

*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 **TPSEP - Brunei, Chile,

New Zealand

May 2006

S. Korea

Mar 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

EFTA

GCC

Sep 2013

ASEAN’s FTAs

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ASEAN ASEAN-China ASEAN-Korea

ASEAN-Japan ASEAN-India ASEAN-Australia &

New Zealand

ASEAN Members:

Brunei Indonesia Malaysia

Philippines Singapore Thailand

Cambodia Laos

Myanmar Viet Nam

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

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Paid by

importer to

importing

customs

authority

FTAs reduce

import duties

Imposed on both

locally produced

and foreign-

produced goods

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CIF Value of Product

Import Duty

Sales Tax / Value-

added Tax

Excise Tax

FTAs reduce / eliminate import duties….

Cost of Goods to Importer

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….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.

Applicable FTA Business Models

Preferential Certificate of Origin (PCO) and Direct Shipment

Manufacturer

in ASEAN Country

(eg. Singapore)

Importer in ASEAN

Country (eg. Indonesia)

enjoys tariff concessions

PCO:

Form D

Using ASEAN Trade In Goods Agreement (ATIGA):

Flow of invoice -

Flow of goods -

Back-to-Back Certificate of Origin Arrangement

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.

Manufacturer

in ASEAN Country

(eg. Vietnam)

Importer/Exporter in

intermediate Country

(eg. Singapore)

Importer in ASEAN

Country (eg. Indonesia)

enjoys tariff

concessions

Original

Form D

Back-to-

back

Form D

Using ATIGA :

Back-to-Back CO Arrangement

Manufacturer

in FTA Country

(E.g. Indonesia)

Distribution Centre

(E.g. Singapore)

Importer in

FTA Country

(E.g. Vietnam)

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Importer in FTA

Country

(E.g. Thailand)

100 units

60 units

40 units

Original

Form D

Back-to-

back

Form D

Back-to-

back

Form D

Using ATIGA:

Third Party Invoicing

Manufacturer in

Malaysia Importer in

Indonesia enjoys

tariff concessions

Manufacturer

issues invoice to

company in third

country.

Company in third

country issues

invoice to

importer. Third Party

(Singapore)

Original

Form D

Using ATIGA:

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.

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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.

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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

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Simple/Minimal Operations

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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.

Overview of ASEAN FTAs

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AFTA ACFTA AKFTA AJCEP AANZFTA AIFTA

Rules of Origin (ROO)

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 Heading (4-digit);

Change in tariff Subheading (6-digit)

Product Specific Rules (PSR)

PSR PSR PSR PSR -

Back-to-back Certificate of Origin

Third Party Invoicing

Certificate of Origin

Form D Form E Form AK Form AJ Form AANZ Form AI

RVC = Regional Value Content

Application Procedures

Application Procedure for Preferential Certificate of Origin (CO)

1. Factory Registration

2. Prepare Manufacturing Cost Statement

3. Apply for Preferential

Certificate of Origin

• 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

• 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

• 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

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FTA Resources

FTA Website (http://www.iesingapore.com/fta)

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FTA Website (legal texts)

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ASEAN’s FTAs (ASEAN Secretariat Website) http://www.asean.org/communities/asean-economic-community/category/free-trade-agreements-with-dialogue-partners

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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

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Thank You www.iesingapore.com