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ASEAN - China

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ASEAN- China

Background

 

·         Cooperation between ASEAN and China was elevated to a higher level with the signing of the Framework Agreement on Comprehensive Economic Cooperation by the leaders at the 6th ASEAN-China Summit in November 2002. The Agreement entered into force on 1 July 2003.

 

·        The Framework Agreement provided the legal basis for ASEAN and China to negotiate enabling agreements that have led to the creation of the ASEAN-China Free Trade Area (ACFTA) on 1 January 2010 with special and differential treatment and flexibility for the newer ASEAN Member States of Cambodia, Lao PDR, Myanmar and Viet Nam (“the newer ASEAN Member States”).

 

·        The Framework Agreement comprises among others the provisions to establish ACFTA within 10 years, Trade in Goods, Early Harvest Programme, Trade in Services, Trade in Investment, Dispute Settlement Mechanism and Economic Co-operation.  

 

·         The ACFTA, implemented on 1 January 2010, provided the required platform for deepening economic engagement. The economic relations became more intense after the signing of the Framework Agreement and subsequently the ASEAN-China Free Trade Agreement in 2004 which provide a sound basis for increasing trade and investments flows between ASEAN and China. Between 2002 and 2014, over 10 key economic agreements and protocols were concluded. Agreements signed between ASEAN and China includes:

    

No.

Agreement

Date Of Signing

 

The Framework Agreement on Comprehensive Economic Cooperation

4 November 2002

i.

First Protocol to Amend ASEAN-China Framework Agreement

6 October 2003

ii.

ASEAN-China Free Trade Agreement (ACFTA) in Goods

29 November 2004

iii.

ASEAN-China Trade Dispute Settlement Agreement

29 November 2004

iv.

Second Protocol to Amend ASEAN-China Framework Agreement

8 December 2006

v.

First Protocol to Amend ASEAN-China Free Trade Agreement in Goods

8 December 2006

vi.

ASEAN-China Trade in Services Agreement

14 January 2007

vii.

ASEAN-China Investment Agreement

15 August 2009

viii.

Second Protocol to Amend ASEAN-China Free Trade Agreement in Goods

29 October 2010

ix.

Protocol to Implement the Second Package of Specific Commitments under the Agreement on Trade in Services

16 November 2011

x.

Third Protocol to Amend ASEAN-China Framework Agreement 2 December 2006

19 November 2012

xi.

Protocol to Incorporate Technical Barriers to Trade and Sanitary and Phytosanitary Measures into the Agreement on Trade in Goods

19 November 2012

Trade In Goods

 

·        Prior to the full implementation of the ACFTA, an Early Harvest Programme (EHP) was implemented on 1 January 2004. Under the EHP import duties on all products at 8/9 digit levels in HS Chapters were eliminated effective 1 January 2006.  Products covered under the EHP are as follows:

 

Chapter

Description

01

Live Animals

02

Meat and Edible Meat Offal

03

Fish

04

Dairy Produce

05

Other Animals Products

06

Live Trees

07

Edible Vegetables

08

Edible Fruits and Nuts

 

·         Subsequent to the implementation of the EHP, the ACFTA Agreement on Trade in Goods signed on 29 November 2004 entered into force on 1 July 2005.  Article 3 of the Agreement defined the modality for tariff reduction and elimination for Normal Track and Sensitive Track products beginning 2005.

 

·         Tariffs for goods listed under the Normal Track 1 (NT1) were eliminated from 2005-2010. An additional 150 tariff placed under Normal Track 2 (NT2) were eliminated on 1 January 2012. Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) were given flexibility to eliminate tariffs on products in NT1 by 1 January   2015 and NT2 by 1 January 2018.

 

·         Based on the agreed modality for tariff reduction, ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, The Philippines, Singapore and Thailand) and China have eliminated import duties on over 90 per cent of the tariff lines effective 1 January 2012.

 

·        The ACFTA Trade in Goods Agreement also provides for the subsequent liberalization of products in Sensitive Track. Beginning 2012, ASEAN-6 and China have commenced tariff reduction on products in the Sensitive List. ASEAN-6 and China shall reduce the tariff rates placed in Sensitive List to 20% on 1 January 2012 and to 0-5% by 2018. For Highly Sensitive List, duties will be reduced to 50% in 2015 with no further tariff reduction commitments thereof. CLMV will reduce or eliminate import duties on sensitive list products to 20% by 1 January 2015 and 0-5% by 1 January 2020. For products in the Highly Sensitive List, CLMV will reduce import duties to 50% by 1 January 2018.

 

·         ASEAN and China have also signed The Protocol to Incorporate Technical Barriers to Trade and Sanitary and Phytosanitary Measures into the ACFTA Trade in Goods Agreement (TIG) which entered into force on 1 January 2013. Customs Procedures and Trade Facilitation (CPTF) Chapter, expected to be completed in 2015, will also be incorporated into TIG Agreement that is aimed at simplifying and promoting transparency in import and export procedures. A review on Rules of Origin is also being undertaken to improve the Rules of Origin and to enhance the utilization of the ACFTA.

 

Rules of Origin

 

·         In order to enjoy the preferential tariff concession under the ACFTA, the products exported by ASEAN or China must comply with the Rules of Origin (ROO). The two most important requirements under the ROO are the origin criteria and the Operational Certification of Procedures (OCP) for issuance and verification of the Certificate of Origin, Form E.

 

·         According to Article 5 of the Trade in Goods Agreement, the origin criteria imposed under the ACFTA is General ROO 40% Regional Value Content. The formula for the 40% ACFTA content is calculated as follows:

 

RVC =

Value of Non-ACFTA Material

-

Value of Materials of Undetermined Origin

X

100% <60%

_____________________________________________________

FOB Price

The ACFTA content = 100% - Non-ACFTA Materials = at least 40%

 

·         Apart from the General ROO, ASEAN and China have also adopted Product Specific Rules (PSR) for the following products:

o    textiles and apparel;

o    plastic products;

o    footwear products;

o    iron and steel products;

o    preserved fish and canned products;

o    palm oil and ice cream; and

o    jewellery products.

 

·         ASEAN and Chinese exporters/manufacturers now have the flexibility of choosing the most convenient rule in meeting the origin criteria of the products i.e., either 40% Regional Value Content (RVC) or PSR. 

 

·         To obtain the Certificate of Origin Form E, exporters are also required to fulfil the conditions for the issuance and verification of the Form E. Further improvement on OCP was carried out to simplify the rules and trading procedures under the ACFTA. The Second Protocol to Amend the Trade in Goods Agreement on the improvement of the OCP was signed in November 2010 and entered into force in January 2011. Under the review, ASEAN and China have agreed on 4 fundamental features in the new revised OCP:

 

                          I.    Movement of Certificate

 

Back-to-Back Certificate of Origin arrangement to facilitate exports of partial shipments, of which the bulk-break activities are conducted in an intermediate ACFTA party. Certificate of Origin (Form E) issued by an intermediate exporting Party, based on the original Certificate of Origin (Form E) issued by the first exporting Party proving the origin status of the products in question.

 

                         II.    Third Parting Invoicing

 

Sales invoice to the importer are allowed to be issued by companies located in a non-ACFTA territory provided that the product meets the requirements of the ACFTA ROO and must be shipped out from either one of the ASEAN Member States or China.

 

                        III.    Longer validity period of 1 year for the Certificate of Origin (Form E)

 

Longer validity period of 1 year from the earlier period of 4 months for the Certificate of Origin (Form E) upon presentation to the Customs authority of the importing Party.

 

                       IV.    Allows for verification visit.

 

For Malaysian exporters to enjoy the tariff concessions offered by China under the ACFTA, Certificates of Origin (Form E) must be obtained and endorsed by MITI.

 

Trade In Services

 

·         In addition to Trade in Goods Agreement, ASEAN and China also signed Trade in Services Agreement (ACTISA) on 14 January 2007 for the 1st package specific commitments and on 16 November 2011 for the 2nd package of specific commitments. Both packages provide for the expansion of trade in services with improved market access and national treatment in sectors/subsectors where commitments have been made. The Agreement excludes services liberalization pertaining to government procurement and government related services.

 

·         Malaysia's liberalization commitments under the First Package include sectors such as:

o    architecture;

o    engineering;

o    telecommunications;

o    financial services;

o    education;

o    health; and

o    tourism.

 

·         China's offers under the First Package include sectors such as:

o    computer and related services;

o    management consulting services;

o    constructions;

o    environmental services;

o    recreational services; and

o    transport services.

 

·         The Agreement also mandated that a second package of specific services commitments be concluded in order to progressively liberalize the service industries. The Protocol to Amend the ASEAN-China Trade in Services Agreement for the 2nd package of Commitments was signed on 16 November 2011. The entry into force of the Protocol is on 1 January 2012.

 

·        Malaysia offers 30 new sub-sectors and improvements in 2 sub-sectors. Malaysia’s commitments under this package include improvements in foreign equity ownership ranging from 10% to 100%:

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