Monday, June 18, 2012

How ASEAN Goods Lose Their Identity (and How to Correct This)

Another issue illustrating some of the frustrations economic actors have with the ASEAN Economic Community (AEC) regards intra-ASEAN trade in the ASEAN Trade in Goods Agreement (ATIGA).  Under the ATIGA, goods qualify for the zero preferential tariff rate for intra-ASEAN trade if they satisfy the rules of origin of ATIGA.  Generally, this means that the goods have either 40% ASEAN value added or have undergone a transformation that shifts the customs classification of the good. 

Theoretically then, once a good qualifies as ASEAN-origin for ATIGA purposes, it should always qualify.  That’s not the case.  As explained earlier, because ATIGA and other ASEAN free trade agreements (FTA) currently rely on paper documentation (the “Form D”) to prove origin, inconsistencies in customs treatment can result. For example, if a good has 40% ASEAN origin, it would qualify for ATIGA and the ASEAN FTAs in most cases.  However, as discussed in a earlier post, the ASEAN exporter will have to fill out multiple sets of origin documentation to qualify for FTA treatment despite having met the qualifications of both FTAs.

Even within ASEAN, in the ATIGA, there is inconsistent treatment.  A good can lose its “ASEAN identity” and not qualify for ATIGA even though it has met the ATIGA rules of origin.  If an ASEAN-originating product from Member State A was  declared for importation with a Form D in Member State B, and at a later stage is exported to Member State C, it is at present impossible (legally and practically) to obtain a Form D in Member State B, and the full rate of duty will be applied in Member State C. There is only a provision for ‘back-to-back’ certificates: a certificate of origin can be issued on the basis of another certificate of origin under certain conditions where goods have not been declared for importation yet and are effectively in transit.

The loss of origin issue has been identified in earlier studies as one of the possible causes of underuse of preference in ASEAN.   Apart from being a possible cause of underutilization, this issue is also felt to stand in the way of a true ‘free movement of ASEAN originating goods’, which, with a view to the AEC objectives, makes finding and introducing/implementing   a  solution   even  more  important (It  should  be realized, however,  that there is no solution that will solve all cases of lost origin’, as there will always be situations in which an exporter (a trader in particular), is just not able to prove that the goods to be exported were already originating in an ASEAN member state. Proof is an elementary requirement that should not be dropped.).

There are two possible solutions for this legal lacuna. 

First, ASEAN can undertake full implementation of the ASEAN Framework Agreement on Goods in Transit.   The agreement called for a protocol to allow for customs transit between and through ASEAN member states.  However, since 1998, the protocol has not been finalized.  According to sources, differences between Malaysia and Singapore over railway checkpoints had delayed agreement for years (recall that Malaysia had asserted that goods and people passed from Malaysia to Singapore at the Tanjong Pagar train station, which was deep inside the geographical territory of Singapore).  However, with Malaysia and Singapore having resolved this dispute, and the customs and immigration facilities having been moved to the Malaysia-Singapore border in Woodlands, the political obstacles to passing the customs protocol have dissipated.  The protocol needs to be finalized.

Second, ATIGA itself could be amended to deal with this lost origin issue.   Under ATIGA, the issuing authorities can only issue a Form D for goods originating in the country in which the certificate is applied for.  The first step towards a solution is therefore to remove the restriction and to allow that certificates of origin can also be issued when the ASEAN country of origin of the goods in question is different from the issuing ASEAN member state. The legal basis for the issuing of certificates  of origin is laid down in Article 38 of ATIGA. The text of this article does not rule out the issuing of a certificate stating a country of origin different from the country in which the certificate is to be issued, but refers to the procedural rules contained in Annex 8 of the ATIGA.   Therefore Article 38 would not need to be amended. It is Rule 10.1 of Annex 8  that contains the restriction in question; here the text would require a minor amendment by replacing  “.......originating  in  that  Member  State by  “.........originating  in  a Member State”.  With that, Annex 8 would allow for certificates to be issued/invoice declarations to be made out for goods originating in an ASEAN member state different from the exporting ASEAN member state.

Either way, ASEAN needs to deal with such details if the AEC is to achieve both the single production base and the single market.  Otherwise, competitors such as nation-states like China and India, or regional blocs like NAFTA and the EU, where such origin issues have been resolved or do not exist, will be better placed to attract investment.