afta and chinese investment into indonesia · 6/pmk.010/20 17 of 2017 minister of finance...

2018 International Commercial Legal Cooperation Forum:

CHINESE TRADE AND INVESTMENT INTO INDONESIA –THE IMPACT OF AFTA

Michael S. [email protected]

SSEK Legal Consultants

November 28, 2018

1SSEK LEGAL CONSULTANTS

History of AFTA

The CEPT scheme has since been enhanced andsuperseded by the ASEAN Trade in GoodsAgreement (“ATIGA”), entered into force on May 17,2010.

On January 28, 1992, the six original members ofASEAN entered into Agreement on the CommonEffective Preferential Tariff (“CEPT”) Scheme for theASEAN Free Trade Area

The CEPT requires that tariff rates on a wide range ofproducts traded within the region be reduced to 0-5%and that quantitative restrictions and other non-tariffbarriers be eliminated


Overview: CEPT

Main Agreements

• Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA), (January 28, 1992)

• Protocol to Amend the Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA), (December 15, 1995)

• Protocol to Amend the Agreement on the Common Effective Preferential Tariff (CEPT) Scheme for the ASEAN Free Trade Area (AFTA) for the Elimination of Import Duties (January 31, 2003)

Products

• All manufactured products, including capital goods and processed agricultural products, and those falling outside the definition of agricultural products

• Inclusion list (reciprocal)• Exception/exclusion

Tariffs Reduction Programs

• Fast Track• Normal Track• Concessions


Overview: CEPT

Requirements

• Rules of Origin• Certificate of Origin

Non- Tariff Reduction Measures

• Elimination of quantitative restrictions• Elimination of non-tariff barriers• Exception to foreign exchange restriction• Agreement to explore further measures on border and non-border areas

of cooperation

Safeguard Provisions

• Temporary suspension


Overview: ATIGA

1. • All ASEAN members shall implement the tariff reduction/elimination for 98% of all tariff lines

2.• Redefines Rules of Origin to increase trade between ASEAN countries

3.• Tariff liberalization and removal of quantitative restrictions on importation

4.• Facilitate Trade through the ASEAN Single Window (ASW) and ASEAN Trade Repository

5.• Reduce non-tariff barriers through harmonization of standards

6.• Special Treatment of Rice and Sugar

7.• Standardization of Customs Procedures


Discussed Changes to AFTA

Simplification

• Revision to the ATIGA to impart predictability, simplicity and order ;

• Lowering the Regional Value Content (RVC);

• Clarifying the text of Product Specific Rules (PSR) by eliminating redundant Rules of Origin.

Improvement

• Expanding the use of self-certification;

• Moving away from document-based verification; and

• Shifting to modern post-entry audit and trade facilitation approaches.

Rules of Origin (RoO)


Implementation of AFTA Tariffs in Indonesia

ASEAN Harmonized

Tariff Nomenclature

2017 -Indonesia

Minister of Finance

Regulation No. 6/PMK.010/20

17 of 2017

Minister of Finance


017 of 2017

Minister of Finance

Regulation No.

229/PMK.04/2017 of 2017

11

• Most of the tariffs have been reduced to 0% except for products that are subject to the MFN or included in the non-Inclusion List.

22• The ATIGA import duty tariff is imposed to imported

goods accompanied with Form D - Certificate of Origin.

33

• The Form D - Certificate of Origin must be delivered by the importer, bonded storage area entrepreneur and bonded logistics center entrepreneur.

44

• In the event the regular import duty tariff is less than the ATIGA import duty tariff, then, the regular import duty tariff shall prevail.


Implementation of AFTA Tariffs in Indonesia

Goods Origin Criteria Wholly Obtained and Produced

Not Wholly Obtained and Produced

RVC of at least 40% out of the FOB value of the goods produced to obtain the preferential tariff. RVC to be computed using the following methods:

Direct Method

Indirect Method

ASEAN raw material costs + direct manpower cost + direct overhead

cost + other costs + profit

FOB value

X 100%

FOB Value – Material value, partial value or non-originating goods

FOB value

X 100%


ASEAN China – Free Trade Agreements (“AC-FTA”)

Framework Agreement on Comprehensive Economic Co-

Operation Between ASEAN and the People’s Republic of China,

Phnom Penh, 4 November 2002

Agreement on Investment of the Framework Agreement on

Comprehensive Economic Co-operation between the Association of

Southeast Asian Nations and the People’s Republic of China, Bangkok,

15 August 2009

Agreement on Dispute Settlement Mechanism of the Framework Agreement on Comprehensive

Economic Co-Operation Between the Association of Southeast Asian Nations

and the People’s Republic of China, Vientiane, 29 November 2004

Agreement on Trade in Services of the Framework Agreement on


Southeast Asian Nations and the People’s Republic of China, Cebu,

Philippines, 14 January 2007

Agreement on Trade in Goods of the Framework Agreement on


Southeast Asian Nations and the People’s Republic of China, Vientiane,

29 November 2004


• Key regulation: Minister of Finance Regulation No. 26/PMK.010/2017 dated February 27, 2017 regarding the Stipulation on Import Duty Tariffs for Imported Goods in the Framework of ACFTA.

• The regulation sets out the list of goods eligible for ACFTA preferential tariffs, which typically range from 0-5%.

AC-FTA Implementation in Indonesia


CRITERIATo determine the country of origin for such goods, 3 methods are generally taken: 1.Regional Value Content (RVC);2.Change in Tariff Classification (CTC);3.Specific Process Rule (SPR). 3. SPR

This is usually applicable for chemical goods. The goods are considered as originating only if they are produced through a specific chemical process occurring in an FTA member country.

2. CTCTo qualify as originating under the CTC rule, the non-originating material used in the production of the good must not have the same HS classification as the final good.

1. RVCRVC requires that a certain percentage of the good’s value must originate in an FTA member country for the good to be considered as originating.

WHATRules of Origin (RoO) are guidelines that help importers and manufacturers determine the country of origin of a product. RoO establish the product’s eligibility for preferential tariff treatment available under FTA.

HOWTo qualify as originating goods, imported items must either be: 1.‘Wholly-obtained’ or produced entirely in an FTA member country; or 2.Must have undergone a ‘substantial transformation’.

Key Highlights – RULES OF ORIGIN


Implementation of AC-FTA’s Tariff in Indonesia

11

•Import duty tariffs are varied ranging from the tariffs applicable to all member states and the ones specifically applicable for imported goods from PRC. Tariffs on a substantial number of products have been reduced to 0%.

22•If there is a discrepancy between the tariffs ASEAN member states impose among themselves and the China specific tariff, the China specific tariff shall prevail.

33•The AC-FTA import duty tariff applies only to imported goods accompanied with Form E -Certificate of Origin.

44•The Form E - Certificate of Origin must be delivered by the importer, bonded storage area entrepreneur and bonded logistics center entrepreneur.

55•In the event the regular import duty tariff is less than the AC-FTA import duty tariff, then the regular import duty tariff shall prevail.

66•Normal Track and Sensitive Track tariffs.

ASEAN Harmonized

Tariff Nomenclature

2017 - Indonesia

Minister of Finance


17 of 2017

Minister of Finance


017 of 2017

Minister of Finance

Regulation No.

229/PMK.04/2017 of 2017


Implementation of AC-FTA Tariffs in Indonesia

Goods Origin Criteria

Wholly Obtained and Produced

Not Wholly Obtained and Produced

RVC1. RVC of at least 40% out of the FOB value of the

goods produced to obtain the preferential tariff; or2. The total of Non-Originating Material is not more

than 60% out of the FOB value of the product so produced or obtained provided that the final manufacturing process is performed with the territory of such ratifying party. The following formula is used to confirm compliance:

Non-AC-FTA Material Value + Undetermined Material

Value

FOB valueX 100% < 60%


Implementation of AC-FTA Tariffs in Indonesia Goods Origin Criteria upon the Protocol to Amend the Framework Agreement on Comprehensive Economic Co-operation and Certain Agreements thereunder between ASEAN and the PRC (the ‘Amended Protocol”).

Wholly Obtained and Produced.

No further requirement.

Produced in a party exclusively from originatingmaterials from one or more of the parties.

No further requirement.

Not Wholly Obtained and Produced.

RVC of at least 40% and the final process of production is conducted within a party

or, goods that are subject to specific HS Codes mentioned in Article 4 of Annex 1 of the Amended Protocol that have undergone a change in tariff classification at the four-digit level – a change in a tariff heading.

FOB Value – Non-Originating Material Value

FOB value

X 100%


Implementation of AC-FTA Tariffs in Indonesia

Goods Origin Criteria upon the Protocol to Amend the Framework Agreement on Comprehensive Economic Co-operation and Certain Agreements thereunder between ASEAN and the PRC (the ‘Amended Protocol”).

Not satisfying the foregoing three requirements. Traders may resort to the de minimis provision under the Amended Protocol.

Goods that do not fulfill the foregoing requirements maystill be regarded as “originating” if they fulfill one of thefollowing criteria:

1.Goods other than the ones included in Chapters 50 to63 of the HS can still be considered as an originatinggoods provided that the value of all non-originatingmaterials used in the production of goods that did notundergo the required change in tariff classification (CTC)does not exceed 10% of the FOB value of the goods; or

2.Goods provided for in Chapters 50 to 63 of the HS forwhich the weight of all non-originating materials used intheir production that did not undergo the required changein tariff classification does not exceed 10% of the totalweight of the good, or the value of all non-originatingmaterials used in the production of the goods that did notundergo the required CTC does not exceed 10% of theFOB value of the goods.


Comparison between AFTA and AC-FTA Tariffs for Trade in Goods

Category AFTA AC-FTA

Product Categories Inclusion List, Temporary Inclusion List, Sensitive and Highly Sensitive List and General Exception List.

Normal Track and Sensitive Track.

RVC Computation Direct method and indirect method. RVC of at least 40% and the final process of production is conducted within a party or specific HS codes may be regarded as “originating” if all non-originating materials used in the production of the goods have undergone a change in tariff classification.

Exclusion from 0% import duty tariff (in relation to Indonesia)

MFN required products.

Non-Inclusion List products (e.g. rice (25%) and sugar (5-10%).

PMFN required products, excluded products such as:

1.motorcycles including mopeds, and cycles fitted with an auxiliary motor with or without side cars; side cars (20-50%);2.Motor vehicles principally designed for the transport of persons including station wagons and racing cars (5-50%);3.Rice (Rp 450/kg);4.Sugar (Rp 550-790/kg).

Tariffs 0-5% already, MFN, Non-Inclusion List, general import duty tariffs.

0-5% already, MFN, China specific tariffs, general import duty tariffs.

Reciprocal principle Not clearly stated in the attachment to MOF Reg 229.

In order for a product to be imposed with the preferential tariff in the export destination country, the same product must have been included in the Inclusion List of the originating country.

Clearly stated in the attachment to MOF Reg 229.

Reciprocal principle also applies in AC-FTA so that any importation of certain types of goods originated from China, must be implemented with reciprocal tariff which amount may be the same to the MFN import duty tariff or other amount as set forth in the Attachment to MOF Reg 26.


Wholly-Obtained Goods under ACFTACertain goods are deemed wholly-obtained goods and they automatically qualify for the preferential tariff under ACFTA. Among others, wholly-obtained goods comprise: live animals, meat, fish, dairy produce, harvested plants, minerals.

ACFTA Originating CriteriaThe rules of origin under ACFTA demand that goods have ASEAN-China (regional value) content of 40% or more. Non-wholly obtained goods that meet this threshold are deemed to have undergone substantial transformation and qualify to be ‘originating’.

Certificate of OriginExporters can obtain a relevant Certificate of Origin for goods that are verified to be ‘originating’. In Indonesia, the Directorate General of Foreign Trade under the Ministry of Trade oversees the issuance of Certificate of Origin.

China – ASEAN FTA – RULES OF ORIGIN


Discussed Changes to AC-FTA implementation in Indonesia

Protocol to Amend theFramework Agreement onComprehensive Economic Co-operation and CertainAgreements thereunderbetween ASEAN and the PRC.

President JokoWidodo signed aPresidentialRegulation to ratifythe Protocol.

2015 2018


Discussed Changes to AC-FTA implementation in Indonesia

Indonesia

Beverage serving, portfolio management, investment fund management and lending.

China

Engineering services, integrated engineering services, construction services, sporting and other recreational services, security services, travel agencies.

ServicesServices

Simplification of the RoO.

The amended RoO provides a clear and comprehensive set of standards and criteria that determine whether a product will be given preferential tariff treatment under the AC-FTA

GoodsGoodsParties will cooperate to promote and increase awareness of the AC-FTA as an investment area.

Cooperation to facilitate investments in the ACFTA through creating a more favorable environment for all forms of investment, simplifying procedures for investment applications and approvals, disseminating investment information, and providing assistance and advisory services through one-stop investment centers..

Investment AgreementInvestment Agreement

THANK YOUTHANK YOU

afta and chinese investment into indonesia · 6/pmk.010/20 17 of 2017 minister of finance...

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