Doing business with ASEAN How to use an FTA

NEW ZEALAND CUSTOMS SERVICE Presentation overview 1. More detail on Rules of Origin 2. Look at factors to consider when choosing which FTA to use when trading Doing business with ASEAN 2

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 3 What do RoO do? 1.Identify goods that are “made in” a Party that then get preferential tariff rates 2.Prevent “free riding” from non- Parties 3.Set the level of transformation required for goods to become originating.

NEW ZEALAND CUSTOMS SERVICE Figure 1: Boeing Dreamliner 787 GVC (Source: DFAT, 2013) 4

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 5 3 ways to gain origin  Goods that are wholly obtained or produced  Goods that are produced entirely from originating materials  Goods produced from non-originating materials: »Substantial transformation

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 6 Product specific rules  Product Specific Rules (PSRs) establish the threshold of change or value add a product must meet to be considered originating under an FTA.  Three means used o Change in Tariff Classification (CTC) o Regional Value Content (RVC) o Specific processing requirement

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 7 Change in tariff classification  Uses the tariff classification to identify whether ‘substantial transformation’ has occurred during production of the good.  A non-originating material used in the production of a good must not have the same classification under the HS as the final good into which it is incorporated. Can be at three levels. o Change in Chapter (CC) – at 2 digit level in the Tariff o Change in Heading (CTH) - at 4 digit level o Change in Sub-heading (CTSH) - at 6 digit level

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 8 CTC rule example – Malaysian vacuum cleaner New Zealand Germany Australia Malaysia Motor HS 8412 JapanChina Ball bearings HS 8482 Steel springs HS 7320 Vacuum cleaner HS8508 PSR: 8508 Vacuum cleaners: RVC(40) or CTH or RVC(35) + CTSH

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 9 RVC rule  The specific percentage of value that is required to be added to a good in the production process.  Calculation of “added value” using ‘Build down’ or ‘Build up’ methodologies.  The final production process must be performed within a Party.

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 10 RVC rule – build down example AANZFTA Formula: RVC = FOB - VNM x 100 FOB FOB: Free on board value of the goods VNM: Value of non-originating materials $200 - $60 x 100 = 70% $200

NEW ZEALAND CUSTOMS SERVICE 11 Retaining origin - transit though Non-Parties / Direct Consignment  General principle is that a good must not undergo any processing during transit in a non-Party (other than minimal processing)  Two common phrases used are o goods must not enter the commerce / trade during transit o Goods must remain within customs control  If undergone any processing or entered the commerce / trade of transiting third country, the good will lose its originating status and thus at importation no preference will be granted Doing business with ASEAN

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 12 So the question becomes…. Which FTA to use? And the simple answer is….there is no simple answer.

NEW ZEALAND CUSTOMS SERVICE But it’s easy to decide ….isn’t it? Doing business with ASEAN 13

NEW ZEALAND CUSTOMS SERVICE Which trade agreement to use Doing business with ASEAN 14 1.What is the tariff line for your good? 2.Where is the good being exported to / imported from? 3.What is the tariff preference in each relevant FTA? 4.What are the Rules of Origin? 5.What are the documentation requirements?

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 15 NZ FTAs in the region Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP) – entry into force in 2001 New Zealand – Thailand Closer Economic Partnership Agreement (NZTCEPA) – eif 2005 ASEAN – Australia – New Zealand Free Trade Agreement (AANZFTA) – eif 2010 Malaysia – New Zealand Free Trade Agreement (MNZFTA) - eif 2010

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 16 Working Tariff Document

NEW ZEALAND CUSTOMS SERVICE Anhydrous milkfat 17 HS Classification: Tariff Rates 2014 Thai Base Rate NZTCEPAAAN 18%Free18% (free- 2020) Doing business with ASEAN

NEW ZEALAND CUSTOMS SERVICE 18 Different FTAs provide different duty outcomes HS -6 Description Origin FOB (NZ$ mil) Tariff Rates 2014 Tariff Duty (NZ$ million) Thai Base Rate NZTAAN NZTAANNZT Saving Anhydrous milkfat NZ3318%Free18% (free- 2020) $0$6mil $6 million difference in tariff duty Doing business with ASEAN

NEW ZEALAND CUSTOMS SERVICE 19 Different FTAs contain different origin rules AANZFTA rule has more flexibility/options (either RVC or CTSH can be used) Doing business with ASEAN

NEW ZEALAND CUSTOMS SERVICE 20 Different requirements to evidence origin Doing business with ASEAN

NEW ZEALAND CUSTOMS SERVICE Doing business with ASEAN 21 Customs can help We : are going to be increasing the outreach activities we undertake to see how we can help NZ exporters access FTA markets are going to deploy a Trade Specialist into South East Asia to smooth trade access and conduct outreach for traders (exporters and importers) have information on our website on the RoO elements of different FTAs can provide advance rulings on tariff classification.

NEW ZEALAND CUSTOMS SERVICE More information New Zealand Customs website: Trade Access, Policy: Doing business with ASEAN 22