Managing International Trade: Customs and Trade Updates Agaton Teodoro O. Uvero October 28, 2008, Tuesday Alabang, Muntinlupa City

Presentation Outline  Introduction  Managing International Trade  Rules of Origin  Customs & Trade Updates  Conclusion

INTRODUCTION  Growing complexity of import and export rules (free trade rules, marking and licensing, security measures, etc)  Increasing risks in international trade (supplier and buyer default, security measures, credit crunch, compliance, etc.)  ‘Death’ of multilateralism (WTO); rise of bilateral and regional agreements

Rules of Origin

Current State of Play  Ongoing FTAs AFTAAFTA ASEAN-ChinaASEAN-China ASEAN-KoreaASEAN-Korea ASEAN-JapanASEAN-Japan ASEAN-IndiaASEAN-India JPEPAJPEPA  Final stages of Negotiation ASEAN-AUS/NZASEAN-AUS/NZ

Rules of Origin / Certificate of Origin  With Preferential Treatment Generalized System of Preferences GSP (Form-A)Generalized System of Preferences GSP (Form-A) ASEAN-Common Effective Preferential Tariff (Form-D)ASEAN-Common Effective Preferential Tariff (Form-D) ASEAN-CHINA Free Trade Agreement (Form-E)ASEAN-CHINA Free Trade Agreement (Form-E) ASEAN-KOREA Free Trade Agreement (Form-AK)ASEAN-KOREA Free Trade Agreement (Form-AK)  Without Preferential Treatment CO for General Merchandise (White CO)CO for General Merchandise (White CO) 6

Rules of Origin for FTAs  FTAs extend preferential tariffs (lower duty rates) ONLY on products originating from the country/area  ROO determines which products are considered originating  ROO provides transparent and predictable rules for granting preference 7

Rules of Origin: Origin Criteria ORIGIN WHOLLY OBTAINEDSUBSTANTIAL TRANSFORMATION VALUE ADDED (VA) RULE CHANGE IN TARIFF CLASSICATION (CTC) RULE PROCESS RULE

Rules of Origin: Origin Criteria (cont.)  Wholly Obtained Enntirely grown, extracted or harvested within the exporting countryEnntirely grown, extracted or harvested within the exporting country Manufactured exclusively without any imported components or materialsManufactured exclusively without any imported components or materials  Substantial Transformation Value Added (VA) RuleValue Added (VA) Rule Change in Tariff Classification (CTC) RuleChange in Tariff Classification (CTC) Rule Process Rule (‘chemical reaction rule’)Process Rule (‘chemical reaction rule’)

Rules of Origin: Change in Tariff Classification (CTC)  Level of Change in Tariff Classification (CTC) Change of Chapter (CC) – Change from one HS chapter to another ChapterChange of Chapter (CC) – Change from one HS chapter to another Chapter Change of Tariff Heading (CTH) – Change from HS tariff heading to another tariff headingChange of Tariff Heading (CTH) – Change from HS tariff heading to another tariff heading Change of Tariff Subheading (CTSH) – Change from HS tariff subheading to another tariff subheadingChange of Tariff Subheading (CTSH) – Change from HS tariff subheading to another tariff subheading

Harmonized System (HS): Chapter, Heading and Subheading 7 1 HeadingHS CodeDescription 71.01Pearls, natural or cultured, whether or not worked or graded but not strung, mounted or set; pearls, natural or cultured, temporarily strung for convenience of transport Natural Pearls - Cultured Pearls: Unworked Worked Chapter Number Heading Number One Dash Subheading Number Two Dash Subheading Number 1

Change of Tariff Heading (CTH); De Minimis Rule Imported Parts: Motor ( )- USD5.00 CIF Switches ( )- USD3.00 CIF Fan Blade ( )- USD1.50 CIF Direct Processing Cost; Overhead and General Expense; Profit- USD10.50 Finished Product: Stand Fan ( ) – USD20.00 FOB   De Minimis Rule – Cost of non-originating material that does not change classification should not be 10% of FOB price of the finished product   While the Fan Blade has same Tariff Heading (8414) as Stand Fan (8414), its value is only 7.5% of the FOB export price. Therefore, the stand fan is ‘ORIGINATING’.

Preferential Trading under the FTAs MALAYSIA T-shirts BRUNEI Form E PHILIPPINES cotton fabric Form D CHINA cotton fabric Form AK Form E Form AK KOREA cotton fabric Source: Philippine Tariff Commission

Using Various Certificates of Origin Philippine Toll Manufacturer Raw Materials with FTA preferential rates Regional Warehouse Finished Goods with FTA preferential rates Distributors Malaysia Indonesia Vietnam Thailand Brunei Distributors China Japan Korea India Finished Goods with ASEAN+3 preferential rates? Singapore Regional Office Vietnam Supplier Thailand Supplier China Supplier

Thank you