Wednesday, August 17, 2011

Fixing Form D Flaws

If the ASEAN Trade in Goods Agreement (ATIGA) is the heart of the AEC, then the Form D can be said to be its aorta.  The “Form D” certificate of origin is the documentary foundation of ATIGA and its predecessor agreement, the ASEAN Free Trade Area agreement.  Companies wishing to claim the zero tariff rate applicable under ATIGA must demonstrate that their goods qualify as ASEAN-origin either by achieving 40% value-added from ASEAN inputs and processing, or by a change in tariff classification (CTC) at the 4-digit harmonized tariff system level through processing in ASEAN (there are some special rules for automotive, steel, chemical and other products). 

Unfortunately, there are recurring “blockage” problems in the Form D aorta.  The AEM meeting in Manado (and the Senior Economic Officials Meeting (SEOM) as well) laid the first steps to addressing these problems.

Foremost are the recurring documentary problems that have plagued Form D processing in ASEAN since its inception.  Form D documents have been rejected for being 1-2 millimeters too big or too small, for having the wrong shade of color for the paper, for having a signature without a proper dot over the “I” , etc.  One ASEAN member is well known for not accepting appendices to Form D, forcing companies to fit the often voluminous information needed to support the Form D claim in multiple copies of the standard one-page Form D document.    

In the future, a fully implemented ASEAN Single Window will alleviate these concerns, as well as full implementation of self certification (which allows companies to self-declare their Form Ds rather than process them through governmental or government-approved bodies; even under the current process, the list of approved persons in the authorized bodies and their signatures are not updated, resulting in Form D rejections as well).   However, self-certification remains only at the pilot stage, with full implementation only at the end of 2012, and faces some opposition from countries such as Indonesia who are afraid of fraudulent documents (Indonesia has proposed that only a limited number of signatories from pre-certified exporters qualify for self-certification, measures which would limit the availability of self-certification, and thereby undermine its raison d'ĂȘtre). In any event, alleviating the documentary problems will require modernization in attitudes and processes in the ASEAN customs authorities.  That can be achieved over time, such as by better circulation of authorized signatures and relaxing documentary requirements when CTC is used (since the nature of processing, rather than the value-added is considered).

Other problems relate to the interaction between ATIGA and ASEAN’s bilateral FTAs with China, India, Japan, Korea, and Australia-New Zealand. Although the ASEAN bilateral FTAs have their own rules of origin to determine whether goods qualify for preferential treatment, these rules are mostly consistent with ATIGA. Thus, 40% value added in ASEAN should qualify a product as ASEAN-origin in most ASEAN FTAs and ATIGA itself, regardless of how that is documented, whether under Form D or its equivalent under the ASEAN bilateral FTAs.  Yet the current setup of ATIGA only allows for cumulation of ASEAN value-added which is reported in Form D itself.  In other words, a product could have ASEAN value-added which helps it qualify for the ASEAN-China FTA but because no Form D has been issued for the product, the ASEAN value-added cannot be used to qualify that product for ATIGA!  Recognizing the absurdity and inconsistency of this situation, SEOM recommended that this problem be solved by the 2012 AEM meeting. 

SEOM also noted some inconsistencies with regard to roll-up and cumulation.  It noted that ATIGA allowed roll-up of ASEAN value-added, e.g., if a sub-component has sufficient ASEAN value-added to qualify under the 40% rule, then the entire sub-component should be considered as ASEAN-origin, or “rolling-up” the ASEAN value-added to 100% of the sub-component for purposes of determining the origin of products incorporating that sub-component.   Yet SEOM also noted the objection of several ASEAN members to the use of cumulation (a similar mechanism) in the ASEAN bilateral FTAs, a stance which would appear to be inconsistent with the acceptance of roll-up in ATIGA, as well as the stated intent to eliminate the documentary barrier to using origin documentation to qualify for the 40% ASEAN value-added rule (although the ASEAN members in question would consider this too much liberalization of the rules of origin). SEOM will study this issue and report for next year’s AEM meeting.

In the end, the best outcome from this year’s AEM meeting with regard to these Form D issues is that ASEAN recognizes that these problems exist.  Now the next step is to take corrective action and ensure that ATIGA and the ASEAN bilateral FTAs are implemented in full.