Tuesday, February 21, 2012

Examining the ASEAN FTA “Noodle Bowl”, One Strand at a Time

Frequently commentators write about the “noodle” or “spaghetti” bowl effect of having multiple free trade agreements (FTAs) operating simultaneously but in inconsistent ways.  Usually the difficulties are presented on a macro level, rather than on a micro level.

Examining particular products on a cross-FTA basis helps demonstrate the difficulties for exporters clearly. For example, in the ASEAN Trade in Goods Agreement (ATIGA), most goods qualify for ASEAN treatment if the good has 40% ASEAN regional value content (RVC) or the good has been processed to have a change in tariff classification (CTC) at the 4-digit ASEAN Harmonized Tariff Nomenclature level.  In other words, if the good has sufficient ASEAN origin content or has been processed from a basic form to a more advanced form, the good will qualify for the zero tariff rate provided by ATIGA. For the same product in other FTAs, though, different ROOs can apply.  For example, the ROOs for paint vary by FTA:
  • ATIGA – 40% RVC or CTC at 4 digit level
  • ASEAN-China FTA (ACFTA) – 40% RVC
  • ASEAN-Korea FTA (AKFTA)  – 40% RVC or CTC at 4 digit level
  • ASEAN-Australia FTA  (AANZFTA)– 40% RVC or CTC at 6 digit level
  • ASEAN-India FTA (AIFTA) --  35% RVC
  • ASEAN-Japan Closer Economic Partnership (AJCEP) – 40% RVC

This becomes complicated when FTAs of individual ASEAN members are considered. Under the US-Singapore FTA (USSFTA) the paint would have to undergo CTC at the 6 digit level; the RVC is not considered.

The ROOs for cotton fabric and apparel are even more convoluted.  Textiles and apparel are politically controversial goods, such that they are subjected to product-specific ROOs instead of the general ROOs usually applicable (such as in the case of paint).  I examined this for the Cotton Council International, the export promotion arm of the National Cotton Council of America.

For fabric and apparel the following criteria are applied:

RVC 40% or CTC (6) or processing
CTC(4) or change from fabric and dyed/printed + 2 more finishing processes
Under negotiation
CTC(4) with spun/dyed/printing or no CTC but with dyed/printing and woven in ASEAN
RVC 40% or CTC(2)
RVC 40% or CTC(6)/cut+sewn  or processing
RVC 40% provided that the good is cut or knit to shape and assembled
Under negotiation
CTC(2) and from fabric woven in ASEAN
CTC(4) if cut/sewn  or RVC 40%

Under ATIGA and ACFTA, processing for fabric means manufactured from yarn or finished fabrics, and having undergone needle punching / spin bonding / chemical bonding; weaving or knitting; crocheting or wadding or tufting; or dyeing or printing and finishing; or impregnation, coating, covering or lamination.  Also under ATIGA and ACFTA, processing means cutting and assembly of parts into a complete article (for apparel and tents) and incorporating embroidery or embellishment or printing (for madeup articles) from raw or unbleached fabric or finished fabric.

A survey of other bilateral and plurilateral FTAs indicates a similar variety of applicable ROOs.

TSEP (Singapore, Brunei, Chile, NZ)
Japan EPAs with individual ASEAN members
CTC(4) - yarn forward
CTC(2) and RVC > 50%
CTC(4) with spun/dyed/printing or no CTC but with dyed/printing and woven in individual ASEAN member
CTC(4) and RVC > 55%
CTC(6) - yarn forward and cut/sewn/assembled in party
CTC(4) and cut/sewn/assembled in party
CTC(2) and cut/sewn/assembled in party and RVC > 50%
CTC(4) and from fabric woven in individual ASEAN member
CTC(4) and RVC > 55%

Given all of this, manufacturers often throw up their hands at the whole thing and don’t use the FTAs, particularly if the tariff savings are not significant relative to the work and costs involved. 

Although the FTAs of individual member states are up to those states to work out, ASEAN can help for its own bilateral FTAs by easing the administration of ROOs (through self-certification and the ASEAN Single Window) and by allowing for ROO documentation to be used for multiple ASEAN FTAs (which is currently not the case).  It is important to preserve the advantages of regional integration, but if using those advantages is too costly or burdensome for exporters, the efforts are wasted.