ASEAN and Japan announced
that they
had revised the certificate of origin form used for trading goods under the
ASEAN-Japan Comprehensive Economic Partnership (AJCEP), the free trade
agreement (FTA) between ASEAN and Japan. Although this sounds like a minor
technical correction, in reality it marks a major change in how the ASEAN FTAs
work, hopefully one that will carry through to other ASEAN FTAs and the ASEAN
Trade in Goods Agreement (ATIGA) itself.
Currently, all goods
traded in the ASEAN FTAs must be accompanied by a form (“Form D” in the case of
ATIGA) to confirm that the goods qualify for FTA treatment. This is done by establishing that they meet
one of the rules of origin, in most cases either (1) the goods have sufficient
regional value content (RVC) (usually a
minimum value of 35%) or (2) the goods have undergone sufficient physical processing
to change their tariff classification (CTC).
As I discussed in an earlier
post, ASEAN had originally based its rules of origin almost entirely on the
RVC approach in its first FTAs. This
contributed to the underutilization of FTAs, as small and medium sized ASEAN companies
had difficulties with the accounting and recordkeeping requirements necessary
to demonstrate that the RVC percentage had been met. Hence ASEAN added the alternative CTC
approach, which does not require such information but focuses more on the
change of the physical nature of the product.
The problem was that
although ASEAN had added this alternative approach, the ASEAN customs authorities
continued to request accounting and other value-based information on RVC, such
as the FOB value of the goods. If the
customs form did not contain the FOB value, ASEAN customs authorities would
deny FTA treatment for the goods. This happened, despite the fact that if the
CTC approach is being invoked, the FOB value of goods is completely
irrelevant.
The AJCEP parties’ decision
is thus a good development, as it recognizes that value information is not
needed in the form when the CTC approach has been invoked. Now the question is whether the other ASEAN+1
FTAs with Australia-New Zealand, China, India and Korea will follow suit, and
indeed whether the ATIGA itself will do so as well.
Most important is the
question of why
such forms are necessary in the first place. If ASEAN and its trading partners move to
self-certification by exporters and a post-entry audit system, as is practiced
in the developed world, then minor documentary defects acting as a block to FTA
qualification will become a thing of the past.
