Trading
in the future: Zero Tariffs under AFTA (March
31, 2003)
Just recently, the Philippines
has been reported to express opposition on further
plans for liberalization and regional integration
under the ASEAN Free Trade Agreement (AFTA). A recent
proposal for a more liberalized trading scheme was
presented during the Senior Economic Officials Meeting
(SEOM) in Kuala Lumpur, Malaysia last March 10,
2003.
The proposal, among others,
recommended further liberalization of strategic
sectors such as electronics, consumer goods and
tourism. In particular, it was suggested that tariffs
on various goods related to these industries, both
upstream and downstream items, be eliminated.
AFTA Common Effective Preferential
Tariff Scheme (CEPT). In general, AFTA involves the
removal of obstacles to free trade among the 10-member
states of ASEAN. This involves the lowering of tariff
rates and the removal of quantitative restrictions
(QRs) and other non-tariff barriers that limit or
prevent the entry of imported goods. While the intent
of AFTA is to create an integrated market among ASEAN's
close to half billion people, the ultimate objective
is to increase the region's competitive edge as a
production base for the world market.
The main instrument for making ASEAN
a free trade area is the Common Effective Preferential
Tariff Scheme (AFTA-CEPT), which hopes to reduce intra-regional
tariffs and remove non-tariff barriers. Specifically,
the goal is to reduce tariffs on all manufactured
goods to 0-5% by the year 2003. By year 2010, the
original six members - Brunei Darussalam, Indonesia,
Malaysia, Philippines, Singapore and Thailand - will
realize the free trade area with 100% of their inclusion
list at 0% tariffs.
The Philippines has committed itself
to lower its tariff rates for ASEAN goods to 0-5%
by end 2003. In recent years, however, the Philippines
has been having difficulty complying with certain
CEPT commitments involving products in the plastics,
textiles, electrical machinery, industrial chemicals,
fertilizers, ceramics and other industrial goods.
Last December 2002, the government reportedly invoked
an ASEAN protocol, which exempted the petrochemical
industry.
Exclusions and Exceptions under CEPT.
While the general impression at present is that all
products originating from member states of ASEAN enjoy
the 0-5% tariff starting 2004, there are exclusions
and exceptions under the CEPT Scheme. Under the scheme,
all manufactured products, including capital goods
and processed agricultural products, and those falling
outside the definition of "unprocessed agricultural
products" are covered.
There are, however, three instances
when a product may be excluded, as follows:
(a) General Exceptions. A member
state may exclude a product, which it considers necessary
for the protection of its national security, the protection
of public morals, the protection of human, animal
or plant life and health, and the protection of article
of artistic, historic or archaelogical value.
(b) Temporary Exclusions. These exclusions
involve products deemed sensitive by a member state.
The exclusion however is on a temporary basis.
(c) Unprocessed Agricultural Products.
These are agricultural products defined as: (1) agricultural
raw materials and unprocessed products, and (2) products
which have undergone simple processing with minimal
change in form from the original products.
Rules of Origin - FORM D Certificate
of Origin. Under AFTA-CEPT, there is a set of criteria
to determine the country of origin of a product for
purposes of availing of the special rates. To prevent
transshipment of goods originating from non-ASEAN
states, it is not enough that the goods were exported
from a member state.
The rule on country of origin is
based on the concept of "substantial transformation",
which assigns origin to the country where the last
substantial transformation occurred. Substantial transformation
may be roughly defined on the basis of a change in
tariff heading, achieving a threshold of proportion
of value-added, or on the basis of certain manufacturing
processes. Under AFTA, the basis of substantial transformation
is based on a 40% threshold level of the value of
the product. In other words, at least 40% of the value
of the imported product must be considered as originating
from ASEAN to avail of the preferential tariff rates
under AFTA-CEPT.
In the Philippines, the Bureau of
Customs (BoC) is the sole government agency tasked
to oversee the implementation of the preferential
tariff treatment under AFTA-CEPT. In particular, the
Export Coordination Division, OCOM or the Export Division
of the Port concerned are the units tasked to evaluate
whether a particularly product qualify for ASEAN CEPT
treatment and if necessary, issue the corresponding
FORM D Certificate of Origin (CO).
Planning for the Future under AFTA.
In the last decade, we have seen how multinational
companies have restructured their whole supply chain
and manufacturing facilities across the ASEAN region
to avail of the benefits under the AFTA. These companies
are now starting to reap the benefits of advance planning
in terms of greater efficiencies and streamlined operations
resulting in lower-priced products for the region.
On the other hand, many domestic
companies are now finding it extremely difficult to
compete with products manufactured by these multinational
companies that have long planned for trading under
the concept of a free trade area. To the extent possible,
the Philippine government has extended its helping
hand on affected domestic industries. This is, however,
a temporary relief and in the future, domestic companies
will have to face the reality of a zero-tariff ASEAN
by year 2010.
The author is an international trade
and customs lawyer, and a licensed customs broker.
He is also a partner of the law firm of David Leabres
Uvero Gaticales Sto. Tomas. For comments or inquiries,
he may be contacted at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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RA
8752: Rule on Dumping of Imports (March
17, 2003)
Dumping
in General. In general, there is "dumping"
when a company is importing goods at a price lower
than the domestic price at the country of origin.
Specifically, there is dumping when a company imports
its product into a market at a price lower than the
domestic price (normal value) at which comparable
goods are sold at in the country of export. Is this
unfair competition? Within the framework of the WTO,
action can only be taken when dumped imports cause
or threaten to cause material injury.
Under the WTO Agreement on Dumping
and RA 8752 (including its Implementing Rules and
Regulations), goods are "dumped" if any
product is "Éimported into the Philippines
at an export price less than its normal value in the
ordinary course of trade for the like product destined
for consumption in the country of export or originÉ".
WTO Agreement on Dumping. Part of
the agreements under the WTO is that binding tariffs
must be applied equitably to all trading partners
who retain Most Favored Nation (MFN) status. In other
words, tariff rates must uniformly apply to all importations
regardless of origin. However, there are exceptions
as follows: (a) actions against dumping; (b) special
"countervailing duties" to offset subsidies;
and (c) emergency measures to temporarily limit imports
to "safeguard" domestic industries.
Article VI of GATT 1994 and the WTO
Agreement on Dumping (implementing Article VI) contains
the procedures by which countries may take action
against dumping. To effectively implement the said
agreements, the Philippine Government, in August 1999,
approved the Republic Act No. 8752, otherwise known
as "Anti-Dumping Act of 1999". RA 8752 effectively
amends Section 301 of the Tariff and Customs Code
of the Philippines (TCCP).
Elements of Dumping. Under the new
rules, dumping basically has four elements, namely:
(a) like product, (b) margin of dumping/price difference,
(c) material injury or threat thereof, and (d) causal
link between dumping and the alleged injury. Under
the IRR of RA 8752, "like product" refers
"Éto a product which is identical or alike
in all respects to the allegedly dumped product, or
in the absence of the former, another product which,
although not alike in all respects, has characteristics
closely resembling those of the allegedly dumped product.
While dumping per se is not prohibited,
it becomes an issue when the dumped product is causing
or is threatening to cause material injury to a domestic
industry producing a like product. Under RA 8752,
there is an assumption of negligible injury when the
estimated margin of dumping, as determined during
the preliminary determination, is less than 2% of
the export price, or when the volume of the alleged
dumped products or injury is negligible.
The volume of the dumped imports
from a particular country is considered negligible
if it accounts for less than 3% of the total imports
unless countries, which individually account for less
than 3% of the total imports collectively account
for more than 7% of said product.
Dumping Investigation. An anti-dumping
case is initiated by the filing of a petition to the
Department of Trade and Industry (DTI) in the case
of non-agricultural products or the Department of
Agriculture (DA) in the case of agricultural products.
An investigation will not be initiated unless the
application has been made "by or on behalf of
the domestic industry". DTI or DA may, under
special circumstances, initiate the investigation
on its own accord. If the DTI or DA find the application
properly documented and sufficient, it shall initiate
a preliminary inquiry into the need to impose a provisional
anti-dumping duty.
Upon completion of the preliminary
inquiry, DTI or DA will decide whether to dismiss
the application or to issue an order for the imposition
of a provisional anti-dumping duty. Upon receipt of
the records (in case of affirmative findings), the
Tariff Commission shall initiate a formal investigation,
which shall be summary in nature. If the final determination
is affirmative, the Tariff Commission shall recommend
to the DA or DTI that anti-dumping duty be imposed.
Implications on the Domestic Industry.
With the changes in anti-dumping law, a question confronting
many in the business community is how effective these
new rules will be in protecting domestic industry
from unfair trading practices and ensuring a level
playing field. In a positive move, RA 8752 has, in
principle, provided a more transparent process for
initiating and conducting an anti-dumping investigation
as well as calculating and implementing anti-dumping
measures.
In the last two years, we have seen
several dumping actions filed against certain imported
commodities (cement and ceramic tiles). These actions
were later withdrawn and subsequently, separate actions
under the Safeguards Measures Act (RA 8800) were filed.
Previously, domestic producers complained
of the slow resolution of anti-dumping cases. Importers,
on the other hand, complained of the holding of the
alleged dumped importation without the benefit of
being able to post a bond pending resolution of a
prima facie case. To address some of these concerns,
the present rules now provide that a formal investigation
be conducted in a summary manner and that no dilatory
tactics or unnecessary delays be allowed.
Further, the technical rules of
evidence used in regular courts shall not be applied.
More importantly, the withholding of shipments shall
no longer be allowed. What is provided as a provisional
remedy now is the imposition of a cash bond equal
to the provisionally estimated margin of dumping on
the alleged dumped product.
In principle, the passage of RA 8752
and its IRR should enable domestic industries a positive
and transparent platform to take action against "unfair"
trade practices and ensure that a level playing field
prevails. For importers, dumping should be a recognized
business consideration when planning and trading internationally.
The author is an international trade
and customs lawyer, and a licensed customs broker.
He is also a partner of the law firm of David Leabres
Uvero Gaticales Sto. Tomas. For comments or inquiries,
he may be contacted at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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Risk Assessment
of Customs Brokerage Operations (March
3, 2003)
LAST February 21, 2003, we made a
presentation at the Century Park Hotel before the
National Assembly of the Chamber of Customs Brokers,
Inc. (CCBI) on the "Latest Developments of the
Post Entry Audit (PEA) system and its Implications
on Customs Broker Operations".
Given the recent issuance of Executive
Order No. 160 (Creating the Post Entry Audit Group),
the presentation was both very timely and relevant.
For the past months, stakeholders in the so-called
"gateway" community have been waiting with
bated breath on how the PEA system will slowly unfold
and be implemented. For most customs brokers, the
foremost question that they had wanted to ask was
how this new system will likely affect their operations.
Record Keeping and PEA systems. To
understand how the PEA system will impact on customs
brokers, we have to assess the current customs regulatory
environment. For the last decade, the rules governing
international trade, tariff and customs have become
more complicated. Three years ago, the rules on Customs
Valuation, the PEA system, the Record Keeping system
and the AFTA-CEPT were either non-existent or were
just starting to be implemented.
As seen in more developed countries,
we foresee that these changes will likely result in
higher rates of non-compliance. Many companies will
find itself non-compliant not because there is intent
to defraud but simply because of poor understanding
and knowledge of the new rules.
Implications on Customs Broker Operations.
Given the growing complexity in the trading environment,
what we have recently noticed these past months is
that many companies have started to take greater control
of their importing activities. Some companies have
initiated an assessment of compliance levels given
the requirements of the Record Keeping and PEA systems.
In some of these cases, the compliance assessment
of import activities included customs brokers operations.
As a proactive step, many companies
have now included "quality assurance" and
"integrity" as part of the criteria when
bidding out their customs brokerage requirements.
In other words, it is no longer enough that goods
are released from customs custody within established
timelines; the release must also be done in a compliant
manner.
Challenge for Customs Brokers. Most
of the responsibilities under the new rules now rest
with the importer. Among these responsibilities are
as follows:
(a) Ensure proper declarations in
the Import Entry and SDV;
(b) Keep business records and information as required
by customs; and
(c) Pay correct taxes and duties.
Under the Record Keeping and PEA
systems, the penalties for not properly performing
the above responsibilities will primarily rest with
importers. In reality, however, customs compliance
has always been outsourced to customs brokers. Since
the beginning, importers have always relied on customs
brokers not only to process the release of imported
goods from customs custody but also to resolve disputes
involving valuation, classification and other technical
issues. In other words, customs brokers have always
acted as the customs and trade advisers of the importers.
The challenge for customs brokers
now is whether they are still willing to act as customs
and trade advisers notwithstanding the growing complexity
of the rules and the possible stiff penalties that
may apply to importers in case of error in the advise
given. Customs brokers have to likewise realize that
any misjudgment on their part may have huge financial
impact on the company and may result in the company
taking action against the former to recover whatever
damage caused.
Preparing for PEA. In recent months,
the Bureau of Customs (BoC) has reportedly been reviewing
VAT and duty payments to customs using information
from various sources. As a result several companies,
both local and multinational, have been assessed with
underpayments amounting to millions of pesos.
Most of these additional assessments
resulted from patent errors in the declarations to
customs. For some of the companies, however, under
payments resulted from malpractices of customs broker
staff resulting in diversion of funds originally intended
for payment to customs.
The new rules require greater corporate
responsibility and accountability for compliance with
customs rules. Companies in turn continue to demand
that customs brokers not only perform importing processing
services but also provide customs and trade advisory
services. Customs brokers, on the other hand, ran
the risk of being the subject of court actions in
case of negative findings resulting from a customs
audit.
The recent developments in the customs
front, particularly the establishment of the PEA system,
certainly have tremendous impact on customs broker
operations. From a business and risk management perspective,
customs brokers will have to review their relationship
with their clients and ensure that the roles, risk
and responsibilities of the parties involved are well
defined.
Specifically, it will have to make
clear whether existing brokerage rates automatically
encompass trade and customs advisory services over
a whole range of import related issues. A basic understanding
of the scope of customs brokers services should prevent
any future issues between the customs broker and the
importer particularly in case the BoC audits an importer
and there is a finding of underpayment.
The author is an international trade
and customs lawyer, and a licensed customs broker.
He is also a partner of the law firm of David Leabres
Uvero Gaticales Sto. Tomas. For comments or inquiries,
he may be contacted at worldtrade@skyinet.net
or at (632) 4002145 / 4050021.
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