LAST January 12, 2006, the Philippine government issued EO No. 487, which effectively reduced the tariff rates of certain imported articles from China and other ASEAN countries as part of the normal track agreement under the ASEAN-China Free Trade Area (ACFTA) framework.
As a background, the decision to establish a Framework on Economic Co-operation and to establish an ASEAN-China Free Trade Area within ten years with special and differential treatment and flexibility for the newer ASEAN member states (Cambodia, Lao PDR, Myanmar and Vietnam) and with provision for an early harvest determined by mutual consultation was first made during the ASEAN-China Summit held November 2001 in Bandar Seri Begawan, Brunei Darussalam.
ASEAN-China Free Trade Area (ACFTA). A year later, the various governments adopted the agreement to create the free trade area, otherwise called the “Framework Agreement on Comprehensive Economic Cooperation between the ASEAN and the People’s Republic of China”. The framework agreement was forged in recognition of the different stages of economic development among ASEAN member states and of the need for flexibility, in particular the need to facilitate the increasing participation of the newer ASEAN Member.
It also reaffirms the rights, obligations and undertakings of the respective parties under the World Trade Organization (WTO), and other multilateral, regional and bilateral agreements and arrangements.
Objectives of ACFTA. In general, the ACFTA aims to:
- strengthen and enhance economic, trade and investment cooperation;
- liberalize and promote trade in goods and services as well as create a transparent, liberal and facilitative investment regime;
- develop appropriate measures for closer economic co-operation; and
- facilitate effective economic integration of the newer ASEAN member states.
Measures for Economic Cooperation. To establish the ASEAN-China Free Trade Area within the next 10 years, the parties to the agreement agreed to the following measures for comprehensive economic cooperation:
- elimination of tariffs and non-tariff barriers in substantially all trade in goods;
- liberalization of trade in services with substantial sectoral coverage;
- establishment of an open and competitive investment;
- provision for special and differential treatment and flexibility to newer ASEAN member countries;
- provision of flexibility in the ACFTA negotiations to address sensitive areas in the goods, services and investment sectors;
- establishment of effective trade and investment facilitation measures, including, but not limited to, simplification of customs procedures;
- expansion of economic cooperation in areas; and
- establishment of appropriate mechanisms for effective implementation of the agreement.
Tariff Reduction under EO 487. Under the agreement’s early harvest program, live animals, meat and edible meal offal, fish, dairy produce, other animal products, live trees, edible vegetables and edible fruits and nuts, as well as other specified products (Chapters 1 to 8 of the HS Code at the 8/9 digit level) will now enjoy a 0% duty rate by 2006.
Under the normal track program for ASEAN 6 (Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) and China as implemented by EO 487, the tariff reduction schedule by January 2006 shall be as follows: (a) applied MFN tariff rates above 20% shall be reduced to 20%; (b) applied MFN tariff rates from 15% to 19% shall be at 15%; (c) applied MFN tariff rates from 10% to 14% shall be at 10%; (d) applied MFN tariff rates from 6% to 9% shall be reduced to 5%; and (e) applied MFN tariff rates from 0% to 5% shall be maintained.
More Competition, Cheaper Imports. As a general rule, imported products must originate from ASEAN and/or China to enjoy the ACFTA preferential rates. To qualify for the issuance of a Certificate of Origin Form E, the originating product must have a 40% ASEAN and/or China content, whether as a single country content or as a cumulative content.
With the issuance of EO 487, we should expect more of those cheap (but not necessarily better) goods from China, which is certainly a boon for most consumers and industrial users but a bane for many competing local industries.
The author is an international trade, indirect tax (customs) and supply chain expert. He is the Editorial Board Chairman of Asia Customs & Trade, an online portal on customs and trade developments affecting global trade and customs compliance in Asia. He was also Bureau of Customs Deputy Commissioner for Assessment and Operations Coordinating Group (2013-2016). For questions, please email at firstname.lastname@example.org and email@example.com