Managing International Trade:

Customs and Trade Updates

Agaton Teodoro O. UveroOctober 28, 2008, TuesdayAlabang, Muntinlupa City

Presentation Outline Presentation Outline

IntroductionIntroduction

Managing International Managing International TradeTrade

Rules of OriginRules of Origin

Customs & Trade UpdatesCustoms & Trade Updates

ConclusionConclusion

INTRODUCTION INTRODUCTION Growing complexity of import and export rules Growing complexity of import and export rules

(free trade rules, marking and licensing, security (free trade rules, marking and licensing, security measures, etc)measures, etc)

Increasing risks in international trade (supplier Increasing risks in international trade (supplier and buyer default, security measures, credit and buyer default, security measures, credit crunch, compliance, etc.)crunch, compliance, etc.)

‘‘Death’ of multilateralism (WTO); rise of bilateral Death’ of multilateralism (WTO); rise of bilateral and regional agreementsand regional agreements

Rules of Rules of OriginOrigin

Current State of PlayCurrent State of Play

Ongoing FTAsOngoing FTAs

• AFTAAFTA• ASEAN-ChinaASEAN-China• ASEAN-KoreaASEAN-Korea• ASEAN-JapanASEAN-Japan• ASEAN-IndiaASEAN-India• JPEPAJPEPA

Final stages of NegotiationFinal stages of Negotiation

• ASEAN-AUS/NZASEAN-AUS/NZ

RulesRules of Origin / Certificate of Origin of Origin / Certificate of Origin

With Preferential TreatmentWith Preferential Treatment

• Generalized System of Preferences GSP (Form-A)Generalized System of Preferences GSP (Form-A)• ASEAN-Common Effective Preferential Tariff (Form-D)ASEAN-Common Effective Preferential Tariff (Form-D)• ASEAN-CHINA Free Trade Agreement (Form-E)ASEAN-CHINA Free Trade Agreement (Form-E)• ASEAN-KOREA Free Trade Agreement (Form-AK)ASEAN-KOREA Free Trade Agreement (Form-AK)

WithoutWithout Preferential Treatment Preferential Treatment

• CO for General Merchandise (White CO)CO for General Merchandise (White CO)

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Rules of Origin for FTAsRules of Origin for FTAs

FTAs extend preferential tariffs (lower duty rates) ONLY FTAs extend preferential tariffs (lower duty rates) ONLY on products on products originatingoriginating from the country/area from the country/area

ROO determines which products are considered ROO determines which products are considered originatingoriginating

ROO provides transparent and predictable rules for ROO provides transparent and predictable rules for granting preferencegranting preference

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Rules of Origin:Rules of Origin:Origin Criteria Origin Criteria

ORIGIN

WHOLLY OBTAINED SUBSTANTIAL TRANSFORMATION

VALUE ADDED (VA) RULE

CHANGE IN TARIFF

CLASSICATION (CTC) RULE

PROCESS RULE

Rules of Origin:Rules of Origin:Origin Criteria (cont.)Origin Criteria (cont.)

Wholly ObtainedWholly Obtained

• EnEnntirely grownntirely grown, , extractedextracted or or harvestedharvested within the within the exporting countryexporting country

• ManufacturedManufactured exclusively without any exclusively without any imported imported components or materialscomponents or materials

Substantial TransformationSubstantial Transformation

• Value Added (VA) RuleValue Added (VA) Rule• Change in Tariff Classification (CTC) RuleChange in Tariff Classification (CTC) Rule• Process Rule (‘chemical reaction rule’)Process Rule (‘chemical reaction rule’)

Rules of Origin:Rules of Origin:Change in Tariff Classification (CTC)Change in Tariff Classification (CTC)

Level of Change in Tariff Classification (CTC)Level of Change in Tariff Classification (CTC)

• Change of Chapter (CC) Change of Chapter (CC) – Change from one HS chapter – Change from one HS chapter to another Chapterto another Chapter

• Change of Tariff Heading (CTH) Change of Tariff Heading (CTH) – Change from HS tariff – Change from HS tariff heading to another tariff headingheading to another tariff heading

• Change of Tariff Subheading (CTSH) Change of Tariff Subheading (CTSH) – Change from HS – Change from HS tariff subheading to another tariff subheading tariff subheading to another tariff subheading

Harmonized System (HS):Harmonized System (HS):Chapter, Heading and SubheadingChapter, Heading and Subheading

7 1

Heading HS Code Description

71.01 Pearls, natural or cultured, whether or not worked or graded but not strung, mounted or set; pearls, natural or cultured, temporarily strung for convenience of transport.

7101.10 - Natural Pearls

- Cultured Pearls:

7101.21 - - Unworked7101.22 - - Worked

0 1 . 2

Chapter Number

Heading Number

One Dash Subheading Number

Two Dash Subheading Number

1

Change of Tariff Heading (CTH); Change of Tariff Heading (CTH); De Minimis RuleDe Minimis RuleImported Parts:

• Motor (8501.20) - USD5.00 CIF• Switches (8536.50) - USD3.00 CIF• Fan Blade (8414.90) - USD1.50 CIF• Direct Processing Cost; Overhead

and General Expense; Profit - USD10.50Finished Product: Stand Fan (8414.50) – USD20.00 FOB

De Minimis Rule – Cost of non-originating material that does not change classification should not be 10% of FOB price of the finished product

While the Fan Blade has same Tariff Heading (8414) as Stand Fan (8414), its value is only 7.5% of the FOB export price. Therefore, the stand fan is ‘ORIGINATING’.

Preferential TradingPreferential Tradingunder the FTAsunder the FTAs

MALAYSIAT-shirts BRUNEIForm E

PHILIPPINEScotton fabric

Form D

Form D

CHINAcotton fabric

Form AK

Form E

Form AKKOREA

cotton fabric

Source: Philippine Tariff Commission

Using VariousUsing VariousCertificates of OriginCertificates of Origin

Philippine Toll Manufacturer

Raw Materials with FTA preferential rates

Regional Warehouse

Finished Goods with FTA preferential rates

DistributorsMalaysia

Indonesia

Vietnam

Thailand

Brunei

DistributorsChina

Japan

Korea

India

Finished Goods with ASEAN+3 preferential rates?

SingaporeRegional Office

Vietnam Supplier

Thailand Supplier

China Supplier

Thank youagatonuvero@yahoo.com

0918.903.4554