AFTA

The creation of the ASEAN Free Trade Area (AFTA) was agreed at the 1992 ASEAN Summit in Singapore. The main objectives of the AFTA are to: create a single market and an international production base; attract foreign direct investments; and expand intra-ASEAN trade and investments.

AFTA was also created as a response to other emerging regional groupings, such as the North American Free Trade Area (NAFTA) and the expansion of the European Union (EU). It was also to leverage on the huge potentials and complementarities that exist in the region in order to strengthen and deepen intra-ASEAN industrial linkages including creating strong and competitive in small and medium enterprises. The liberalisation of trade in the region through elimination of both intra-regional tariffs and non-tariff barriers had contributed towards making ASEAN's manufacturing sectors more efficient and competitive in the global market. As a result, consumers are able to source goods from the more efficient producers in ASEAN, thus creating a robust intra-ASEAN trade. Effective 1 January 2010, Malaysia with five other ASEAN Member States (which are Brunei Darussalam, Indonesia, the Philippines, Singapore and Thailand) is a complete free trade area. These countries have eliminated import duties on 99 per cent of products in the Inclusion List and AFTA is almost completely realised among the ASEAN-6. On average, today ASEAN 6 has 99.11% of tariff lines in the Inclusion List at 0%. Only 0.35% or less than 1% of the Tariff Lines in the Inclusion list has import duties. For Cambodia, Laos, Myanmar and Viet Nam, collectively referred to as CLMV, 49.27% of the Tariff Lines in the Inclusion List are already at 0%. On the average, ASEAN member states have 80.34% Tariff Lines at 0% according to the ATIGA Tariff Schedule of 2011. Table 1: Number of Tariff Lines at 0% in the ATIGA Tariff Schedule of 2011 Malaysia has eliminated duties on 98.69% of its tariff lines in our ATIGA Tariff Schedules for 2011. We now only have 66 tariff lines or less than 1% (0.54%) that have duties of 5% and 20% covering tropical fruits and tobacco and highly sensitive products (rice), respectively. Malaysia has placed 96 Tariff Lines (TLs) on Exclusion List. 58 TLs are on alcoholic beverages and 38 TLs on weapons and arms. These products are not for tariff elimination. Based on the commitments under AFTA, Cambodia, Lao PDR, Myanmar and Viet Nam will be eliminating duties on all products by 2015.

In 2015, ASEAN-6 and CLMV will become a complete free trade area. With the reduction and elimination of the import duties, producers/manufacturers can afford to buy raw materials at a cheaper price and better quality from ASEAN countries. This would lead to the reduction in costs of production due to the elimination and reduction in tariff. As a result, prices of products will be cheaper and can compete not only within ASEAN Member States but within other countries as well. With larger scale of production and 592 million ASEAN populations as at 2010, it provides broader market acc ess to producers/manufacturers. In 2008, intra-ASEAN trade had market access of USD70.3 billion and USD376.2 billion in 2009. For year 2010, the total intra-ASEAN trade rose 27.6 per cent from 2009 to USD519.62 billion. ASEAN is the main market for Malaysia with 26 per cent trade in goods for three consecutive years (2008-2010). Table 2: Intra-ASEAN Trade 2008 - 2010 Due to the reduction in import duties, there is an increase in foreign direct investment (FDI) which contributes to positive impact towards producers/manufacturers and consumers. In 2006, total FDI from ASEAN countries was USD7, 756 million compared to USD9, 682 million in 2007, a significant increase of 24.8 per cent. In 2008, the total FDI was USD9, 568 million. The amount was declined again in 2009 with only USD5, 172 million being generated. Between year 2003-2008, Malaysia was ranked the third highest recipient country of FDI among ASEAN Member States after Singapore (45.1%); Thailand (17.5%) and Malaysia (11.9%) followed by Indonesia (10.4%). In 2009, Malaysia settled at fourth place with a total of USD1, 381 million worth of investments. However, Malaysia improved her rank to the third highest recipient country again in 2010 with a total of USD9, 156 million of investments received. Entry into force of ASEAN Trade in Goods Agreement (ATIGA) Malaysian exporters and business community are requested to note the entry into force of the ASEAN Trade in Goods Agreement (ATIGA) on 17 May 2010. ATIGA was signed in Hua Hin on 26 February 2009 during the 14th ASEAN Summit Meeting. The objectives of ATIGA are: to be on par with key principles of the Trade In Goods (TIG) Agreements with Dialogue Partners; set out disciplines in implementing the commitments and obligations in ASEAN such as elimination and reduction of import duties, removal of NonTariff Barriers (NTBs) and enhanced transparency in the concessions granted; ensure consistency of the provisions that are currently stated in the various agreements, documents, decisions of the AFTA Council and the ASEAN Economic Ministers (AEM) Meeting; and provide a legal framework that will realise the free flow of goods in the region, with a view to establishing a single market and production base by 2015.

With the entry into force of this Agreement, Malaysian exporters under the CEPT Scheme for ASEAN Free Trade Area (AFTA) can use: the ATIGA Form D instead of CEPT Form D for exports to Brunei, the Philippines, Singapore and Thailand effective 17 May 2010; and for Cambodia, Indonesia, Lao PDR, Myanmar and Viet Nam, the ATIGA Form D can be used effective 1 July 2010. The CEPT Form D for exports was allowed to be used until 13 November 2010. Thereafter, CEPT Form D was not accepted as the CEPT Scheme is now superseded by the entry into force of ATIGA.

The ATIGA value-adds to the Common Effective Preferential Tariff ASEAN Free Trade Area (CEPT-AFTA) Agreement of 1992 in terms of inclusion of disciplines on Technical Barriers to Trade (TBT), Sanitary and Phytosanitary (SPS) Measures as well as Temporary Modification and Suspension of Concessions. The Article on Temporary Modification and Suspension of Concessions provides guidelines for compensation as a remedy for losses arising from any modification of existing commitments. The ATIGA enhances the CEPT-AFTA Agreement of 1992 where it value adds the existing CEPT Agreement with new initiatives such as: Comprehensive coverage in Trade in Goods; Consolidated and streamlined rights and obligations; Full tariff reduction schedules; Streamlined provisions on modification of concessions and trade remedies; Non-Tariff Measures; Trade facilitation and related chapters; and Trade repository.

There are many benefits of ATIGA. Among them are: minimise barriers and deepen economic linkages among AMS; lower business costs; increase trade, investment and economic efficiency; create a larger market with greater opportunities and larger economies of scale for the businesses of AMS; and create and maintain a competitive investment area.

SELF-CERTIFICATION PILOT PROJECT Malaysia, together with Brunei Darussalam, Singapore and Thailand has embarked on the Self-Certification Pilot Project since 1 November 2010, an enhancement towards the more trade facilitative environment. A Memorandum of Understanding for a Pilot Project on Self Certification was signed on 26 August 2010 during the ASEAN Economic Ministers Meeting involving three participating Member States namely Malaysia, Brunei and Singapore and entered into force from 1 November 2010 to 31 October 2011. The main objectives of Self Certification Scheme are:

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Facilitating intra-ASEAN trade; Reduce cost and time of doing business; and Maximise the efficiency of the government limited resources.

Self-certification is a system which enables the certified exporter to make out an Invoice Declarations for the export of goods. The information in the invoice declaration is less than what appears in ATIGA Form D. The 25th AFTA Council Meeting held on 10 August 2011 agreed to extend the period for the implementation of the pilot project to an additional one year starting from 1 November 2011 to 31 October 2012. This is to provide more time for other ASEAN Member States to participate in this pilot project. Thailand is the fourth Participating Member State (PMS) and took off effective 28 October 2011. Currently, Malaysia has appointed 68 Certified Exporters (CEs), Brunei Darussalam has 10 CEs, Singapore has 35 and Thailand has 36 CEs. The certified exporters updated by the four participating member states comprise of producers and traders. The 25th AFTA Council in 2011 agreed that the ultimate objective would still be a single ASEAN-wide self-certification system which takes into consideration the readiness/the result of the staged pilot project. The ASEAN-wide implementation of Self-Certification is targeted to be implemented by the fourth quarter of 2013. RULES OF ORIGIN Rules of Origin (ROO) are an integral part of any preferential trading arrangements. ROO sets out the conditions under which goods traded under free trade or preferential trade arrangements are considered originating. This is to ensure that goods are manufactured or transformed in the exporting country through substantial value-added activities. ROO is used as a tool for importing countries to ascertain only qualified products are entitled to benefit from the preferential tariff concession committed under the ATIGA. Goods that are merely transhipped or underwent simple processes do not qualify. The preferential import duty rates are then granted when compliance to the specific ROO has been established. As part of the requirements of the ATIGA, imported goods must be accompanied by the Certificate of Origin (COO) Form D issued by a designated authority by the government to support the claim that they are eligible for preferential tariff treatment under the specific FTA. Types of Rules of Origin ATIGA has a set of ROOs. It is important that the business community in Malaysia understands the ROOs so as not to be denied preferential tariffs when exporting their products in position to maximize the use of an FTA.

ROO can be divided into percentage criterion a combination of percentage and process criterion. Wholly Obtained Products Where a product is wholly obtained or produced in the exporting country it shall be considered as originating. Examples of wholly obtained products include: forestry products; fruits; flowers; vegetables; trees; seaweed; fungi and live plants; plant products grown and harvested in the Party to FTA; animal life, including mammals; birds; fish; crustaceans; mollusks; reptiles; and living organisms born and raised in the Party to the FTA. Not Wholly Obtained Products Where it is not wholly obtained, the product will be considered originating if it is processed and substantially transformed in the exporting country or contains a certain level of Regional Value Content (RVC) or sometimes termed as local content. In ASEAN the RVC is 40%. Other than RVC, the Change in Tariff Classification (CTC) is also used as a criterion. The CTC can be further divided into Change in Chapter (CC), Change in Tariff Heading (CTH), and Change in Tariff Sub-Heading (CTSH). Generally ASEAN's ROOs are 40% RVC or CTH. In addition to RVC and CTC, some specific rules may apply for specific products under ATIGA such as for textile and textile products. These activities are clearly spelt out under the Product Specific Rules (PSRs). ATIGA ROOs provides clear definition on how packaging, accessories, spare parts, and tools are treated in the assessment of exemption of import duties and in calculation for determining originating status. The value of accessories, spare parts and tools are to be considered in the calculation as originating or non- originating if it is a standard requirement for the goods. RULES OF ORIGIN FOR ATIGA-AFTA

List of Links: 1. Tariff o o o o o o o o o o Schedules for ATIGA Brunei Darussalam Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam

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PSR-Customs Duties (Goods Of Asean Countries Origin) PUA489/2009 Customs Duties (Goods Of Asean Countries Origin) PUA 4722009 ASEAN Harmonised Tariff Nomenclature (AHTN) 2007 ASEAN Trade in Goods Agreement Customs Duties (Goods of ASEAN Countries Origin) (Common Effective Preferential Tariff) Order 1995 Developments in the Implementation of the CEPT Scheme for ASEAN Free Trade Area (AFTA )