Newsletter: February 2010

Overview of ASEAN - China FTA

Background 

On November 2001, ASEAN and China agreed to launch negotiations for an ASEAN-China Free Trade Area (ACFTA). In the following year, ASEAN and China signed the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China. 

Trade In Goods 

The Agreement on Trade in Goods was signed in 2004 and implemented in 1 July 2005 by the ASEAN countries and 20 July 2005 by China.  

Under this Agreement, the 6 original ASEAN members and China have to eliminate tariffs on 90% of their products by 2010, while Cambodia, Lao, Myanmar and Vietnam, have until 2015 to do so. The remaining 10% are deemed sensitive by parties and will be reduced at a slower pace. There is no physical list for products under Normal Track, in another words, for products that are not found in Sensitive List and Highly Sensitive List, it will automatically fall under Normal Track. 

Normal Track  

·        Tariff liberalisation on all other products (other than EHP) has been implemented beginning 1 July 2005 and to be conducted in four tranches i.e. 2005, 2007, 2009 and 2010.

·        ASEAN-6 and China is required to reduce tariffs to 0-5% on 40% of their products by 2005 and 60% of their products by 2007.

Sensitive Track 

Products in the Sensitive Track are divided into Sensitive List (SL) and Highly Sensitive List (HSL).

·        Duties for Sensitive List will be reduced to 20% by 2012 and to 0-5% by 2018.

·        Duties for Highly Sensitive List will be reduced to 50% by 2015. No further tariff cut commitments.

·        Malaysia has 361 products in the Sensitive Track, of which 265 are in the SL and 96 in the HSL.

Rules of Origin (ROO)

Under the ACFTA, products imported shall be eligible for preferential concessions if they conform to the origin requirements under any one of the following:

(a) Products which are wholly obtained or produced (Rule 3)

(b) Products not wholly produced or obtained provided that the said products are eligible under the following:

(i)                  40% Regional Value Content (RVC). 

§         Not less than 40% of its content originates from any Party; or

§         If the total value of the materials, part or produce originating from outside ACFTA does not exceed 60% of the FOB value of the product  provided that the final process of the manufacture is performed within the territory of the Party

The formula for the 40% ACFTA content is calculated as follows:

The Value of non-originating materials shall be:

·        The CIF value at the time of importation of the materials; or

·        The earliest ascertained price paid for the materials of undetermined origin in the territory of the country where the working or processing takes place.

(ii)                Cumulative Rule of Origin : all 10 ASEAN countries and China value-added content (VA) of 40%.

(iii)               Product Specific Rule (PSR) refers to products which have undergone sufficient transformation in a country and shall be treated as originating goods of that Party.

In summary, Local/Regional value-added content (VA) (%) =

       LOCAL/REGIONAL raw material cost

                            + Direct labour cost

                            + Direct overhead cost

                            + Profit

                            + Inland transport cost                   x      100%                                 

FOB

With the adoption of PSR, ASEAN and Chinese exporters/ manufacturers now have the flexibility of choosing the most convenient rule in meeting the origin criteria of the products i.e., either 40% Regional Value Content (RVC) or PSR, in order to enjoy the ACFTA preferential rate.

In order for Malaysian exporters to enjoy the tariff concessions offered by China under the ACFTA, Certificates of Origin (Form E) must be obtained from MITI.

Back to Index of February 2010