Understanding ASEAN Rules of Origin

MAES Esperanza Frio Alconcel, manager for Policy and Government Affairs with EAS Strategies - Asia Pacific (Singapore), is among conference speakers at Vitafoods Asia 2015. Her topic, Appreciating and Complying with the ASEAN Rules of Origin (ROO) Criteria: How to make your products 'ASEAN originating’? is scheduled on September 2.

In her line of work, Ms Alconcel advises companies on trade policies and practices in individual Asian countries, ASEAN Free Trade Agreements (FTAs), and ASEAN public-private sector engagement. Before joining EAS Strategies, she was a member of the Philippine trade negotiation team for the ASEAN Economic Community (AEC) for over nine years (2005-2014). She was also involved in the development and implementation of the ASEAN Trade in Goods Agreement (ATIGA), as well as ASEAN’s Plus One FTAs (e.g. Australia, China, India, Japan, Korea and New Zealand).

In this interview with FoodPacific Manufacturing Journal, Ms Alconcel explains the basics of ASEAN ROO.

Please give us a brief background of how and why ASEAN ROO criteria were established.

The ASEAN was set up with two main objectives in mind – to accelerate the economic growth, social progress, and cultural development in the region, and to promote regional peace and stability. A major part of economic growth entailed trading between countries, and the Rules of Origin (ROO) is a requirement that companies need to fulfill if they wish to avail various Schemes of Preferences and Free Trade Agreements; in this case the ASEAN Trade in Goods Agreement (ATIGA).

The ATIGA entered into force on 17 May 2010, upon the notification of the ratification of all ASEAN Member States. An enhancement of the Common Effective Preferential Tariff-ASEAN Free Trade Area (CEPT-AFTA), the ATIGA is a more comprehensive legal instrument that the ASEAN Member States agreed upon collectively.

In essence, ROO is required to ensure that only the products that originate from ASEAN would benefit from the FTA. The ASEAN origin criteria is established based on what is acceptable to ASEAN countries while ensuring trade promotion and facilitation of goods in the region,.

Are these criteria superseding the specific ROO of member countries? Do they constitute best practices?

The ROO is dependent on the FTA that the company wishes to trade under, and different sets of ROO may apply for a single product. Under the ATIGA, for instance, companies will need to prove that the product is either wholly obtained or produced in an ASEAN Member State, or attest that it possesses a Regional Value Content (RVC) of not less than 40%, or demonstrate that the non-originating raw materials have undergone sufficient processing to warrant a Change in Tariff Classification (CTC) at the 2-digit, 4-digit or 6-digit level of the HS.

Yes, the ROO in the ATIGA emulates best practices across the region’s FTAs, which is evident in how ASEAN set out to enhance the criteria by obtaining case studies from other FTAs as examples. Ultimately, this ensures that the criteria imposed per product is the most appropriate.

What are the steps to determine Origin, and is this done per ingredient?

A product is evaluated as a whole and not at its ingredient level. It would be helpful to be aware of the list of ingredients though, as it may affect the classification of the product, which then changes the ROO applied.

Companies should first ensure that they identify the right classification for the product that is to be traded, either under the Harmonised System (HS) or the ASEAN Harmonised Tariff Nomenclature (AHTN). The HS is an international nomenclature (at 6-digit level) developed by the World Customs Organisation (WCO) for the classification of goods, whereas the AHTN is a commodity nomenclature jointly developed by ASEAN member countries, harmonised at the 8-digit level across all ASEAN member countries.

Depending on which FTA the product will be traded under, and the classification of the product (e.g. fresh produce vs. processed food), the criteria for the same product would differ. Under the ATIGA, there are formulas provided for companies to calculate the ASEAN Value Content (or RVC) to determine a product’s origin.

For manufacturers and consumers, what is the value of a product being “ASEAN originating”?

Manufacturers that export ‘ASEAN originating’ products stand to enjoy tariff savings under the AFTA/ATIGA. The AFTA/ATIGA offers more favorable customs duties than those offered under the World Trade Organizations (WTO). Parties are obliged to remove tariffs on almost all traded goods in the region, allowing businesses to save money from tariff costs. Specifically, ASEAN 6 (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand) have eliminated import duties on 99.65% of traded goods in the region beginning 1 January 2010. CLMV (Cambodia, Lao PDR, Myanmar and Vietnam) have also removed customs tariffs on about 93% of all products since 1 January 2015, and are expected to do the same on the remaining items by 2018.

For example, an exporter of food supplements from the Philippines can save 42.6% in tariffs when entering Indonesia’s market through the AFTA.

Example of Tariff Saving using the ACFTA

On the other hand, consumers benefit indirectly in two ways – an access to more product choices, and a cheaper retail price due to the tariff savings that companies haved enjoyed.

What should manufacturers keep in mind regarding compliance (cost, documentation, other aspects)?

The concept of ROO per se is complex because of its technicalities thus complying with the ASEAN ROO criteria entails time and effort. But it is only at the start of the process that is most difficult. Once a company has proven the origin of its product(s) and established good reputation to the relevant authorities of the importing country, its succeeding transactions would be a lot easier. In addition, tariff savings in the long run would considerably outweigh the costs incurred in the short-term.