How to qualify for the tariff preferences under the ASEAN Free Trade Agreement

In order to qualify for the preferential tariffs under the ASEAN FTA, rules applying to the origin of the goods must be met and certain steps must be followed.

Appendix 1 of this Guide provides a step-by-step guide for businesses wanting to export or import under the ASEAN FTA.

Rules of Origin

The Rules of Origin (ROO) are an essential feature of the ASEAN FTA - they set the criteria for determining which goods qualify for preferential tariff treatment (i.e. they determine which products count as "New Zealand", "Australian", "Indonesian", "Malaysian", "Vietnamese" etc) and prevent goods from countries outside of the ASEAN FTA from accessing those benefits "through the back door".

A unique feature of the ASEAN FTA ROO is that it allows originating goods to be cumulated between the Parties and used in the production of further goods.  The cumulation principle ‑ applied in the multi‑party setting of the ASEAN FTA - means that New Zealand inputs, as long as they meet the originating criteria, not only gain preferential treatment when exported to another party, but those goods can be counted as part of the qualifying content for goods produced and traded between all the Parties. This provides further incentives within the region to utilise New Zealand materials and helps improve New Zealand's interaction in the dynamic ASEAN region.

The ROO also establish "co-equal" or alternative rules for the majority of product lines. This means that manufacturers/exporters can choose between either a change of tariff classification (CTC) approach or a regional value content (RVC) approach with a 40% free on board (FOB) threshold, depending on which approach best suits their business model.

This outcome reflects both ASEAN's preference for (and familiarity with) an RVC based approach, as well as New Zealand's and Australia's move towards the CTC approach in their most recently concluded FTAs. Significantly, the CTC approach under the ASEAN FTA represents the most extensive use of this approach that ASEAN has agreed in any of its FTAs to date.

The inclusion of the CTC approach will ensure consistency in approach for New Zealand exporters. Further, the CTC approach is generally considered to:

• provide greater certainty as to origin (once qualify, always qualify);
• reduce the need for costly "red tape" (i.e. records and accounting systems);
• facilitate access to global supply chains;
• facilitate changes to manufacturing processes as new technologies develop; and
• simplify border administration and verification.

The inclusion of the RVC approach ensures that in areas of particular sensitivity, such as iron and steel, where the CTC approach is comparatively restrictive, New Zealand exporters can still claim preferential treatment through meeting the 40% RVC threshold.

The provision of optional CTC and RVC rules also means that New Zealand exporters should have no difficulty in meeting origin requirements across any product line and thereby qualify for preferential tariff treatment under the ASEAN FTA.

Under the change in tariff classification (CTC) approach, a good will qualify as originating if all third party inputs used in the production of that good have undergone a specified change of tariff classification.

Under the regional value content (RVC) approach, a good will qualify for preferential treatment as long as the value of originating inputs is equal to or greater than 40 percent of the FOB value of that good. Conversely, third party inputs must not exceed 60 percent of the FOB value of the good.

back to top

Other requirements

For any good to qualify for preference under the ASEAN FTA, it must be consigned between the countries concerned. If transport involves transit through one or more non-Parties, the goods must not enter trade or commerce there, or undergo anything more than simple logistical processes, such as unloading and reloading, repacking, or any operation required to keep them in good condition.

HS Codes

Both the tariff and the CTC based ROO for each product ultimately depends upon the tariff classification of the product. The international tariff classification system, administered by Customs Services around the worlds, is called the Harmonised Commodity Description and Coding System (HS). It uses a common customs classification made up of 6 digits. Most countries then add a further 2 digits, which are unique to that country. The result is an 8-digit number referred to as the HS code.

• The first two digits (HS 2-digit level) relate to chapter headings.
• The next two digits (HS 4-digit level) relate to headings.
• The next two digits (HS 6-digit level) relate to subheadings.
• The last two digits (HS 8-digit level) are unique to each country.

For example, the HS code for kiwifruit is 08105000, which can be broken down into:

• 08: Chapter: Edible Fruit and Nuts
• 0810: Heading: Other Fruit, Fresh
• 081050: Subheading: Kiwifruit
• 08105000 Further identifier

Certificates of origin

The ASEAN FTA also provides for export certification of origin (minor exceptions apply), which generally resembles the certification outcome under the New Zealand-China FTA.

In general, the certificates of origin system is an essential mechanism for accessing the benefits of the tariff preferences under ASEAN FTA.

New Zealand bodies, notified to ASEAN countries, will certify that goods for export comply with the ROO and issue Certificates of Origin. The preferential tariff rates will only apply to goods which have a valid Certificate of Origin.

back to top