Mike Lee

FTA Unit, Trade Services & Policy Group

07 November 2013
Free Trade
Agreements (FTAs)
with Indonesia
Topics
1. What is a Free Trade Agreement?
2. Singapore & ASEANs FTA Network
3. Benefits of FTAs to Businesses
4. Applicable Business Models
5. Rules of Origin (ROO)
6. Application Procedures to use FTAs
7. FTA Resources
2
Free Trade Agreement
A Free Trade Agreement
(FTA) is a legally binding
agreement between 2 or
more countries to reduce or
eliminate barriers to trade in,
and facilitate the cross border
movement of, goods and
services between the
territories of the Parties.
3
Singapore & ASEANs FTA
Network
Costa Rica
July 2013
Singapores Network of FTAs
20 FTAs in Force with 31 Trading Partners
ASEAN
Jan 1993
New
Zealand
Jan 2001
Japan
Nov 2002
*EFTA - Switzerland,
Liechtenstein, Norway,
Iceland, Jan 2003
Australia
Jul 2003
US
Jan 2004
ASEAN-China
(TIG) Jul 2005
(TIS) Jul 2007
(Investment) Feb 2010
Jordan
Aug 2005
India
Aug 2005
**TPSEP - Brunei, Chile,
New Zealand
May 2006
S. Korea
Mar 2006
Panama
Jul 2006
ASEAN-Korea
(TIG) Jun 2007
(TIS) May 2009
(Investment) Aug 2009
China
Jan 2009
ASEAN-Japan
(TIG) Jan 2009
Peru
Aug 2009
ASEAN-India
(TIG) Jan 2010
ASEAN-Australia & New Zealand
Jan 2010
EFTA
GCC
Sep 2013
ASEANs FTAs
6
ASEAN ASEAN-China
ASEAN-Korea

ASEAN-Japan
ASEAN-India
ASEAN-Australia &
New Zealand
ASEAN
Members:
Brunei
Indonesia
Malaysia
Philippines
Singapore
Thailand
Cambodia
Laos
Myanmar
Viet Nam
Benefits of FTAs
to Businesses
A Comprehensive FTA covers
Trade in Goods
Tariff concessions for eligible exports
Trade in Services
Improve market access for committed sectors
Remove quantitative restrictions for committed sectors
Increase business travel convenience
Investment Protection
Remove discriminatory pre-investment conditions
Generally free transfer of capital & funds
Greater foreign investment opportunities for committed sectors
Safeguard against government expropriation
Provide alternative dispute settlement mechanisms
Intellectual Property
Protection
Reinforce partner countries commitment to protect Intellectual Property
rights
Mutual Recognition of
Standards &
Qualifications
Reduce duplicative testing
Harmonise product standards
Mutually recognise professional qualifications
Government
Procurement
Opportunity to bid for government tenders above a stipulated threshold
amount
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Paid by
importer to
importing
customs
authority
FTAs reduce
import duties
Imposed on both
locally produced
and foreign-
produced goods
9
CIF Value of Product
Import Duty
Sales Tax / Value-
added Tax
Excise Tax
FTAs reduce / eliminate import duties.

Cost of
Goods to
Importer
10
.and increase price competitiveness of products

Example: Exporting HS Code 1516 2029 (Vegetable Fats & Oils) to
Indonesia
Without FTA ASEAN
ASEAN-
China
ASEAN-
AU-NZ
ASEAN-
India
Import duty in
Indonesia
10%
FTA Preferential
Rate 2013
NA 0% 0% 0% 7%
Export Value
$1,000,000
Duty Payable to
importer
$100,000 $0* $0* $0* $70,000*
Importers Total
Cost of Goods (CIF
and Import Duty)
$1,100,000 $1,000,000 $1,000,000 $1,000,000 $1,070,000
Savings to
importers
No savings $100,000 $100,000 $100,000 $30,000
* Product has to meet the Rules of Origin under respective FTAs.
Applicable FTA Business
Models
Preferential Certificate of Origin (PCO) and
Direct Shipment

Manufacturer
in ASEAN Country
(eg. Singapore)
Importer in ASEAN
Country (eg. Indonesia)
enjoys tariff concessions
PCO:
Form D
Using ASEAN Trade In Goods Agreement (ATIGA):
Flow of invoice -
Flow of goods -
Back-to-Back Certificate of Origin Arrangement

Singapore companies who export products not manufactured in Singapore
to another ASEAN member state can still benefit from the FTA provided
that the last place of substantial manufacture is in an FTA member state.
The Back-to-back CO will not contain details of the manufacturer.
Manufacturer
in ASEAN Country
(eg. Vietnam)
Importer/Exporter in
intermediate Country
(eg. Singapore)
Importer in ASEAN
Country (eg. Indonesia)
enjoys tariff
concessions
Original
Form D
Back-to-
back
Form D
Using ATIGA :
Back-to-Back CO Arrangement

Manufacturer
in FTA Country
(E.g. Indonesia)
Distribution Centre
(E.g. Singapore)
Importer in
FTA Country
(E.g. Vietnam)
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Importer in FTA
Country
(E.g. Thailand)
100 units
60 units
40 units
Original
Form D
Back-to-
back
Form D
Back-to-
back
Form D
Using ATIGA:
Third Party Invoicing

Manufacturer in
Malaysia
Importer in
Indonesia enjoys
tariff concessions
Manufacturer
issues invoice to
company in third
country.
Company in third
country issues
invoice to
importer.
Third Party
(Singapore)
Original
Form D
Using ATIGA:
Compare: Back-to-Back with Third Party Invoicing

Back-to-Back
Third Party Invoicing
Rules of Origin (ROO)
Rules of Origin
ROO is an objective set of criteria set up to determine a products
originating status.

Guiding principles for determining whether a product originates from
Singapore:
1. Wholly obtained, or
2. Have undergone substantial transformation (for
manufactured products)

To enjoy originating status from Singapore, Singapore must be the
country in which the last substantial transformation of the product
takes place.





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Rules of Origin: Wholly-Obtained
Examples of wholly-obtained or Produced entirely in
the Party:

(a) plant and plant products harvested, picked or gathered there;
(b) live animals born and raised there;
(c) products obtained from live animals;
(d) products obtained from hunting, trapping, fishing, aquaculture, gathering or capturing conducted there;
(e) minerals and other naturally occurring substances, extracted or taken from its soil, waters, seabed or
beneath their seabed;
(f) products taken from the waters, seabed or beneath the seabed outside the territorial waters of that Party,
provided that that Party has the rights to exploit such waters, seabed and beneath the seabed in accordance
with international law;
(g) products of sea fishing and other marine products taken from the high seas by vessels registered with a
Party or entitled to fly the flag of that Party;
(h) products processed and/or made on board factory ships registered with a Party or entitled to fly the flag of
that Party, exclusively from products referred to in sub-paragraph (g) above;
(i) articles collected in the territory of that Party that can no longer perform their original purpose nor are
capable of being restored or repaired and are fit only for disposal or recovery of parts of raw materials, or for
recycling purposes;
(j) goods obtained or produced in a Party solely from products referred to in sub-paragraphs (a) to (i) above.
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Rules of Origin:
Substantial Transformation
Substantial transformation is said to have taken place
if the product satisfies the following condition(s):

1. Change in Tariff Classification Rule or
2. Value Added Rule or
3. Process Rule

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Simple/Minimal Operations

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ASEAN-
China FTA
Rule 7: Minimal Operations and Processes
Operations or processes undertaken, by themselves or in
combination with each other for the purposes listed below,
are considered to be minimal and shall not be taken into
account in determining whether a good has been wholly
obtained in one country:

(a)Ensuring preservation of goods in good condition for the
purposes of transport of storage;
(b)Facilitating shipment or transportation;
(c)Packaging* or presenting goods for sale.

*Excludes encapsulation which is termed packaging by the electronics industry.
Overview of ASEAN FTAs
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AFTA ACFTA AKFTA AJCEP AANZFTA AIFTA
Rules of Origin
(ROO)
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
Wholly
Obtained;
RVC 40% FOB
or
RVC 40%
FOB;
RVC 40%
FOB or
RVC 40% FOB
or
RVC 40%
FOB or
RVC 35%
FOB and
Change in tariff
Heading
(4-digit) ;
-
Change in
tariff Heading
(4-digit);
Change in tariff
Heading
(4-digit);
Change in
tariff Heading
(4-digit);
Change in
tariff
Subheading
(6-digit)
Product Specific
Rules (PSR)
PSR PSR PSR PSR -
Back-to-back
Certificate of
Origin

Third Party
Invoicing

Certificate of
Origin
Form D Form E Form AK Form AJ Form AANZ Form AI
RVC = Regional Value Content
Application Procedures
Application Procedure for Preferential
Certificate of Origin (CO)

1. Factory
Registration
2. Prepare
Manufacturing
Cost Statement
3. Apply for
Preferential
Certificate of
Origin
Manufacturer must apply for
registration of the factory with
Singapore Customs (SC)
SC will visit the factory to
note:
Manufacturing
operations;
Machinery and
manpower &;
Updated production and
book records
Manufacturer to prepare
manufacturing cost
statement for each
product in order to
prove local value
content and/or change
in tariff heading meets
the Rules of Origin as
stated in respective FTA
Usually valid for one
year
After SC approval of
cost statement
Manufacturer to apply
for Preferential CO from
SC for each shipment
Preferential CO usually
valid for one year
Manufacturer to sign on
CO and send original
copy to importer for
importer to claim tariff
concession
Details available at http://www.customs.gov.sg/leftNav/trad/Certificates+of+Origin.htm
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Steps to Obtain Tariff Concessions

Step 1: Understand the trade flow of your
product
Step 2: Find out the HS code of your product
Step 3: Check that product is offered tariff
concessions under the FTA.
Step 4: Check that your product satisfy the
Rules of Origin
Step 5: Comply with documentary requirement
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FTA Resources
FTA Website
(http://www.iesingapore.com/fta)
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FTA Website (legal texts)
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ASEANs FTAs (ASEAN Secretariat Website)
http://www.asean.org/communities/asean-economic-
community/category/free-trade-agreements-with-dialogue-partners
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More Resources on the Internet

FTAs and Singapores network
http://www.iesingapore.com/fta
http://www.asean.org

Preferential Certificate of Origin
Procedures & Guide to Rules of Origin:
http://www.tradexchange.gov.sg
http://www.customs.gov.sg


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Thank You
www.iesingapore.com