Six degrees of valuation: Is there madness in the methods? · Six degrees of valuation Is there...

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Six degrees of valuationIs there madness in the methods?

Trade Intelligence Asia PacificAugust / September 2017

www.pwccustoms.com

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Key intelligence

New duty drawback rules in India 2

Joint Customs & Tax audits in Malaysia

Page 27

New registration for transshipment through Hong Kong Page 21

AEO program established in the PhilippinesPage 31

Longer storage in Thai Free ZonesPage 36

Suspension of Green Lanes in the PhilippinesPage 30

Criteria and procedures for duty reduction / exemption in Thailand

Page 35

3Trade Intelligence Asia Pacific August / September 2017

Trade Intelligence Asia Pacific seeks to capture the essence of selected issues that are of particular interest to clients of PwC. Our regional network of customs and international trade consultants routinely gather, analyse and disseminate information and knowledge to our clients. Based on studies as well as meetings and discussions that take place across the region with various trade and customs officials, we consolidate our findings into Trade Intelligence Asia Pacific.

Index

Feature article


4

ASEAN

Updates from the 49th ASEAN Economic Ministers’ (AEM) Meeting and related meetings

10

Free Trade Agreements focus

ASEAN and Canada to commence FTA talks 13

ASEAN and Hong Kong FTA concluded 13

Australia and Peru conclude second round of FTA talks

13

China and Maldives to sign FTA 13

New Zealand agrees on negotiating mandate to upgrade FTA with China

13

Pakistan seeks chnages in FTA with China 14

India to resume FTA talks with Canada, European Union (EU) and Mauritius

14

Proposal on changes to India - South Korea Comprehensive Economic Partnership Agreement (CEPA)

14

Indonesia and Chile to sign Comprehensive Economic Partnership Agreement (CEPA) by end 2017

15

Pakistan and Thailand to finalise FTA 15

Singapore to sign FTA with Eurasian Economic Union (EAEU) by end 2017

15

South Korea to pursue FTA with Eurasian Economic Union (EAEU)

15

Taiwan and El Salvador sign four FTA related resolutions

15

Singapore’s FTA with Turkey (TRSFTA) enters into force

16

Country Reports

Australia 18

China 20

Hong Kong 21

India 22

Indonesia 25

Japan 26

Malaysia 27

New Zealand 29

Philippines 30

Singapore 33

Taiwan 34

Thailand 35

Vietnam 39

Around the world

World Customs Organisation

WCO supports Indonesia Customs with IPR border enforcement

40

World Trade Organisation

Continued recovery of world trade 40

Panel report on Indonesia duties on iron and steel products

41

Panels on dispute over Chinese farm quotas and Canadian aircraft subsidies deferred

41

Consultations requested by Indonesia for Australian duties on paper imports

42

Report finds against EU on anti-dumping measures on fatty alcohols from Indonesia

42

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Most professionals in the field of customs and trade would agree that customs valuation is probably the discipline’s undisputed king of complexity and confusion. Of course it is important to know how to classify what you are valuing, and that can be very difficult. Whether some kind of duty mitigation scheme exists, such as an FTA, a merit based exemption, or a temporary duty relief can also take time to determine and have a big impact. Even whether a license is required to move a product across a border can be a tough call.

Yet all such matters, and many others, may appear quite commonplace when compared to the magic and mystery that is customs valuation. We know from talking to and surveying many customs professionals that valuation takes up most of their time. We know that it is the prime focus of customs authorities during their audits. It has brought together, and driven apart again, the OECD and WTO. They are current trying to reconcile again.


The basis for most countries’ valuation legislation has taken many years to be developed. Despite, or because of that, it is somewhat stuck in a romantic view of a simple sale across borders between unrelated parties, which is increasingly inadequate to deal with the way modern business works. Yet it seems unlikely that a wholescale upgrade of such legislation is on the cards in the foreseeable future. For a start, the views of the many customs authorities around the world seem increasingly less aligned on matters such as buying commissions, fees for a wide variety of intangible rights, e-commerce, not-for-sale transaction, to name but a few.

The purpose of this article is not to provide a detailed and technical discourse on customs valuation. Not only would that not fit in our publication, it is also of very limited practical use for most of our readers. Instead, this article takes a hard and critical look at what we see happening in practice, specifically around the Asian region, when it comes to declaring, challenging and supporting a customs value, with a focus on sales between related parties (as defined in customs legislation) only. The intention is to provoke some critical thinking in our readers, and hopefully enable them to have more impactful conversations with their stakeholders – be that the boss, the customs auditor, the lawyers – about why customs valuation is important, how it affects their business, and what are various options for managing it.

A brief history of the rules

Having said all that, it is important to start with the rules. According to the Agreement on implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (most commonly referred to as the Customs Valuation Agreement, or “CVA”, which is the basis for most countries’ customs legislation), “the customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation”. It is hard to imagine a vaguer definition. The predecessor to this rule, the so-called Brussels Definition of Value (“the BDV”), worked on the basis of a concept of “Open Market Value”, in other words the value that a product would fetch on the “open market”. Hmmm, so maybe it is possible to imagine a vaguer definition.

Of course the BDV was written in the 1950’s, when international trade really was in its infancy. It was a different time. Multinational Companies didn’t really exist. A big export company might send a manager overseas, probably by sea, to watch what a local distributor might get up to. Customs values were notional, and frequently negotiable. The BDV did not provide the certainty that anyone needed, hence the move to the CVA and its concept of transaction value. Even the CVA had its roots in 1979-80, when world trade looked very different. The fundamental difference with the BDV was that the CVA sought no longer to levy duties post-importation costs. Obviously, the regulators realised that the simple definition of transaction value might still leave much uncertainty, and even create new uncertainty. Consequently, the CVA provides far more detail on what to do if the price paid or payable is not clear, either at the time of import or ever. It also provides for adjustments to be made to the price paid or payable to arrive at a transaction value, if somehow the price paid or payable is not good enough.

Think about this for a moment. First you define a price to be used for customs value purposes. But then you say that you may not like that price, so it is going to need to be adjusted. Unfortunately, this is a necessary evil to avoid inappropriate arbitration to take place. As a very simple example, you could sell a product to an overseas buyer for a dollar, and subsequently have an agreement that 90% of the profit that the buyer makes on a subsequent sale is remitted back to you. It would be hard to argue that 1 dollar would be the appropriate customs value to declare. However, most realistic examples of adjustments are not as clear-cut.

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Let’s consider a fee for a right to distribute a product in a particular market, akin to a franchise fee. Should none, some or all of this fee be included in the customs value? It may have nothing to do with the imported product itself, or at least not its price. For example, there is a certain cost to making umbrellas. The right to sell such umbrellas in Ireland or New Zealand is much more valuable than the right to sell it in Eritrea, a country with roughly the same number of people but much less prone to persistent rainfall (let’s ignore the fact that umbrellas make decent sunshields as well), as well as a significantly lower purchasing power. But the umbrella themselves, when imported, are no different. How to determine an appropriate fee level, and where to draw the line between the fee and a fully loaded product price, which may be more profitable for sales to Ireland or New Zealand, is far from clear-cut.

What is particularly galling, however, is that increasingly, customs authorities around the world are looking to add many post-importation charges to the import price on the basis that such charges are unavoidable for the importer as a result of importing a product. The rules have quite clearly narrowed the need to include such charges in the customs value to certain license fees under very specific conditions. Yet the broader approach taken by the authorities challenging other charges also to be dutiable smacks of a back-door return to the times of the BDV.

Beyond the ability to adjust the “price paid or payable”, the CVA also provides for situations where there is no acceptable transaction value. For instance, if there is no sale for export to the country of import. Think free of charge warranty parts, cross-border movement of consignment stock et cetera. As any half-decent customs adviser can tell you, there are five alternative methods to arrive at a customs value in the CVA (‘identical’, ‘similar’, ‘deductive’, ‘computed’, ‘fallback’, to give them their common names). Said adviser will also tell you that they have to be tried in that order, with the proviso that the importer can choose to swap deductive and computed with the agreement of Customs.

Six methods?

So, there are six methods to determine a customs value. Transaction value is the starting point and in the vast majority of cases, the ending point because it is appropriate. Only if transaction value cannot apply, the other methods are considered in – by and large - hierarchical order. And just to make sure, if nothing else works, the last method allows a relaxation of the rules sufficient to reach a conclusion. Easy, no?

Not so fast. Practical reality can be quite different. Specifically, the authorities are often very trigger-happy when it comes to dismissing the use of transaction value for related-party sales, and both importers and authorities may be keen to use a fall-back method without giving due consideration to the intermediate methods.

Let’s consider the latter first. In relation to jumping to a fall-back method, it has to be noted that proper and supportable application of other methods can be a serious challenge. Identical means identical in all material respects, so a car can be identical if it is a different colour, as long as that colour is the same price, and the trim is the same, and the option pack is the same, and the engine….you get the picture. Similar means commercially interchangeable, but there is the caveat that you have to take the brand into consideration. Oh, and the country of export. And commercial level. And so on. That negates almost all comparables. It is therefore perhaps not surprising that an increasing number of authorities are creating their own – usually secretive – import price databases as a starting point for comparison, even though applying such comparisons is not in line with their own rules.

The ‘deductive’ method is conceptually easier to justify, but relies on competitor gross margin information that is usually impossible for an importer to obtain or verify. The rules require that the gross margin falls within the normal range of margins for similar imported goods. Unfortunately, most companies import a wide range of goods, so a ‘pure’ margin comparable is unlikely at a product level. Even worse, Customs usually push the burden to prove that a gross margin is acceptable onto the importer, who has no


idea what other importer’s gross margins are. It is worth noting that the deductive method is more widely accepted by other customs authorities outside of Asia. In a customs dispute, it is usually an important aspect of any defence to a challenge. So think twice before skipping this method merely because Customs says they don’t like the method or its result.

The ‘computed’ method suffers from the same challenges, made worse by the fact that most customs authorities do not like to rely on information that is not verifiable in their own territory, i.e. has to be taken on trust.

Both ‘deductive’ and ‘computed’ methods are also not helped by the frankly insane requirement that profit and general expenses have to benchmarked together, as no manufacturer and very few distributors ever considers the two together. Having said that, none of this should be an excuse not to try and use these methods to determine a customs value, instead of taking a quick jump to a fallback method that may be easier to formulate or support. Yet the latter is what happens in the vast majority of practical cases we come across in Asia, where the fall-back method is not used on the form for which it was intended or designed but rather as some kind of ‘freeform” approach to customs valuation. There are many customs authorities in the Western world that have found good ways to deal with this through on-line audit of ledgers from their own country, reviewing the actual ledgers on-site or having an external auditor confirming the figures.

Now to the former. In relation to a quick dismissal of the transaction value approach, let us first acknowledge that indeed transaction value is usually the starting point for import transactions that are the subject of some sort of sale, both by the authorities and most importers. However, there are many examples where the authorities want to move away from accepting a transaction value based approach before sufficiently considering its possible application. A very simple example of this is the following. The rules say that the mere fact that a seller and buyer are related parties is not sufficient to dismiss the use of the transaction value. Yet in practice most customs authorities would argue that the fact that the seller and buyer are related gives the authorities reasonable doubt and therefore the option to challenge the use of transaction value, often regardless of the information that the importer provides, which by definition is deemed untrustworthy.

That brings us nicely to the usefulness, or lack thereof, of transfer pricing documentation to support customs values. Over the past five years or so, customs authorities have slowly, and often grudgingly, come to accept that they should at least consider an importer’s transfer pricing policy and its supporting documentation when determining whether a transaction value approach to customs valuation is appropriate. Part of the problem is a lack of understanding of the OECD principles, and an unwillingness on the part of companies to actually explain how they apply to the situation.

A couple of WCO opinions have formalised this thinking. Nevertheless, many customs authorities continue to feel that a relatively new field like transfer pricing should not have a significant impact on how customs values are determined. A transfer pricing report may

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simply be one additional piece of information to throw in the mix. Importantly, the changes to transfer pricing policies that many multinationals are implementing as a result of the OECD’s BEPS initiative has made customs authorities more suspicious of the merit of transfer pricing policies and documentation.

There are many good reasons for this. Much has been said and written about the conflict of interest between revenue and customs authorities. However, this has less to do with both of them wanting to maximize their revenues regardless, or even at the expense, of the other one, than it has to do with either authority looking to apply their own rules properly, even if that leads to conflicting results. Whether or not you agree with customs rules, you need to be aware that in the customs valuation framework, for example:

• there is no mention of the term “arm’s length”; customs rules talk about “trading as if they were unrelated”, which is a similar concept but differently tested;

• there is a, arguably bizarre, 5% ownership threshold to determine a relationship; this means that, considering pension and investment company holdings, there is probably a huge number of publically traded companies that are related to each under customs rules that have no inkling that they are;

• comparability needs to be done of the value at import, not profit levels;

profitability may help determine what the import price for a product should be, but to test whether it stands up in the light of other import, a direct comparison to the import values of other products is what matters;

• comparability needs to consider product characteristics; the official term is “goods of the same class or kind”; in conjunction with the prior bullet, comparing the profitability of companies that have similar functions offers no support for the value at import of any of an importer’s imports;

• license fees are assessed based on their substance and impact, not their form and name (consequently, terms such as “service fee” or “management fee” are meaningless in their own right);

• Customs values are only expected to change when the underlying imported products change; adjusting the profitability of an importer, either through retrospective or prospective price changes, casts doubt over both the historic and future accuracy of a declared customs value if the physical product has not changed.

Clearly, we could go on with plenty more examples. The message should be clear though: without taking further steps to make transfer pricing details relevant for customs valuation purposes, there is a serious risk that the customs authorities can dismiss it out of hand.

In this respect, it is worth considering the concept of “circumstances of sale”, as


referenced in the CVA, in some more detail and supported by specific WCO opinions and advices. Essentially, this concept allows an importer to use transfer pricing support as a (significant) component of its “support package” to demonstrate that the way in which it does business is representative of the way others, whether related or unrelated, do business when importing similar goods. A somewhat more flexible use of deductive or computed calculations can be used to demonstrate that a circumstances of sale test can reasonably be met.

A significant advantage of being able to use the concept of “circumstances of sale” is that it allows for some flexibility in pricing over time, without undermining the applicability of the transaction value method. In virtually all cases, being able to use an (suitably adjusted) invoice price as a customs value is far preferable over using an alternative method of valuation.

Advance rulings

The Technical Committee on Customs Valuation (TCCV) of the World Customs Organisation (WCO) has spent much of its existence deliberating the intricacies of the CVA, issuing a string of interpretations, opinions, decisions, case studies and the like to help both the customs authorities and businesses decide how to apply the rules in the CVA. Although many of these provide welcome guidance, they usually still fall short of creating the certainty and predictability that businesses crave. In most cases, again, this is a necessary evil. It is less common, but would be very valuable, for customs authorities in Asia to issue “in-principle” rulings in relation to customs valuation. Usually, if such a ruling is issued, it covers only a very specific transaction, and is therefore of limited use even to the importer itself, let alone provide a precedent point of principle for all importers.

At the same time, transfer pricing policies of many importers put them at an unavoidable risk of challenge, even if they have an up-front discussion with Customs. Take for example a company that implements a transfer pricing policy that caters for regular (say, annual) retrospective price adjustments to ensure its limited risk distributor importers make only their prescribed margin. Although most customs authorities are by now accustomed to retrospective transfer pricing adjustments, they often still see them as exceptional rather than regular. An importer that makes an annual retrospective adjustment may well be told that clearly it should not be using a transaction value method to declare its imports, which invariably leads to a more cumbersome and time-consuming declaration process and higher duties payable. For example, US Customs would expect to see support demonstrating that the declared price is “fixed or determinable under and objective formula”. But going to Customs in many countries in advance to explain the approach to import pricing may not necessarily help, as the principles remain the same. In legalistic speak, it offers Customs the opportunity to dismiss transaction value on the basis that the price at time of import is “is subject to some condition or consideration for which a value cannot be determined with respect to the goods being valued”. In short: damned if you do, damned if you don’t.

Yet despite such shortcomings, doing nothing to try and reduce or eliminate the lack of trust that often sits at the heart of relationships between the customs authorities and importers is not a sustainable way forward.

Now what

As stated at the start of this article, the above is a far cry from a comprehensive and robust discourse on customs valuation. It skips many considerations and takes some significant interpretation liberties. Deliberately. Its intention is to trigger some thoughts and considerations that will hopefully be helpful in designing and implementing a more robust and supportable customs valuation strategy in companies that underestimate, either through lack of knowledge or lack of care, the increasing importance of getting it right.

In many cases where PwC has been involved, complying with customs valuation rules is seen predominantly as an annoyance that has to be minimised, rather than a mature compliance burden that has to be managed properly. In most of these cases, some simple steps, starting with an appreciation of the challenges and a discussion of reasonable risk mitigations options, have led to dramatic improvements. Often, the customs authorities are – rightfully – looking to be taken seriously, rather than as an ugly stepchild of their revenue counterparts. Managing the messaging to and relationship with such authorities through some customs-adjusted import pricing support documentation can make trading life much more pleasant.

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ASEANUpdates from the 49th ASEAN Economic Ministers’ (AEM) Meeting and related meetings

The 49th AEM Meeting and related meetings was held from 7-11 September 2017 in Pasay City, Philippines. The related meetings included: • the 31st ASEAN Free Trade Area Council Meeting;• 20th ASEAN Investment Area Council Meeting;• 5th RCEP Ministerial meeting; and • AEM Consultations with dialogue partners where ASEAN trade ministers and

top economic officials met with their counterparts from both public and private sectors from:

– Canada (6th consultation); – MOFCOM of China (16th consultation); – Hong Kong (2nd consultation); – India (14th consultation); – METI of Japan (23rd consultation); – Korea (14th consultation); – New Zealand; – Russia (6th consultation); – the United States Trade Representative (USTR); and – the Closer Economic Relations (CER) that consists of Australia and New

Zealand, the East Asia Summit (Australia, China, India, Japan, Korea, New Zealand, Russia, and the US), and Plus Three (China, Japan, and Korea).

We summarise the key issues relevant to trade and customs that were discussed in the 49th AEM meeting, as follows: • Projected economic performance

ASEAN is projected to maintain a robust GDP growth rate of 4.8% in 2017 (the same rate for 2016), with positive trends observed across all ASEAN member states. Total merchandise trade was resilient at US$2.2 trillion in 2016, of which 23.1% was intra-ASEAN. Nevertheless, this is a slight decline from 23.2% in 2015 and 24% in 2014. Outside the bloc, China, the EU and the US were ASEAN’s top three trading partners.

• Progress on the AEC Blueprint 2025The AEC 2025 Consolidated Strategic Action Plan (CSAP) will be periodically reviewed and updated as it improves information outreach and instils stakeholder confidence. Two databases for compliance and outcomes monitoring are also in the process of being developed as part of the AEC 2025 Monitoring and Evaluation (M&E) Framework. The framework was endorsed at the previous 48th ASEAN Economic Minister Meeting in Kuala Lumpur, Malaysia, and is expected to be vital in ensuring that the AEC 2025 Blueprint and all corresponding action plans / work plans are operationalised and implemented timely and effectively.

The AEC 2025 M&E Framework appears to be an improvement from ASEAN’s previous monitoring tool - the AEC 2015 Scorecard - which was limited to compliance monitoring and involved binary (yes/no) responses on whether measures were implemented by ASEAN countries. The AEC 2025 M&E Framework expands upon that with the inclusion of two components: outcomes monitoring and impact evaluation. More information on the framework can be accessed at the following link: http://asean.org/storage/2012/05/Towards-AEC-2025-Monitoring-ASEAN-Economic-Integration.pdf


• Trade in goodsSignificant progress has been made on tariff liberalisation and the reduction of trade barriers. Overall, import duties on 96.01% of tariff lines have been eliminated. For the ASEAN-6 (Brunei Darussalam, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), 99.2% of such tariffs have been eliminated. For the CLMV (Cambodia, Lao PDR, Myanmar, and Vietnam), that number stands at 90.9%. Discussions were also held on the key outstanding areas for the ASEAN-wide Self-Certification Scheme, in line with the goal of implementation by 2018.

• Trade facilitationThe ASEAN Seamless Trade Facilitation Indicators (ASTFI), designed to measure and monitor the implementation of trade facilitation measures throughout the region, has been adopted by ASEAN Member States. This includes measures through the various ASEAN agreements such as ATIGA, the ASEAN Framework Agreement on Facilitation of Goods in Transit (AFAFGIT), and sectoral work plans relevant to trade facilitation. The ASTFI was developed based on OECD trade indicators comprising information availability, governance, border agency cooperation, formalities procedures and automation, among others. Since the ASTFI, together with the AEC 2025 Strategic Action Plan for Trade Facilitation and the ASEAN Work Programme on Trade Facilitation, are believed to be vital instruments for achiveing the AEC 2025, the indicators achievements ought to be periodically updated and accessible as public information in order to be meaningful.

• ASEAN Trade Repository (ATR)All ASEAN member states has established their National Trade Repositories (NTRs) and the focus remains on linking the information between respective NTRs and the ATR . This will allow the ATR to be the one-stop online database containing all ASEAN trade-related

information, including the ASEAN non-tariff measures database, which is expected to enhance transparency and ease of doing business. As stated in the CSAP, the timeline for this initiative is 2016 - 2025. The latest development of the ATR can be found on atr.asean.org and has now covered nine ‘topics’, i.e. tariff nomenclature, MFN and preferential tariffs under ATIGA and other ASEAN FTAs, rules of origin, non-tariff mesures, national trade and customs laws and rules, procedures and documentary requirements, administrative rulings, best practice in trade facilitation, and list of AEOs. However, when we tried to access the information, not all links were working properly.

• ASEAN Solutions for Investments, Services and Trade (ASSIST)The Ministers reiterated the potential for ASSIST as an easy way to receive and respond to complaints on trade issues faced by businesses. Member States were urged to raise awareness of the platform and encourage utilisation among businesses – for instance, where they encounter non-tariff measures or non-tariff barriers. It remains debatable whether the structure and precise data requirements of ASSIST will be attractive for businesses to raise their grievances. Voices for a more in-principle based system continue to grow.

• ASEAN Single Window (ASW)Indonesia, Malaysia, Singapore, Thailand, and Vietnam are currently piloting the exchange of electronic ATIGA Certificate of Origin Form D (e-Form D). Member States are considering expanding this to other cross-border trade documents such as Electronic Phytosanitary (e-Phyto) certificates in December 2017 and the ASEAN Customs Declaration Documentation (e-ACDD) in 2018. With the entry into force of the Protocol on the Legal Framework to Implement the ASEAN Single Window on 1 August 2017, Member States that are ready to implement

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e-Form D exchange may also proceed to live operation. A new Project Management Office has also been established to manage the day-to-day operations of the ASW initiative. It will be situated in the ASEAN Secretariat. Although these measures of course fall some way short of a full ASW, it is good to see steady progress being made on practical data exchange where achievable. Businesses should fully use and support these developments to demonstrate their interest and the value it brings to them, which in turn may spur additional effort to link other trade and customs data.

• ASEAN Customs IntegrationEfforts to productively engage the private sector through meaningful dialogue were lauded. The Terms of Reference on the Engagement of Private Sector in ASEAN Customs Meetings was endorsed in May this year and provides clear guidelines to the private sector on consultations. It can be accessed at the following link: http://asean.org/storage/2012/05/TOR-Private-Sector-Engagement-in-ASEAN-Customs-Meeting-endorsed-26th-ASEAN-DGs-of-Customs-Meeting.pdf. With various fora for exchange being more firmly established and expanded, the focus should now shift on improving the quality and impact of the dialogue.

• Standards and ConformanceProgress on the AEC Blueprint 2025The AEC 2025 Consolidated Strategic Action Plan (CSAP) will be periodically reviewed and updated as it improves information outreach and instils stakeholder confidence. Two databases for compliance and outcomes monitoring are also in the process of being developed as part of the AEC 2025 Monitoring and Evaluation (M&E) Framework. The framework was endorsed at the previous 48th ASEAN Economic Minister Meeting in Kuala Lumpur, Malaysia, and is expected to be vital in ensuring that the AEC 2025 Blueprint and all corresponding action plans / work plans are operationalised and implemented timely and effectively.

The AEC 2025 M&E Framework appears to be an improvement from ASEAN’s previous monitoring tool - the AEC 2015 Scorecard - which was limited to compliance monitoring and involved binary (yes/no) responses on whether measures were implemented by ASEAN countries. The AEC 2025 M&E Framework expands upon that with the inclusion of two components: outcomes monitoring, and impact evaluation. More information on the AEC 2025 M&E Framework can be accessed at the following link:http://asean.org/storage/2012/05/Towards-AEC-2025-Monitoring-ASEAN-Economic-Integration.pdf

RCEP

As for the 5th RCEP Ministerial meeting, representatives from the participating countries pledged to accelerate negotiations to achieve significant outcomes by the close of 2017. Participants recognised that a substantial amount of work remains to be done, and the need to focus efforts and resources to achieve that target in time.

Although the change in rhetoric to “significant outcomes” is a welcome bout of realism, it still appears more aspirational than realistic. Of the 15 total areas for discussion, agreement has been reached only for two less contentious areas – small and mid-sized businesses and economic cooperation. Discussions are still ongoing among the countries to finalize tariff reduction levels.

In relation to e-commerce source code access regulations, India and China are pushing for higher protection for local businesses and more relaxed standards, while Japan and Australia are requesting for more free trade.Going forward, the 16 countries have agreed to direct focus to more important aspects of the deal, such as e-commerce and restrictions on entering and staying in member countries, before negotiating the remaining aspects of the deal in 2018.

The next round of negotiations is scheduled for October in Korea.


Free Trade Agreements focus

bilateral FTA. Working groups from both sides, such as Market Access, Rules of Origin, Services and Investment, met and completed the negotiations over several items such as trade defence, state-owned enterprises and public purchases. Australia and Peru also reaffirmed commitment to move forward discussions for conclusion of the FTA.

China and Maldives to sign FTA

Following the fifth round of negotiations held in Beijing in September, on 16 September 2017, China and Maldives have signed a Memorandum of Understanding (MoU) and will now proceed to sign their FTA. Under the FTA, tariffs will be exempted for over 95% of tarif lines of bilateral trade flows and both countries will also be deepening cooperation in areas including finance, medicine, tourism and fishing. New Zealand agrees on negotiating mandate to upgrade FTA with China

Following a consultation process by the Ministry of Foreign Affairs and Trade, New Zealand has agreed on a negotiating mandate to upgrade its FTA with China. This is expected to further increase trade and job creation in New Zealand. The expanded FTA will include new rules enhancing online and digital trade and improved measures to manage non-tariff barriers, which will likely benefit New Zealand’s dairy, forestry and wood

ASEAN and Canada to commence FTA talks

Following the 49th ASEAN Economic Ministers meeting in Manila and the positive result from the Preliminary Joint Feasibility Study for an ASEAN-Canada FTA, Canada has agreed to incorporate more in depth analysis on the study and commence exploratory discussions on an FTA with ASEAN.

ASEAN and Hong Kong FTA concluded

ASEAN and Hong Kong have concluded negotiations for an FTA and an Investment agreement at the second ASEAN Economic Ministers – Hong Kong, China Consultations held in the Philippines on 9 September 2017. Officials announced that both sides will proceed to sign the agreements in November. The FTA, which encompasses trade in goods and services, investment, economic and technical cooperation, and dispute settlement mechanisms, is expected to aid in the creation of new business opportunities and enhanced trade and investment flows between ASEAN and Hong Kong. Hong Kong businesses should also benefit from better access to ASEAN markets.

Australia and Peru conclude second round of FTA talks

Australia and Peru have expressed that significant progress was made during the second round of negotiations for a

Agreements entered into Force

Georgia – European Free Trade Association (EFTA) Free Trade Agreement 1 September 2017

Turkey – Singapore Free Trade Agreement 1 October 2017

Agreements with negotiations concluded

ASEAN – Hong Kong Free Trade Agreement 9 September 2017

China – Maldives Free Trade Agreement 16 September 2017

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processing exporters. The bilateral trade between China and New Zealand has grown nearly triple since the agreement came into force in October 2008. In 2016, the trade between the two was about NZ$23 billion. In terms of utilisation rates, in 2013, 31.67% of imports to China was made under the FTA, but this has grown to 94% in 2016.

Pakistan seeks changes in FTA with China

Pakistan is seeking to revise its existing FTA with China in order to overcome the rising trade imbalance between both countries. In 2016, Pakistan recorded a trade deficit of USD 6.42 billion due to rising imports and stagnating export growth. Since 2015, both countries have been unable to reach an agreement on the second phase of duty reduction. In particular, China is requesting for elimination of tariffs on ninety percent of tradable products, while Pakistan is seeking for implementation of an early harvest programme that will provide preferential treatment to over 100 key items of Pakistan’s exports in order to address local industry concerns.

In the eighth round of negotiations held in Beijing in September, China has agreed to provide immediate market access to 70 high priority tariff lines, which constitutes more than 80% of Pakistan’s current exports, and facilitate visa procedures for Pakistani businessmen in China. Both countries

have committed to deepening levels of economic cooperation, to address trade imbalance, and to make the FTA more equitable.

India to resume FTA talks with Canada, European Union (EU) and Mauritius

The EU and India will be resuming negotiations for the Bilateral Trade Investment Agreement (BTIA) at the EU – India summit that will be held in October 2017. The discussions were started in 2017 but have remained deadlocked on issues such as tariff concessions on key export sectors of automobiles, wine and spirits. Apart from further discussions to agree on tariff reduction schedules, both sides are also intending to cooperate on clean energy and security, and forge partnerships for smart and sustainable urbanization.

Canada also relaunched FTA talks with India in August following the previous round held in 2015. Issues relating to goods market access, sanitary and phytosanitary measures, and technical barriers to trade were discussed. Both countries are looking to reach an agreement on issues relating to the liberalization of norms for the services sector and phasing out of taxes on maximum number of goods traded between countries. If realised, the proposed bilateral trade pact will eliminate and reduce tariff barriers,

open services sectors and facilitate investments between India and Canada.

The formal negotiations on Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius are slated to begin in October following the completion of renegotiations for the Double Taxation Avoidance Agreement (DTAA) in 2016 . Both sides have exchanged tariff lists for goods and services to be formally negotiated in October.

Proposal on changes to India – South Korea Comprehensive Economic Partnership Agreement (CEPA)

Following concerns over a surge in gold imports and related products from South Korea due to more favourable tax rates under its new GST regime, India is looking to push for tighter terms for imports of gold and related products to prevent misuse of duty benefits under the FTA. Authorities are also examining a possible criminal angle in these transactions, considering that South Korea is not a leading producer or exporter of gold and related items. Nevertheless, Indian imports have increased to USD 340 million in July and August 2017. This represents a large increase compared to the average annual import value of USD 71 million.


In particular, India has proposed the incorporation of a clause in the FTA specifying criteria such as a “35% value addition” and “change in tariff subheading” requirement to ensure that items have undergone substantial transformation in South Korea. This is to prevent businesses from routing products through South Korea to take advantage of duty benefits. As gold is a sensitive commodity for India, officials are also considering shifting gold and its articles to the negative list under the FTA.

Separately, India is also looking to conduct investigations for imposition of a safeguard duty on gold imports from South Korea. This will be done in accordance with the India – South Korea CEPA (Bilateral Safeguard Measures) Rules, 2017, and is aimed at determining whether local industries have been seriously impacted due to increased imports as a result of duty benefits under the FTA.

Indonesia and Chile to sign Comprehensive Economic Partnership Agreement (CEPA) by end 2017

Indonesia and Chile have completed the fourth round of negotiations in August and are aiming to conclude discussions in October. Under the CEPA, both countries are aiming to boost exports from main export sectors such as iron ore and grapes from Chile, and automotive spare

parts and footwear from Indonesia. Following the negotiation of the trade in goods agreement, both sides have also expressed intentions to engage in further discussions on investment facilitation. If realised, Chile will be the first South American country to sign an FTA with Indonesia.

Pakistan and Thailand in talks to finalize FTA

Discussions are underway for finalisation of the Pakistan – Thailand FTA. Both sides have agreed to explore the possible signing of Mutual Recognition Agreements to harmonise standards and will proceed to confirm the list of available tariff concessions under the FTA. Pakistan is seeking concessions on yarn, garments and textile products while Thailand is requesting preferential treatment for electrical and electronic appliances, machinery and automobiles. The compete offer lists is to be presented on 15 October 2017, ahead of the ninth round of negotiations in November.

Issues that will be negotiated in November include the text of agreement, tariff reduction modalities, complete request lists and offer lists from both countries. Both sides are aiming to finalise and sign the final FTA during the ninth round of negotiations in November. Given what remains outstanding, that seems somewhat ambitious.

Singapore to sign FTA with Eurasian Economic Union (EAEU) by end 2017

Singapore and the EAEU are planning to sign an FTA by end 2017. The deal is expected to further deepen Singapore’s economic and trade cooperation with the EAEU member countries and provide increased market access for both sides to the Europe and ASEAN markets respectively. In addition to the plans to sign the FTA by the end of this year, both sides have also committed to carrying out ratification procedures in

the first half of 2018.

South Korea to pursue FTA with Eurasian Economic Union (EAEU)

At the Eastern Economic Forum held in Russia, South Korea has expressed interest in commencing negotiations for a free trade deal with the EAEU and to enhance cooperation in development projects in Russia. Both countries are also looking to work together on nine different areas including natural gas, railways, seaports, arctic shipping routes, electricity, shipbuilding, labour, agriculture and fisheries.

Taiwan and El Salvador sign four FTA related resolutions

Following the conclusion of the second Taiwan – El Salvador- Honduras FTA executive meeting in August, Taiwan and El Salvador have signed four additional resolutions to the FTA. Both countries have agreed to make annual tariff reductions on exports including aloe vera juice, jello and tape from Taiwan; and dried pineapple, mango, plantain and banana from El Salvador. Currently, tariffs for these products range from five to ten percent, and will be eliminated completely within the next decade. Taiwan will also be separately discussing the FTA with Honduras at a later date.

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Singapore’s FTA with Turkey (TRSFTA) enters into force

The TRSFTA was ratified on 21 August 2017 and has officially entered into force with effect from 1 October 2017. Signed in November 2015, the TRSFTA covers areas such as trade in goods and services, e-commerce, competition and transparency, and marks a significant milestone towards strengthening economic ties and increasing bilateral trade between Singapore and Turkey. Both countries are also looking to deepen cooperation in defence, counter-terrorism, culture, technical training, education, and science and research.

Under the FTA, tariff and non-tariff barriers to trade and investment will be reduced and there will be enhanced access to service sectors, such as retail, business and construction services, and procurement markets on both sides. Turkey has committed to removing tariffs on 80% of tariff lines for Singapore’s exports and this will extend to more than 95% of all tariff lines over the next decade. Singapore businesses are expected to benefit from better market access to Europe, Central Asia and Middle Eastern markets. Turkish companies will be able to leverage on Singapore’s strategic location to explore expansion opportunities in the ASEAN region.

The following table summarises the key components of the agreement:

(1) For Singapore-originating products claiming preferential tariff treatment in Turkey

Rules of Origin • For goods wholly obtained or produced: This is mainly for natural products or goods made from natural products that are entirely obtained in the country, either extracted, harvested, or live animals born or hunted in the country, including products of sea fishing taken from sea outside the territorial seas of Singapore and Turkey and made aboard their vessels / factory ships.

• For goods not wholly obtained or produced: Products can be considered to be sufficiently worked or processed in the country if certain substantive processing is done in the country, such as semi finished products of stainless steel (HS 7218.91 and 7218.99) that must be manufactured in the country from materials of HS heading 7210, 7202, 7203, 7204, 7205, or subheading 7218.10; and fork-lift trucks (HS heading 8427) that must be manufactured in the country where the value of all the non-originating materials used does not exceed 50% of the EXW price of the product, among others.

Accumulation • Accumulation applies for the agreement. Materials from one country will be deemed as originating from the other, so long as it satisfies the origin requirements and is supported by an origin declaration by the supplier.

Documentation procedures

• No Certificates of Origin will be issued for this FTA. Singapore exporters should submit an origin declaration on an invoice or any other commercial document certifying that the goods qualify as originating goods under the TRSFTA.

• The origin declaration must describe the goods in sufficient detail to enable

identification by the Turkish authorities.

• When completing the corresponding TradeNet export declaration in Singapore, “PRI” should be selected under the “Preferential Indicator” field. This indicates that the importer intends to claim preferential tariff treatment when goods are imported into Turkey.

Document retention

• Documents should be retained for at least 3 years from the date on which the origin declaration was signed.


Companies are advised to refer to Chapter 2 (National Treatment and Market Access for Goods) of the TRSFTA to obtain the preferential tariff rate for relevant goods.

The full legal text may be accessed at the following link: https://www.iesingapore.gov.sg/~/media/IE%20Singapore/Files/FTA/FTAs/Turkey%20Singapore%20FTA/Turkey%20Legal%20Text%20-%20TRSFTA

(2) For Turkey-originating products claiming preferential tariff treatment in Singapore

Procedures for claiming preferential tariff treatment

• Importers may claim preferential tariff treatment using an origin declaration made by the exporter in Turkey, on an invoice or any other commercial document that describes the good in sufficient detail to enable its identification.

In Singapore, customs duty is levied only on imports of stout or porter and other beer including ale (HS heading 2203) and medicated samsu and other samsu (HS heading 2208), which has been zero rated by the time TRSFTA came into force on 1 Oct 2017. However, excise duty remains applicable since TRSFTA pertains only to customs duties.

Documentation procedures

• Where the origin declaration is available at time of importation, the importer should leave the “Customs Duty Rate” field blank and indicate “PRF” in the “Preferential Indicator” field when requesting for an In-Payment permit. The origin declaration must then be submitted to Singapore Customs within 1 week of the release of goods.

• Where the origin declaration is not available at time of importation, the importer must state his intent to make a claim for preferential tariff treatment in the “Remarks” column of the TradeNet declaration for the In-Payment permit, and make a full payment of the customs duty for the goods. Refunds for customs duties must be applied for within 1 year of the date of importation.

• For goods bonded in a licensed warehouse, the importer must submit the origin declaration for verification. Once preferential tariff treatment is granted, the importer can declare an In-Payment Permit at the preferential tariff rate (leave “Customs Duty Rate” field blank and indicating “PRF” in the “Preferential Indicator” field).

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Country reports

Gary Dutton

+61 (7) 3257 8783 [email protected]

Australia Changes to agricultural export legislation The Minister for Agriculture and Water Resources has recently announced that the draft Export Control Bill 2017 is available for public comment. The proposed legislation will consolidate Australia’s agriculture export-related requirements aiming to result in an agricultural framework that is more streamlined, easier to understand and more responsive to changes in market access requirements.

The new changes will ensure farmers and exporters are supported by contemporary, flexible and efficient legislation. The implementation of the new export legislative framework is scheduled to take effect prior to 1 April 2020.

Amendment to Anti-Dumping Bill

The Australian Government has introduced the Customs Amendment (Anti-Dumping Measures) Bill 2017. The amendment aims to provide greater certainty to foreign exporters to Australia in reviews of anti-dumping measures.

This amendment aims to facilitate the use of appropriate methodologies to determine an export price for foreign exporters who have not exported goods or have exported low volumes of goods such that the export price cannot be reliably determined. This will allow specific information to be used to determine an export price and limit exporters’ ability to subvert the anti-dumping framework.

Amendments to the Customs Tariff Act

Customs Tariff Amendment (Tobacco Duty Harmonisation) Act 2017 commenced on 31 August 2017. This Act separates the indexation provisions for tobacco products subject to a ‘per stick’ rate, from the indexation provisions for tobacco products subject to a ‘per kilogram’ or ‘per kilogram of tobacco content’ rate.

The Australian Government has made a number of amendments to the Customs Tariff Act 1995. This includes extending the concessional arrangements for imports of automotive prototypes and components, removing the AUD 12,000 special customs duty on used and second hand motor vehicles, and to improve the usability of the Act.


Increased security at Australian cargo facilities

Following the counter terrorism operations in Sydney in July 2017, the Department of Immigration and Border Protection (DIBP) has increased security at Australian cargo facilities. The DIBP is working with the Office of Transport Security to ensure appropriate levels of vigilance are applied to cargo screening and examinations to enhance Australian Border Forces (ABF’s) ability to detect and intercept high-risk goods, as well as passengers.

The ABF is committed to working with industry to minimise delays caused by the stricter screening and facilitate the movement of people and goods across the Australian border whilst also maintaining an ongoing high level of security. Nevertheless, certain supply chain disruptions or delays may be expected.

Assurances that imported goods do not contain asbestos DIBP Notice No. 2017/21 outlines the requirements in relation to Australia’s prohibition on the importation of asbestos and goods containing asbestos. Goods suspected of containing asbestos will be held at the border until the ABF is assured either that the importation is lawful, or the ABF is satisfied of its zero asbestos content. Goods found to contain asbestos will be seized and importers may be subject to penalties or prosecution.

It is the responsibility of importers to ensure that they do not import goods that contain asbestos into Australia, unless an exception, exemption or prior permission from the Minister of Employment applies. For asbestos testing in Australia, the ABF will only accept certification from a laboratory that is accredited by the National Association of Testing Authorities (NATA).

For overseas testing, the ABF will only accept certification from laboratories certified by a NATA-recognised equivalent. Importers should request that the laboratory prepare a report that meets Australian content requirements. The overseas report must indicate that no levels of asbestos were detected, regardless of the testing standard of that country. Other documentation such as supply chain declarations, established quality assurance requirements, and risk management reports, may be considered for assurance of no asbestos content.

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Susan Ju

+86 (10) 6533 3319 [email protected]

China

Derek Lee

+86 (755) 8261 8218 [email protected]

Frank Wu

+86 (21) 2323 3864 [email protected]

New GAC Order for the administration of Customs Supervision Areas

The Interim Measures for the Administration of Customs Supervision Areas of the People’s Republic of China (GAC Order No. 232, or “Interim Measures”) will be effective from 1 November 2017. GAC Order No. 171, the Measures for the Administration of Customs Supervision Place of the PRC will be abolished concurrently.

PwC observations

The table below provides an overview of the changes made in the new GAC Order.

1 Law- based administration of Customs

• Concept of Customs Supervision Work PlaceIn article 2 of Interim Measures, the term “Customs Supervision Work Place” replaces the previous “Customs Supervision Place”, which has clarified and capped Customs supervision to only cover an activity scope relating to goods or transportation means.

• Supervision right of other authoritiesOther activities undertaken by the operating enterprise outside of Customs’ supervision scope in the Customs Supervision Work Place will be subject to supervision of corresponding authorities (e.g. inspection bureau). This is on the condition that certain information is provided to the Customs office in-charge. Customs will not intervene in the activity of other authorities when implementing these measures.

2 Simplification of relevant supervision procedures and requirements

• Simplified operating qualificationsEnterprises that have fulfilled the following requirements below can apply for establishment of a Customs Supervision Work Place. Companies should:

– Be an independent legal personality; – Have registered and obtained approval from the Administration for Industry and

Commerce, and – Comply with the premise requirements, such as establishing a video monitoring

system with Customs and establish a fully covered wireless network according to the customs supervision needs.

• Fewer application materials For registration application, enterprises are required to provide a registration application form, copy of business license and the facility layout and supervision equipment sketches. Compared to the past, documents like legal person’s ID, Tax Certificate, Land Ownership evidence, etc. are no longer required.

• Goods release documentsEither electronic OR paper release documents issued by Customs are acceptable for release. Previously, both electronic AND paper release documents had to be presented.

3 More clearly specified punitive measures

• Punishment and penaltyArticle 27 of the new measures explicitly specifies activities that will trigger penalties or warnings. For non-compliant activities, customs authorities could suspend enterprise operations in the work place under customs supervision for up to 6 months. Previously, punishment measures were more linked to operability.

The new GAC Order has left enterprises more space for self-management by clarifying customs’ supervision responsibilities and simplifying relevant customs requirements and formalities. Meanwhile, punishment measures are more specifically stipulated in the new measures, which further emphasises the importance of ensuring that activities in customs supervision areas are compliant to avoid possible penalties and warnings, which could hamper business operations.

Moving forward, enterprises should also ensure that they are up-to-date on regulatory changes in a timely manner and utilise such policy developments to facilitate business operations and ensure compliance from a customs perspective.


Hong KongNew registration for the Transshipment Cargo Exemption Scheme (the Scheme)

Subject to certain conditions stipulated by the Trade and Industry Department (TID), shipping companies, transportation companies, airline companies and their appointed agents who are registered with TID under the Scheme are exempted from the import and export licensing requirements in respect of certain types of transshipment cargo.

The Certificates of Exemption previously issued by the TID to the existing registrants under the Scheme will cease to be valid after 31 December 2017. Existing registrants who wish to continue to enjoy the exemption from licensing requirements for the transshipment cargo under the Scheme in 2018 are required to renew their registration with TID.

Interested and eligible parties are invited to lodge applications for new registration or renewal of registration under the Scheme on or before 1 December 2017 if they wish to enjoy the exemption from licensing requirements for the transshipment cargo under the Scheme in 2018.

For further details of the Scheme, refer the link below for more information: http://tid.gov.hk/english/aboutus/publications/nontextiles/tces.html

Derek Lee

+852 2289 3329 [email protected]

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IndiaNew Duty Drawback rules effective from 1 October 2017

To align the Duty Drawback guidelines and rules with the new GST regime, the Central Board of Excise and Customs has issued revised Customs and Central Excise Duties Drawback Rules, 2017 and revised the All Industry Rate (‘AIR’) Schedule on 21 September 2017. The revised duty drawback rules, which will replace the earlier regulations and schedules, entered into effect from 1 October 2017.

The key features of the revised guidelines are outlined below:• Benefit of drawback is limited to Basic Customs Duty only and excludes

Integrated Tax (IGST) and Compensation Cess levied on imported or excisable material used in the manufacture of export goods. A revised schedule, with general rates and rate caps where applicable, is provided.

• References to input services and Service tax are excluded in the new rules.• Composite duty drawback rates will be discontinued. Exporters will no longer be

required to submit declaration for claiming of composite drawback.• For claiming of AIR rates, the relevant tariff items are required to be suffixed

with suffix ‘B’.• Brand rate fixation procedures will continue.• For exported goods with ‘Nil’ rate or ‘no’ rate of drawback notified in AIR

Schedule, an application for fixation of Brand Rate is required to be filed under relevant regulation.

• Present Brand Rates will not apply for exports with Let export date on and after 1 October 2017. Hence, exporters will be required to re-apply for fixation of Brand Rate for such exports.

For higher rates or any issues relating to revised guidelines, exporters can file representations with supporting data and documents with the Drawback Committee. The Drawback Committee will be in operation until 31 December 2017 to look into these issues.

Refer to Customs Circular No. 38/2017 at the following link for more details on changes to the duty drawback rules by the Central Board of Excise and Customs: http://www.cbec.gov.in/resources//htdocs-cbec/customs/cs-circulars/cs-circulars-2017/circ38-2017cs.pdf

Interim relief on utilization of Advance Authorization Scrips for payment of IGST

An Advance Authorization Scheme (AAS) is made available to manufacturer or merchant exporters that are tied to a supporting manufacturer, and have conducted export activities in the previous two financial years. Under the earlier indirect tax regime, qualified importers under the AAS were entitled to the duty free import of input raw materials, provided they are physically incorporated in the export product.

Nitin Vijaivergia

+91 (0) 982 023 9915 [email protected]


However, with the implementation of the new GST Act, such scrips under AAS can only be used for payment of Basic Customs Duty and not for the payment of IGST on imports. This will apply to all imports made after 1 July 2017.

This change has been challenged by an appellant in the High Court by way of a writ petition. The Court has granted an interim relief to the appellant by allowing for continuation of imports with advance authorisation licenses issued prior to 1 July 2017. This relief is subject to the following:

• Relief is applicable only to imports made for fulfilment of export orders placed prior to 1 July 2017, and not applicable to any export order thereafter. This is further subject to the quantity and value as specified in the advance authorization issued prior to 1 July 2017.

• The above clearances would be subject to verification by the CustomsDepartment. The entire list of Advance Authorisations valid as of 1 July 2017 and a list of export orders placed prior to 1 July 2017 should be furnished to the Customs Department accordingly.

The interim relief is available only to the appellant. Other companies with authorisations issued prior to 1 July, 2017 that have pending export orders received prior to 1 July 2017 may also consider approaching the High Court for similar interim relief to continue imports with licenses issued prior to 1 July 2017.

Exemptions for imported leased machinery intended for re-export

Under the new amendment, import duty on leased machinery, equipment or tools, falling under Chapters 84, 85, 90 or any other chapters imported temporarily for execution of specified contracts, will be exempted provided the goods are re-exported within a period of 3 months to 18 months. Prior to the amendment, the period provided was from 6 months to 12 months.

The rate of duty exemption varies based on the duration of temporary import. This will be applicable and levied on the aggregate of customs duties according to the Customs Act. This exemption is subject to specified conditions being fulfilled by the importer.

Details of the extent of exemption are detailed below:

Period Extent to exemption

Earlier provisions Duty of customs in excess of the amount calculated at the rate of the aggregate of the duties of customs of:

Within six months 15%

After six months, but within one year 30%

New provisions Duty of customs in excess of the amount calculated at the rate of:

Within three months 5%

After three months, but within six months 15%

After six months, but within nine months 25%

After nine months, but within twelve months 30%

After twelve months, but within fifteen months 35%

After fifteen months, but within eighteen months 40%

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Self-sealing procedure of containers post implementation of the GST Act

Following the implementation of the GST Act in July 2017, the government of India has prescribed additional procedures for the self-sealing of containerised cargo for export. In accordance with the Government’s push towards digitisation and trade facilitation, changes have been made to these procedures in order to reduce the amount of compliance requirements and further facilitate trade processes. These changes will be effective from 1 September 2017.

The key features of the revised procedures are as follows:

• Authorised Economic Operators and exporters allowed to operate sealing facilities at approved factory premises under the earlier regime will be automatically entitled to this benefit without having to seek specific permission from customs authorities.

• Once granted, permission for self-sealing at an approved premises will remain valid unless withdrawn. However, in cases where there is a change in premises, fresh permission will have to be obtained from Customs.

• Customs authorities are required to communicate the Importer Exporter Code of specified class of exporters to the Risk Management Division.

• Exporters are required to declare the physical serial number of the e-seal at the time of filing of the Online Shipping Bill, or in the case of a manual Shipping Bill, at the time of dispatch to designated port.

• For this purpose, exporter will need to obtain an RFID seal from the vendors, at their own cost, that conforms to the following standards.

– Seal should be a “RFID tamper proof one-time bolt seal”; – Seal should bear the unique serial number and brand of the vendors

in the prescribed format.

• Before sealing the container, exporters are required to provide the following data to Customs:

– Name of the exporter; – Importer Exporter Code (IEC); – GST Identification number (GSTIN); – Description of goods; – Tax invoice number; – Name of authorized signatory and shipping bill number on the

electronic seal.

For more details on the change in self – stuffing procedures, refer to Customs Circular 26/2017, Dated 1 July 2017 at the following link: http://www.cbec.gov.in/resources//htdocs-cbec/customs/cs-act/notifications/notfns-2017/cs-nt2017/csnt26-2017.pdf


Indonesia

Enna Budiman

+62 (21) 5289 0734 [email protected]

Prohibition and restriction list will be trimmed down

As part of the 15th economic policy package, Indonesia has been working to trim down the list of prohibited and restricted goods to cut logistics costs as well as reduce the dwelling time in ports. Currently, about 49% of HS codes are subject to prohibition and resctriction requirements. The government is aiming to reduce it to 19% and shift and simplify the verification process outside the ports via a post clearance control system. No specific deadline was provided but the Coordinating Economic Minister’s announcement in August 2017 suggested it would be soon this year.

Stricter provisions on the import of steel and its derivatives

The Ministry of Trade is introducing stricter import provisions on iron, steel, alloy steel, and their derivatives with Regulation No. 63/M-DAG/PER/8/2017. It amends some articles of the previous Regulation No. 82/M-DAG/PER/12/2016 on Import Provisions for Iron, Steel, Alloy Steel and Their Derivative Products.

Key points to note are as follows:

• Removal of the surveyor report as an import requirement for clearance. • The inspection in relation to the surveyor report can be performed by the

Directorate General of Foreign Trade, the Directorate General of Consumer Protection and Trade Discipline, and/or an independent surveyor, after the importer obtains customs clearance approval (SPPB/Surat Persetujuan Pengeluaran Barang).

• The inspection can be performed in the importer’s warehouse or storage place. • The importer must file an application to seek approval for the use of the goods with

the Director of Import of the MoT. Where the imported goods are used prior to the grant of approval, the applicable sanction is the revocation of the import approval.

• Goods meeting the following criteria no longer require import approval: – Exemption for air courier shipments of maximum FOB value of USD

1,500; – License exemption for importation of goods of less than 1 tonne; and – License exemption for goods requiring further processing, assembly

and attachment onto other goods for export purposes.

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Anti-Dumping Duty on polyethylene terephthalate (PET) from China

On 29 August 2017, the Ministry of Economy, Trade and Industry (“METI”) and the Ministry of Finance (“MOF”) announced that a provisional anti-dumping duty of 53% will be charged on PET with a high degree of polymerisation, originating from the People’s Republic of China. In accordance with the provisions of the international rules under the WTO agreement and related domestic laws and regulations, the government has determined that the importation of the dumped product has caused material injury to the domestic industry.

The provisional anti-dumping duty has entered into effect from 2 September 2017 and will be implemented until 1 January 2018, by when a final decision is expected to have been made.

Customs Mutual Assistance Agreements with Brazil and Mexico

On 10 August 2017, the government of Japan has signed a Customs Mutual Assistance Agreement (CMAA) with the government of Mexico. This is the 13th CMAA that Japan has concluded and will be effective after both parties have completed the necessary domestic procedures. Under the agreement, both customs authorities have agreed to provide a legal framework for mutual support. This includes facilitating the exchange of information to ensure proper application of customs legislation, to prevent, investigate and repress any customs offense, as well as to harmonise border control and customs procedures, mainly to battle illegal foreign trade practices, such as undervaluation, by allowing authorities to affirm authenticity of documents and exchange information on foreign trade operations, seizure of goods, detection and concealment methods for illicit goods

On 15 September 2017, Japan also signed its 14th CMAA with Brazil, aimed at further harmonisation of customs procedures, improving trade facilitation measures and ensuring effective border control by both customs authorities in order to enforce customs laws. The agreement will enter into force after necessary domestic procedures are completed in both countries.

The full text of the CMAA with Mexico and Brazil can be respectively accessed at the following links: http://www.customs.go.jp/kyotsu/cmaa/ka20170814e.pdf and http://www.customs.go.jp/kyotsu/cmaa/ka20170915e.pdf

Other CMAAs currently in effect include agreements with the United States (CMAA signed on 17 June 1997), Korea (13 December 2004), China (2 April 2016), the European Community (30 January 2008), Russia (12 May 2009), Italy (signed on 15 December 2009; entered into force on 1 April 2012), Netherlands (9 March 2010), South Africa (2 July 2012), Germany (19 November 2014), Spain (3 October 2013), and Norway (16 June 2016).

Japan

Howard Osawa



Customs and Inland Revenue Board (IRB) to launch joint audits

On 30 August 2017, the Royal Malaysian Customs Department (RMCD) and the IRB signed a Joint Audit Programme Standard Operating Procedure (SOP) as part of their efforts to tackle corporate tax, customs duties, and Goods and Service Tax (GST) non-compliance. A Joint Audit Committee and a Joint Audit Implementation Committee have been established to coordinate and monitor the effectiveness of this joint audit effort.

Companies should note that the agencies are allowed to share information with each other to enhance audit effectiveness, including information on non-compliance. Once an appointment is made with a company, a joint visit will be carried out. The audit will be jointly conducted by officers from RMCD and IRB, beginning with companies in the Klang Valley, before expanding the operations nationwide in 1-2 months.

Re-registration of STA regulated product category code beginning on 4 September 2017

The Strategic Trade (Strategic Items) (Amendment) Order 2017 has been published in the Malaysia Federal Government Gazette on 29 March 2017. Beginning 4 September 2017, all applicants are required to re-register their product category code in the Pre-Registration Module according to the Strategic Trade (Strategic Items) (Amendments) Order 2017.

Failure to do so will disrupt the submission of permit applications. It is therefore advisable for applicants to plan and schedule the export/transshipment/transit shipment/brokering activity with the product re-registration process in mind, to avoid any disruptions or issues.

Malaysia

Chandrasegaran Perumal

+60 (3) 2173 [email protected]

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Amendment to Excise Duties Order 2017 under HS Heading 87.03

Amendments have been made to the Excise Duties Order 2017, specifically for new motor cars and other motor vehicles principally designed for the transport of persons (other than those of Heading 87.02), excluding station wagons and racing cars.

Effective from 30 August 2017, there are excise duties rate reduction from 65% to 60% for 20 tariff subheadings, mainly for vehicles with a cylinder capacity not exceeding 1,000cc, and vehicles with a cylinder capacity exceeding 1,000cc but not exceeding 1,500 cc.

The complete Excise Duties (Amendment) (No.2) Order 2017 can be found at the following link: http://www.federalgazette.agc.gov.my/outputp/pua_20170829_P.U.%20(A)%20250.pdf Ban on importation of polycarbonate plastic feeding bottles

On 8 August 2017, the Food Safety and Quality Division (FSQ) of the Malaysia Ministry of Health (MOH) issued a new circular prohibiting the importation of feeding bottles made from Polycarbonate Plastics falling under HS 3924.10 90 10 as they contain Bisphenol A (BPA), which falls under the plastic identification code (PIC) number 7.

Other plastic feeding bottles are however allowed to be imported provided testing or inspection and prior approval are obtained from FSQ.

Further details about the circular can be found at the following link:http://fsis2.moh.gov.my/fosimv2/BUL/frmBulletinBoardDetail.aspx?id=4192

Plans to corporatise Malaysian Customs Department next year

On 19 September 2017, the Secretary General of the Ministry of Finance announced that the Government is considering corporatising the Royal Malaysian Customs Department (RMCD) by January 2018. This would mean that the RMCD would operate like a private company with profit or revenue collection as its primary goal.

The move is in line with an announcement made by the Malaysian Prime Minister in March 2017, where he commented that the corporatization of the RMCD was a ‘reward’ for RMCD’s excellent performance. The RMCD collected approximately RM 41.2 billion worth of Goods and Services Tax (GST) last year.

Malaysian and Dutch Customs officials exchange best practices on export controls

From 22-24 August 2017, the Dutch Customs Administration hosted a delegation from Malaysia during their study visit to Rotterdam under the framework of the EU P2P Programme on Export Controls of Dual-Use Goods. The delegation comprised of officials from the administrations responsible for Strategic Trade Controls Enforcement (STCE) in Malaysia: Royal Malaysian Customs, Royal Malaysian Police, and the Ministry of International Trade and Industry. The visit was dedicated to exchanging best practices on STCE, and learning about developing Malaysia’s own Commodity Identification Training (CIT) as well as an electronic database for risk assessment.


New ZealandUpdate on the new Customs and Excise Bill

The Customs and Excise Bill, introduced into Parliament late last year, is currently awaiting its second reading in Parliament. Following the Select Committee report issued on 16 May 2017, further consultations have taken place with key stakeholders to help shape the rules in the Bill.

As the New Zealand general election took place in September 2017, the second reading will be delayed until late 2017 / early 2018, once the new Parliament takes over proceedings. With many of the key provisions likely to take effect from mid-2018, importers / exporters should pay close attention to the progress of the Bill and consider what impact it may have on their business.

Eugen Trombitas


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Philippines

Alex Saborio


New Customs Chief first act: issuance of Alert Orders

The former Director of the Philippine Drug Enforcement Agency (PDEA), Isidro Lapena, formally assumed leadership of the Bureau of Customs on 31 August 2017. His appointment confirmed the resignation of the previous Commissioner Nicanor Faeldon, amid controversy surrounding the importation of illegal drugs that slipped Customs’ watch.

Lapena’s first Directive was abolishing the Command Center (COMCEN) created by Faeldon, which functioned as the central coordinating unit for operations, including the issuance of alert orders. He signed Customs Memorandum Order (CMO) 14-2017 which dissolved the COMCEN and reverted the authority to issue alert orders to the Customs Commissioner or his authorised representatives, the Deputy Commissioner, the Intelligence Group (IG) and Enforcement Group (EG), and all District Collectors for cargoes arriving in their jurisdictions.

An alert order is issued on incoming or outgoing shipments suspected of potential customs violation. It prompts an examination of the goods and verification of relevant documentation after the lodgement of the goods declaration or before their release from customs custody.

Customs suspends utilisation of Green Lane

Customs has temporarily suspended use of the Green Lane for all import shipment clearance and has ordered a thorough review of the Customs’ risk management system, after illegal drugs worth Php 6.4 billion were found to have entered the Philippines through the Green Lane facility. The drugs shipments should have been tagged as falling under the red lane, as its consignee was a new importer and a sole proprietor.

Importers should anticipate a longer customs clearance lead time as cargoes previously routed to the green lane will now be diverted to yellow or red lanes and subject to increased levels of Customs scrutiny. Cargoes tagged under the yellow lane are subject to documentary review and those under the red lane are subject to both documentary review and physical inspection prior to their release from the Customs area.

However, qualified importers under the Super Green Lane (SGL) and Super Green Lane Plus (SGLP) Programs, representing approximately 10% of the total import cargo volume nationwide, are not affected by the suspension. They can still enjoy the privileges of immediate clearance of goods upon payment of duties and taxes, without having their cargoes pass through the Customs’ selectivity system. While the selectivity system is a system-based approach intended to determine the risk level of cargoes based on certain parameters, such as the nature of the imported goods, importers’ profile, country of origin, and suppliers’ profile, the SGL and SGLP are obtained through an application submitted to Customs and subsequent accreditation process conducted by Customs.

No specific timeline has been provided for when the suspension will be lifted, but it is expected to be after a thorough review of the risk management system is complete.


Proposal for mandatory pre-shipment inspection on containerised cargoes

An amendment to certain provisions of the Customs Modernization and Tariff Act (CMTA) was proposed to allow for the implementation of advance customs clearance by extending the use of Pre-shipment Inspections (PSIs) to containerized cargoes. The proposed bill calls for the mandatory advance clearance of goods through the utilisation of information obtained from pre-shipment inspections. A pre-shipment inspection is a physical examination of goods carried out by an accredited cargo surveyor in the country of export.

The current CMTA allows the Bureau to establish and implement a voluntary advance customs clearance program for containerised cargoes, with details left to the implementing rules and regulations. PSIs are only required for bulk and break-bulk shipments.

Lawmakers are optimistic that this move would limit the discretion of Customs officers, helping to curb corruption and improve the collection capacity of the Bureau. Moreover, the office of the President has also drafted an administrative order mandating PSIs on all containerised shipments with certain exceptions. Previous efforts to expand PSIs was met with opposition from varying stakeholders as it would increase costs.

Philippine National Trade Repository (PNTR) launched

The Department of Trade and Industry (DTI) launched the PNTR last August, ticking off one of its commitments in the ASEAN Trade in Goods Agreement (ATIGA).

The PNTR is a web-based portal (http://www.pntr.gov.ph) providing a single source of trade information for the nine trade related areas as mandated in Article 13 of the ATIGA, i.e. tariff nomenclature, tariff rates (MFN and preferential rates), rules of origin, non-tariff measures, national trade laws, procedures and documentary requirements, administrative rulings, best pracrices, and AEO program.

When we explored around the portal, it is however not easy to navigate as there are several pages that display the same webpage look which might confuse the user. We also found some links that are not yet functional, such as the link to the Philippines Coconut Authority.

Nevertheless, we understand that according to DTI, the works on improving the portal are underway and it will also be eventually integrated to the Philippines National Single Window (NSW).

List of banned pesticides

For health promotion and protection, the Food and Drug Administration (FDA) issued FDA Circular No. 2017-005 that enumerates the list of banned pesticides and formulations not allowed to form part of any household/urban pesticide products.

This includes pesticides, such as Aldrin, Endrin, 1-Naphthylthiourea (ANTU), Ethylene dichloride, and Octabromodiphenyl ether, as well as severely Hazardous Pesticide Formulation, such as dustable powder formulations containing a combination of: benomyl at or above 7%, carfuran at or above 10%, thiram at or above 15% and Phosphamidon (soluble liquid formulations of the substance that exceed 1000g active ingredient/l).

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Levels Description

Level 1 Firms that are certified in accordance with the AEO accreditation criteria. Benefits are as follows:1. Exemption from renewal of membership under any customs accreditation

system such as accreditation as importer; 2. Use of trade documents to self-assess duty and tax liability and, where

appropriate, to ensure compliance with other customs requirements; 3. Lodgment of goods declaration by means of an entry in the BOC database

system by the authorised person, to be supported subsequently by a supplementary goods declaration; and

4. Dedicated help desk for AEO applicants.

Level 2 Level 1 members whose security measures and supply chain practices have been validated in accordance with the AEO accreditation criteria, within one year after the initial certification. On top of the existing benefits provided, Level 2 member will have access to: 1. Dedicated processing and selectivity lane for AEO shipments; 2. Advance clearance processing; 3. Periodic lodgment allowing single goods declaration for a given period; 4. One-time exemption certificate for goods subject to duty and tax

exemption; and 5. Expedited export clearance.

Level 3 Members who demonstrate a sustained commitment to maintaining security measures and supply chain security practices that exceed the guidelines established for validation as Level 2 member. The criteria and additional benefits for Level 3 members will be determined and promulgated by the Bureau of Customs, subject to approval by the Department of Finance.

The program will be open for importers, exporters, customs bonded warehouses/customs facility warehouses, customs brokers, forwarders with offices in the Philippines, shipping lines, airlines and their agents, authorised agent banks, local transport operators and their facilities and equipment, foreign suppliers, manufacturers, and other entities in the logistics and international supply chain accredited as AEOs by other countries with which the Philippines has an MRA.

As of the time of writing, the authorities have yet to create a permanent office for the AEO function. A separate memorandum order will also be released, containing the specifics and guidelines of the program.

Establishment of Authorized Economic Operator (AEO) program

With the signing of Customs Administrative Order (CAO) No. 5-2017 on 23 August 2017, the Bureau of Customs and the Department of Finance have established an AEO Program under the Customs Modernization and Tariff Act (CMTA). This is in line with the World Customs Organization SAFE Framework standards.

The AEO Program will establish a partnership between the Customs Bureau and the private sector, and is comprised of three components: 1. Cargo Security System – Ensures the integrity and security of imported goods;2. Trade Clearance System – Enables highly compliant stakeholders to clear goods

with minimum or zero customs border intervention; and3. Mutual Recognition Arrangement (MRA) – Provides mutual recognition of AEO

status of the accredited member in other countries, resulting to application of similar special trade facilities.

The CAO provides for three levels of AEO membership, as follows:


Singapore

Frank Debets


National Trade Platform (NTP) to be rolled out from end-2017 onwards

The NTP is envisaged to replace the current TradeNet and TradeXchange systems asSingapore’s one-stop trade information management system for businesses in thetrade and logistics industries. Under the NTP, the new TradeXchange Services(business-to-business services) will be rolled out from end-2017, and existingTradeXchange users will then be able to transition to the new platform. For businessto-government services, existing TradeNet services and new NTP services will beavailable from 2018 onwards. To access the NTP and use the services, companies will be required to use their CorpPass - the corporate digital identity for resident companies, managed by Government Technology Agency (GovTech) - to transact with government agencise online. Non resident companies might still be able to access the NTP but would need to seek Customs prior approval.

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Taiwan

Janice Lee

+886 2 2729 6666 Ext. 23856 [email protected]

Approval for specific prohibited items from China

On 3 July 2017, the Ministry of Economic Affairs (“MOEA”) announced that theimport ban from China for goods under HS code 6302.21.00.00-8 and6302.22.00.00-7 will be cancelled. However, the MOEA has now issued a newamendment on this announcement, stating that specified goods from China willremain prohibited for import. Due to the change in import regulation andinconvenience caused to importers, for a limited period of time - from 14 August2017 to 7 November 2017 - the Bureau of Foreign Trade ( “BOFT”) will grant special approval for the importation of these two prohibited items from China:

HS Code / CCC Code

Description of Goods Import Regulations

6302.21.00.00-8 Other bed linen, printed, of cotton

C02 MW0

6302.22.00.00-7 Other bed linen, printed, of man-made fibres

C02 MW0

Import Regulation Code Explanation

C02 Some of the commodities under this item subject to legal import inspection announced by the Bureau of Standards, Metrology and Inspection, Ministry of Economic Affairs.

MW0 Importation of Mainland China products is prohibited.

In order to qualify for special approval, importers are required to file an application with the BOFT and must have carried out one of the following activities from 3 July 2017 to 7 August 2017:

1. Issued a Letter of credit; or2. Remitted payment for goods; or3. Goods have already been shipped out from a foreign country for

importation, which can be verified by supporting documents.

Once the special approval application has been approved, importers should proceed to apply for an import permit and import goods into Taiwan before the expiry date of the special approval (7 November 2017).

Japan and Taiwan negotiations underway for an Economic Partnership Agreement (EPA)

Taiwan has conditionally lifted its 16 year ban on beef imports from Japan with immediate effect. This is seen as a major step in moving forward with bilateral negotiations on the EPA as the import restrictions have overshadowed the talks. With the lifting of the ban, both countries will now direct discussions to other issues such as the restriction of food imports imposed by Taiwan in the wake of the Fukushima Nuclear Disaster.

Even though the ban has been lifted, beef imported into Taiwan is still required to meet certain conditions and pass all necessary inspections and checks proposed by the Division of Food Safety, including being supplied by Japanese government certified facilities. Nearly 95% of Taiwan’s beef is imported, with the US as number one exporter, followed by Australia and New Zealand.


Thailand

Paul Sumner


Customs Voluntary Audit Programme already closed on 31 August 2017

On 31 August 2017, the Thai Customs Department closed the Voluntary Audit Programme (VAP) that was originally scheduled to close on 31 December 2017.

Companies that had already enrolled in the programme now need to have settled their issues by 30 September 2017. Customs decided to end the programme earlier than scheduled to close all pending cases under the VAP before the new Customs Act B.E. 2560 (2017) comes into effect on 13 November 2017.

New criteria and procedures for duty reduction and exemption

On 25 August 2017, Thai Customs issued Customs Notification No. 96/2560 specifying new requirements and procedures for duty reduction and exemption under Section 12 of the Customs Tariff Decree B.E. 2530 (1987). According to the Notification, the new requirements and procedures take retroactive effect from 1 January 2017.

This Notification was issued to cancel and consolidate the previous Customs Notifications under Section 12 (e.g. Customs Notification No. 63/2555 which has been effective since 2012). Key articles covered in the Notification are:• Duty exemption on products manufactured in a Free Zone and qualifying as

local/ASEAN content.• Duty exemption on imported raw materials used for the production of electrical

and electronic devices under the control of the Electrical and Electronics Institute (EEI).

• Duty reduction on imported raw materials used for the production of auto-parts and auto-vehicles.

The key concept behind the previous and new Notification remain unchanged. The issuance of the latest Notification is to reflect the Harmonised System 2017 version, which was implemented at the beginning of this year, and to provide added clarification to businesses by providing definitions of terms used. For example:• “Starting date of the privilege” - the date where an importer/exporter

appropriately submitted a privilege request and its supporting documents.• “Privilege approval date” - the date where the customs officers in charge

approves the privilege request.

There will be around 80 sub-regulations in total to which different requirements and procedures are applied. Companies are recommended to refer to the relevant Notifications to mitigate any non-compliance risks.

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Revised periods for storing goods in a Free Zone

Customs Notification No. 87/2560 was announced in the Royal Gazette and became effective on 8 September 2017. It revises certain periods for storing goods in a free zone which were previously applicable under the National Council for Peace and Order (NCPO) No. 51/2559 dated 25 August 2016.

Under the Notification, the two-year storage limit as provided for under the NCPO no longer applies to:• Goods that are manufactured in the free zone;• Machinery, equipment, tools, instruments, and parts thereof, which are

necessary for industrial or commercial operations within the free zone; and • Other machinery, equipment, tools, instruments, and parts thereof, which are

taken into the free zone under duty reduction or exemption privileges, such as under the Investment Promotion Act or Customs Tariff Decree.

The Notification also allows free zone companies to request an extension of the storage period for raw materials and other items stored in the free zone under certain conditions.

Goods that are stored over the two year limit (or extended period where appropriate) and for which companies, who brought the goods into the free zone, fail to pay the relevant duties and taxes within 30 days from the expiry period, will be liable for the payment of duties and taxes. Customs will issue a notice of assessment accordingly to collect the relevant duties and taxes.

Although the Notification is a ‘relaxation’ of the previous NCPO order, we recommend that companies continue monitoring their storage times for goods in the free zone to mitigate the risk of non-compliance.

New practice for deferred payments in cases under the appeals process

The Customs Department issued Customs Notification No. 89/2560, effective from 1 September 2017, to revise part of a request for deferred payments of duty as prescribed in Customs Notification No. 67/2559. The key changes are:• An appellant is entitled to a combination of different collaterals as security. In

addition, more collaterals including land title deeds and a self-guarantee (if an appellant is an AEO importer/exporter).

• A deferral period, not exceeding 9 years from the date of importation/exportation is allowed for duty and tax payment, except in the case where Customs has filed the case to claim duty and tax with the court. In such a situation, the deferral period for duty and tax payment will be extended until the case is final.

• In cases where the deferral payment request is rejected, the authority must inform the appellant within 7 days (instead of 30 days under the previous Notification) so that the appellant can proceed with the payments of duty and surcharges within 30 days from the date of being notified.

• Where the deferral period is due and the case is still pending, the appellant is subject to payment of duty and surcharges within 30 days from the due date. Failure to do so will empower Customs to seize and enforce the seizure of collaterals. The previous Notification specified that the Customs Department would seize the collaterals soon after the due date.

An appellant who has already filed an appeal to the Board of Appeal or filed an appeal against Board of Appeal decision to the court before 1 September 2017 and who wishes to apply for a deferred payment, needs to have submitted the request before 2 October 2017.


Further updates on the new Excise Tax Act

We refer to our Trade Intelligence publication issued in April/May 2017, which provided updates on the new Excise Tax Act B.E.2560 (the Excise Act) that has been effective since 16 September 2017.

Under the new Excise Act, tax rates for most products are reduced while the old excise tax bases (i.e. cost, insurance and freight [CIF] for imported goods, ex-factory prices for locally produced goods, and last wholesale prices for liquor products) are replaced by a suggested retail price (SRP). However, while the rates are lower, the change in base means that overall excise tax collection is higher.

Besides this, excise tax calculation is based on both ad valorem rates (a percentage of SRP) and/or specific rates (based on the quantity or weight of the goods). The excise tax on some products, such as motor vehicles, motorcycles and batteries, is calculated based only on the ad valorem rates. Meanwhile, the excise tax on other products, such as non-alcoholic and alcoholic beverages and petroleum products, is calculated based on both ad valorem and specific rates.

In summary, the new excise tax calculation formulas will be:

1. SRP x Excise tax rate 2. [SRP x Excise tax rate] + [Specific rate] x Quantity, or3. [SRP x Excise tax rate] + [Specific rate] x Quantity x Degree of pure alcohol.

There are 131 sub-regulations which were published on 16 September 2017. However, these have not yet addressed some commercial circumstances, such as goods under leasing agreements, or goods that are produced for industrial consumption not for retail sale. Also, the new excise tax calculation requires that the importers or local producers declare the cost structure of excise taxable products, including all administrative costs and the profit of every subsequent sale.

Nonetheless, there seems to be an unwritten policy that the profit amount cannot be lower than zero. This may limit companies who have pricing strategies to sell products at a price below cost when declaring their cost structure for excise tax payment purposes. Also, some importers are expected to face a delay in customs clearance procedures if there is a mismatch of SRP declared in the cost statement.

Therefore, business operators and importers of products subject to excise are recommended to closely monitor updates in sub-legislation and consider strategies to reduce the impact of these changes on their operations.

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Below is a comparison table of tax rates under the old and new excise acts for some products:

No ProductOld rate New rate

Ad valorem rate Ad valorem rate Specific rate

1 Certain non-alcoholic beverages 0 – 25% 0 – 14% 0 – 44 THB per litre

2 Batteries 5 – 10% 0 – 8% -

3 Motor vehicles 0 - 50% 0 – 40% -

4 Motorcycles 0 – 20% 0 – 17% -

5 Perfume products and cosmetics 0 – 15% 0 – 8% -

6 Alcoholic beverages 0 – 48% and 0 – 1,000 THB per litre per 100 degree of alcoholic content

0 – 22% 0 – 1,500 THB per litre of alcohol content

7 Cigarettes containing tobacco 10 – 87% 0 – 40% 0 – 1.20 THB per roll

We have taken the excise tax calculation of motor vehicles to illustrate the impact of the changes in tax rate between the old and new Act below. We will assume that the ex-factory price is THB 500,000 and the excise tax rate for motor vehicles is 30% under the old Act. Meanwhile, the SRP is THB 950,000 and the new excise tax rate is 25%. The excise taxable amount for one motor vehicle would be:

Old calculation

Ex-factory price x excise tax rate = 500,000 x 30% = 223,880.59

1- (1.1 x excise tax rate) 1 (1.1 x 30%)

New calculation

SRP x excise tax rate = 950,000 x 25% = 237,500.00

Hence, the additional tax liability under the new excise tax would be THB 13,619.41.

Although many products are being affected by a higher excise tax, some benefit by incurring less. Most kinds of liquor, sugary drinks and cigarettes are subject to increased taxes as the government hopes to reduce people’s consumption of these products. Carbonated drinks without sugar and imported wine with a value less than 1,000 THB are enjoying a lower tax.


Vietnam

Pham Van Vinh

+84 (8) 3823 0796 Ext.1503 [email protected] Abolishment of regulations on automatic import licenses for

certain steel products

On 28 August 2017, the Ministry of Industry and Trade issued Circular 14/2017TT-BCT (“Circular 14”) abolishing Circular 12/2015/TT-BCT (“Circular 12”) on theissuance of automatic import licenses for specific steel products.

Circular 12 stipulated that importers intending to import certain specific steelproducts such as Semi-finished products of iron or non-alloy steel, flat-rolledproducts of iron or non-alloy steel, of a width of 600 mm or more, cold-rolled(cold-reduced), not clad, plated or coated etc. are required to apply and obtain anautomatic import license.

With effect from 1 September 2017, these imported steel products will no longer besubject to previous regulations on the issuance and submission of automatic importlicenses.

Exemption from quality inspection for certain products

The prime minister has issued Decision No. 37/2017/QD-TTg dated 17 August 2017abolishing the previous Decision No.50/2006/QD-TTg dated 03 March 2006 on thelist of products and goods subject to quality inspection. This decision will beeffective from 5 October 2017.

Decision No.50/2006/QD-TTg stipulates that importers producing, trading orimporting any listed products are required to coordinate with competent agenciesfor quality inspection of goods in areas such as safety, hygiene, health andenvironmental standards before being circulated in the domestic market. The list of114 product types includes medical equipment, vaccines and drugs, animal feed,aquaculture and fishery products, pesticides, fertilizers, explosives and antiexplosion equipment used in underground mining, cement products and somecategories of consumer products such as stoves, grills heaters and toys.

Under the new regulation, importers are now not required to carry out qualityinspection procedures for the listed products until further guidance is provided.This is expected to facilitate faster clearance time for businesses and consumers.

Vietnam’s progress on TFA implementation

From 10-14 July 2017, the final technical assistance mission to Vietnam under the current WCO-Norad Project was held in Hanoi. The results of the event are monitored by regional Mercator Programme Advisors (MPAs), which helps Vietnam to implement commitments under the WTO Trade Facilitation Agreement (TFA). In conjunction with the Mercator Programme, the WCO-Norad Project on Customs Capacity Building focused on capacity building in the field of Stakeholder Engagement for the last four years in Vietnam.

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Around the world

World Customs Organisation

WCO supports Indonesia Customs with IPR border enforcement

From 11-15 September 2017, a WCO National Workshop on CombatingCounterfeiting and Piracy was held in Jakarta for the benefit of Indonesian Customsofficials. The workshop focused on intellectual property rights (IPR) enforcementand saw speakers from WCO’s Asia Pacific Regional Office for Capacity Building(ROCB A/P), China Customs, and Japan Customs.

During the workshop, participants re-assessed their current IPR enforcementstrategies against the WCO Agreement on Trade-Related Aspects of IntellectualProperty Rights (TRIPS Agreement), and shared the challenges they face.Discussions were held around the legal framework, operational procedures, riskanalysis, retention of information, information sharing and cooperation withCustoms officers and right holders. Specific follow up tasks were also identified toimprove IPR border enforcement.

World Trade Organisation

Continued recovery of world trade

Published on 7 August 2017, the World Trade Outlook Indicator (WTOI) suggeststhat growth in global trade will continue to recover in the third quarter of 2017. Upfrom 102.2 in May, the WTOI has risen further above trend and recorded a readingof 102.6 for June 2017. A reading of 100 indicates trade growth in line with trendwhile readings more or less than 100 suggests above or below trend.

Three of the six component indices of the WTOI, air freight, export orders and container shipping showed strong performances while the index for automobile production and sales is below trend.

The full version of the WTOI report can be accessed at the following link:https://www.wto.org/english/news_e/news17_e/wtoi_07aug17_e.pdf


Panel report on Indonesian duties on iron or steel products

On 18 August 2017, a WTO dispute panel published a report regarding Indonesianduties on iron or steel products. The report was the result of Taiwan and Vietnamrequesting consultations with Indonesia in February and June 2015 respectively,regarding a safeguard measure imposed by Indonesia on imports of certain flatrolled iron or steel products and the investigation and determinations leadingthereto. The specific product that was reviewed for this purpose was a certain typeof galvalume classified under HS code 7210.61.11.00.

The panel concluded that the application of the specific duty applied by Indonesiaon imports of galvalume originating in all but the 120 countries listed in RegulationNo. 137/PMK.011/2014, as a stand-alone measure, is inconsistent with Article I:1 ofthe GATT 1994 and does not constitute a safeguard measure within the meaning ofArticle 1 of the Agreement on Safeguards.

The report can be accessed at the following link:https://www.wto.org/english/tratop_e/dispu_e/490_496r_e.pdf

Panels on disputes over Chinese farm quotas and Canadian aircraft subsidiesdeferred

Brazil and the United States, respectively, requested for the establishment of a panelto examine aircraft subsidies provided by Canada and tariff rate quotas (TRQs)imposed by China on certain agricultural products.

China – Tariff rate quotas on certain agricultural productsThe basis for the request from the United States are concerns that China’s TRQs forwheat, short- and medium-grained rice, long-grain rice and corn are not consistentwith WTO commitments and that they have not been administrated on atransparent, predictable or fair basis.

Canada – Measures concerning trade in commercial aircraftThe concerns raised by Brazil are regarding the numerous subsidies measures thatCanada had provided to Bombardier in order to develop, launch and preserveBombardier’s C-Series aircraft program. According to Brazil, these measures havecaused major distortions in the commercial aircraft market and harmed Brazil’sexport interests.

Following the objection of both countries, the dispute settlement body has deferredthe creation of a panel. Further details can be accessed at the following link:https://www.wto.org/english/news_e/news17_e/dsb_31aug17_e.htm

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Consultations requested by Indonesia for Australian duties on paper imports

On 1 September 2017, Indonesia requested for WTO consultations with respect toAustralia’s decision to impose anti-dumping duties on imports of A4 copy paperfrom Indonesia.

In the request, Indonesia claimed that Australia’s actions appear to be inconsistentwith provisions under the WTO’s Anti-Dumping Agreement regarding thedetermination of dumping. According to Indonesia, the Australian Anti-DumpingCommission used a constructed value to determine normal value instead of usingthe home market price for Indonesian exporters as normal value. In addition, theCommission used a benchmark that consisted of a weighted average value takenfrom an industry publication and not the actual costs of pulp.

Further details can be accessed on the request for consultations by Indonesia atthe following link:https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=238561&CurrentCatalogueIdIndex=0&FullTextHash=&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=

Report finds against EU on anti-dumping measures on fatty alcohols fromIndonesia

In July 2012, Indonesia requested for consultations on EU anti-dumping measureson imports of certain fatty alcohols from Indonesia. Subsequently, Indonesiarequested for the establishment of a panel. The DSB agreed to the creation of apanel to proceed with further investigation in June 2013. After some delay due toa shortage of experienced lawyers, the panel issued their findings in December2016. Indonesia appealed to the WTO Appellate Body to reverse certain legalinterpretations leading to the panel conclusion.

On 5 September 2017, the WTO Appellate Body issued a report on the abovedispute. The panel concluded that the EU had acted inconsistently with Article 2.4and Article 6.7 of the Anti-Dumping Agreement. The EU failed to make a faircomparison between the export price and the normal value and failed to disclosethe results of their on-the-spot investigations.


Regional Partners Frank Debets +65 6236 7302 [email protected]

Susan Ju +86 (10) 6533 3319 [email protected]

Derek Lee +86 (755) 8261 8218 [email protected]

Frank Wu +86 (21) 2323 3864 [email protected]

Nu To Van +66 (2) 844 1353 [email protected]

Paul Sumner +66 (2) 344 1305 [email protected]

Australia Gary Dutton +61 (7) 3257 8783 [email protected]

Cambodia Paul Sumner +66 (2) 344 1305 [email protected]

China

Beijing Susan Ju +86 (10) 6533 3319 [email protected]

Shanghai Frank Wu +86 (21) 2323 3864 [email protected]

South China/Hong Kong Derek Lee +86 (755) 8261 8218 [email protected]

India Nitin Vijaivergia +91 (0) 982 023 9915 [email protected]

Indonesia Enna Budiman +62 (21) 5289 0734 [email protected]

Japan Howard Osawa +81 (0)3 5251 6737 [email protected]

Korea Rosa An +82 (2) 709 8916 [email protected]

Laos Paul Sumner +66 (2) 344 1305 [email protected]

Malaysia Chandrasegaran Perumal +60 (3) 2173 3724 [email protected]

Myanmar Tanarat Permpoonsap +66 (2) 344 1196 [email protected]

New Zealand Eugen Trombitas +64 (9) 355 8686 [email protected]

Pakistan Syed Shabbar Zaidi +92 (21) 2413 849 [email protected]

Philippines Alex Saborio +65 6236 4192 [email protected]

Singapore Frank Debets +65 6236 7302 [email protected]

Taiwan Janice C Lee +886 2 2729 6666 Ext. 23856 [email protected]

Thailand Nu To Van +66 (2) 344 1353 [email protected]

Vietnam Pham Van Vinh +84 (8) 3823 0796 Ext.1503 [email protected]

Wider Europe Leader Ruud Tusveld +31 (10) 4075 500 Ext. 669 [email protected]

Americas Leader Anthony Tennariello +1 (646) 471 4087 [email protected]

Contact detailsWorldtrade Management Services (WMS) is the globalcustoms and international trade consulting practice of PwC. WMS has been in Asia since 1992 and is a regionally integrated team of full-time specialists operating in every location.

Our team is a blend of Asian nationals and expatriates with a variety of backgrounds, including ex-senior government officials, customs officers, international trade lawyers, accountants, and specialists from the private sector who have experience in logistics, customs and international trade.

PwC–Globally PwC firms provide industry-focused assurance, tax andadvisory services to enhance value for their clients. More than 208,000 people in 157 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice.

The information contained in this article is of a general nature only. It is not meant to be comprehensive and does not constitute the rendering of legal, tax or other professional advice or service by PricewaterhouseCoopers WMS Pte Ltd (“PwC”). PwC has no obligation to update the information as law and practices change. The application and impact of laws can vary widely based on the specific facts involved. Before taking any action, please ensure that you obtain advice specific to your circumstances from your usual PwC client service team or your other advisers.

The materials contained in this article were assembled in August/September 2017 and were based on the law enforceable and information available at that time.

© 2017 PricewaterhouseCoopers WMS Pte Ltd. All rights reserved. “PricewaterhouseCoopers” and “PwC” refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL). Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.

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