Managing Multiple Trade Agreements in Asia Pacific

Managing Multiple Trade Agreements in Asia Pacific Whitepaper

Introduction Free Trade Agreements (FTAs) continue to be developed by governments around the world with an ever increasing number entering into force as lengthy negotiations are concluded and new negotiations commence. Asia Pacific countries view FTAs as a way of liberalizing trade and investment and sustaining economic recovery i, and, since 2001, have become some of the most active in signing trade agreements. The number of agreements in force as of May 2014 has surged to 108 with an additional 141 in various stages of the negotiation process ii and this increase in the number of trade agreements represents almost half the FTAs concluded in the last 10 years. iii Whilst the opportunities arising from the agreements has increased, the bar that organisations need to overcome if they are going to compete on a global basis has also been raised and many struggle with the burden managing additional FTAs imposes on internal management processes. Dialogue among key regional players is signalling that Asia Pacific is moving towards economic regionalism; however, as of yet, there is no substantial indication that new regional agreements will deliver a framework that will truly enable organisations to take advantage of all the benefits promised. This paper will explore the implications of free trade developments, highlight some proposed agreements that may change the FTA landscape in the Asia Pacific and identify what practical steps organisations need to do now to prepare to reap the benefits of FTAs. Source: Asia Development Bank Asia Regional Integration Centre (ARIC) data as at May 2014. http://www.aric.adb.org/fta 2016 Integration Point 2

Free Trade Agreement Utilization in Asia Pacific The proliferation of FTAs over the last decade has contributed to an increased concentration of trade within the Asia Pacific region but has also resulted in a myriad of overlapping agreements that lack both consistency of application and requirements. This noodle bowl effect has generated a new set of nontariff barriers that make it difficult for companies to take advantage of trade agreements. With each new agreement that comes into force there is an exponential increase in the time needed to coordinate with suppliers to receive preferential certificates of origin and to source all the additional information required to determine eligibility for locally manufactured products. Much of the required information is highly sensitive in nature and is often scattered across supply chains, sales, compliance, logistics, operations and procurement teams who do not usually get together to share the information necessary to determine FTA eligibility and to ensure ongoing compliance as eligibility determinants, such as sourcing and pricing, change over time. This time intensive burden coupled with the expertise needed to correctly interpret the rules of origin often proves too challenging to an organisation s internal management processes. This is true not just in Asia Pacific, but all across the globe as more and more organisations reach into new markets. If you are taking advantage of FTAs today, you are likely well aware of how much time it really takes to obtain FTA benefits. It is due to the high workload and a perceived lack of return that many organisations simply choose not to utilize preferential mechanisms made available via FTAs - a decision that can have a ripple effect throughout the supply chain. An organisation who does not qualify their products is unable to pass on preference to any of their trading partners, who then become unable to benefit from lower prices and duties for goods that could have otherwise been imported under a FTA. Additionally, these trading partners will have a reduced capacity to qualify their products for their own customers as preferential origin was not available for the imported goods consumed in local manufacturing operations. This paradigm is leaving an untold amount of money on the table throughout supply chains, and, given the appetite for new agreements, is showing no signs of abatement? The Pathway Towards Deeper Regional Economic Integration Notwithstanding the pipeline of new bilateral and multilateral agreements, if we are to believe current dialogue, a new era of economic integration in the Asia Pacific region is coming. Two of the most ambitious FTAs are currently under negotiation, the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP), and both are of a scale never previously encountered in Asia Pacific. The 16 participating countries in the RCEP negotiations account for almost half of the world s population, almost 30 percent of global GDP and over a quarter of world exports. iv The TPP countries account for over 37 percent of global GDP and is described as a 21st-century agreement that is the cornerstone of the current United States Administration s economic policy in the Asia Pacific. v Neither of these agreements will preclude the existence of FTAs already in force however will likely consolidate the preferential choices of organisations, rendering the smaller bilateral and multilateral agreements redundant over time. vi 2016 Integration Point 3

Furthermore, a number of Asia Pacific countries are engaged in both the TPP and RCEP negotiations and see both processes as providing possible pathways to a free trade area of the Asia Pacific. vii There is thought that a region-wide FTA would provide clear economic benefits and could also offer insurance against rising protectionist sentiments that pose a risk to Asia s trade and economic recovery. viii To build on the ongoing regional undertakings, Asia Pacific Economic Cooperation (APEC) has launched the Information Sharing on Regional Trade Agreements (RTAs)/FTAs in Asia-Pacific Region project with the objective to promote exchanges of experiences and practices in developing, negotiating and implementing RTAs/ FTAs and build up basis for a possible Free Trade Agreement of the Asia Pacific (FTAAP). ix It is hoped that this project to enhance communication relating to FTAs will also assist to unravel the noodle bowl and provide some administrative relief to organisations that want to take advantage of them. Source: Graph adapted from http://www.aienetwork.org A new FTA in a congested trade landscape: Can RCEP unravel the noodle bowl? Alisa DiCaprio. 3 December 2012. Source data Department of Foreign Affairs & Trade (Australia) http://www.dfat.gov.au/fta/rcep/ and The Office of the United States Trade Representative http://www.ustr.gov/tpp 2016 Integration Point 4

Until an agreement is actually reached that will alleviate the burden imposed by the current nature of FTAs in the Asia Pacific region, organisations must continue to integrate FTAs into their daily business processes based on their current rules and structures. The organisations that can do this successfully will gain a competitive edge in the market place. Managing Multiple Free Trade Agreements If you are the typical organisation, you are likely attempting to: g Import under at least one trade agreement g Use 2-3 resources to contact your supplier base on the phone or via email to provide a preferential certificate of origin for the each imported product g Require another resource to interpret the rules of origin of each agreement that would apply to each of your manufactured products g Collect bill of material, purchasing, sales, technical and tariff information manually from across your organisation for each product in order to assess its eligibility g Answer multiple customer requests for preferential certificates of origin for your exported products Is your organisation operating in this manner? If so, then you could be missing out on bottom line savings that comes from leveraging trade agreements, whether one or multiple, across the entire organisation. With limited resources to manage a single trade agreement, and no system in place to automate many of the tasks involved, you are in all likelihood not (1) leveraging multiple trade agreements to maximise your duty saving potential, (2) incorporating free trade agreements into your sourcing strategy, (3) generating or applying for documentation required to ship goods under an agreement, or (4) creating the necessary audit trail when preference is claimed. All of which means your organisation is either losing duty savings that could otherwise be easily captured, is not staying compliant, or both. Utilising advanced automation software like Integration Point FTA Management Solution you will be able to: g Access up-to-date free trade agreement rules of origin g Automate and manage supplier Preferential Certificate of Origin requests g Qualify Bills of Materials (BOMs) against multiple free trade agreements in a single step g Generate accurate customer certificates once product eligibility is determined g Store documentation in a central location for qualification and auditing purposes g Rapidly respond to customer requests for certificates of origin g Quickly add new free trade agreements as they are ratified 2016 Integration Point 5

Using an integrated solution like Integration Point FTA Management, which is designed to manage trade agreements from beginning to end, organisations are able to not only automate the core functions of supplier preferential origin requests, eligibility determination, and customer certificate generation, they are also able to increase productivity levels to a point where additional trade agreements can be claimed without overburdening the current team or adding additional resources. More importantly, an end-to-end solution like Integration Point FTA Management (See Figure 2) extends an organisation s ability to also incorporate trade agreements and preferential duty rates into sourcing decisions, automatically generate certificates as part of the export shipping documentation, and validate entry data to ensure the effort spent to qualify products is not lost. By implementing a solution that automates the entire lifecycle of a free trade agreement, compliance departments are able to more efficiently manage current free trade agreements utilised by the organisation and to expand the number of free trade agreements as they come into force such as ASEAN-China FTA (ACFTA), US-Singapore FTA (USSFTA) and EU-Korea FTA. Additionally, organisations can now integrate the use of free trade agreements across the entire enterprise, which further increases the value these trade agreements bring to the company. Asia Pacific governments are sending out a strong message. FTAs are here to stay. Now is the time for your company to take the next steps to g Utilise the myriad of current FTAs to improve your bottom line g Have mature and fully auditable processes to ensure compliance g Prepare for the next wave of regional multilateral FTAs to improve your business competitiveness even further 2016 Integration Point 6

About Integration Point Integration Point offers a comprehensive suite of global trade management products encompassing all industries, geographies, and trade programs. By delivering visibility and localized knowledge for 180+ countries on a single, web-based platform, Integration Point enables companies to achieve global compliance while maximizing supply chain savings. Integration Point provides solutions for import/export management, product classification, free trade agreement qualification, export screening, drawback, foreign-trade zone operations, supply chain security, and post entry validation. With 500+ team members across every major continent, Integration Point ensures clients combine local best practices with global standards when deploying a global trade management platform. www.integrationpoint.com i Masahiro Kawai and Ganeshan Wignaraja. Dealing with the noodle bowl of Asia s Free Trade Agreements. http://www.asiapathways-adbi.org/2012/04/dealing-with-the-noodle-bowl-of-asias-free-tradeagreements. Posted April 24, 2012 ii Source: Asia Development Bank Asia Regional Integration Centre (ARIC) data as at May 2014. http://www.aric.adb.org/fta iii World Trade Organization (WTO) http://www.wto.org/ iv http://www.dfat.gov.au/fta/rcep/ v http://www.ustr.gov/about-us/press-office/fact-sheets/2011/november/united-states-trans-pacific-partnership vi ADB (2013). Asia Economic Integration Monitor March 2013, Manila. vii http://www.dfat.gov.au/fta/rcep/ viii Masahiro Kawai and Ganeshan Wignaraja. Dealing with the noodle bowl of Asia s free trade agreements. http://www.asiapathways-adbi.org/2012/04/dealing-with-the-noodle-bowl-of-asias-free-tradeagreements. Posted April 24, 2012 ix APEC Project Database. http://aimp2.apec.org/sites/pdb/lists/proposals/dispform.aspx?id=1464 2016 Integration Point 7