The 31 st Japan-Chile Business Cooperation Committee 1 st plenary session: Prospects of the TPP 11 The business environment and opportunities provided by the TPP 11 as seen from Japan Naoyoshi Noguchi Executive Vice President Japan External Trade Organization (JETRO) 1
Today s contents 1. Japan s activities for FTAs and significance of TPP 11 2. Supply chains in Chile and Asia, and roles of Japanese companies 3.Expectation for TPP 11 by Japanese companies 2
Copyright (C) 2017 JETRO. All rights reserved. Japan s activities for FTAs - The nominal GDP of TPP 11 is $10.2 trillion (a 13.5% share of the global market). Combined population within TPP 11 member countries exceeds 500 million people (accounting for 6.7% of the world). - Regarding the mega-ftas in which Japan participates; TPP11, RCEP, the Japan-China-Korea and the Japan-EU EPAs; the nominal GDP is $43.3 trillion (a 57.5% share of the global market) and the combined population is 4.27 billion people (57.4% of the world). In effect (14 countries and 1 region): : SINGAPORE MEXICO MALAYSIA CHILE THAILAND INDONESIA BRUNEI ASEAN PHILIPPINES SWITZERLAND VIETNAM INDIA PERU AUSTRALIA MONGOLIA Concluded (1 region): TPP11 (CPTPP) Agreement reached (1 region): EU Under negotiation (4 countries and 3 regions): GCC(Gulf Cooperation Council) CANADA COLOMBIA JAPAN/CHINA/SOUTH KOREA RCEP TURKEY SOUTH KOREA (halting) EU Agreement reached (Dec. 17) SWITZERLAND In effect (Sep. 09) GCC COUNTRIES Under negotiation GCC(Gulf Cooperation Council): SAUDI ARABIA KUWAIT UAE BAHRAIN QATAR OMAN MONGOLIA In effect (June 16) TURKEY Under negotiation *Chapters on service and investment yet to go into effect In effect (Dec. 08 ) ASEAN (AJCEP) INDIA In effect (Aug. 11) THAILAND In effect (Nov. 07) PHILIPPINES In effect(dec. 08) INDONESIA In effect (Jul. 08) RCEP(ASEAN10+JAPAN/CHINA/SOUTH KOREA/INDIA/AUSTRALIA/NZ) Under negotiation SOUTH KOREA Halted JAPAN/CHINA/SOUTH KOREA Under negotiation SINGAPORE In effect (Nov. 02) Revised (Sep. 07) MALAYSIA In effect (Jul. 06) BRUNEI In effect (Jul. 08) VIETNAM In effect (Oct. 09) NZ AUSTRALIA In effect (Jan. 15) CANADA MEXICO In effect (Apr. 05) Revised(Apr. 12) PERU In effect (Mar. 12) CHILE In effect (Sep. 07) US Withdrawal in Jan. 17 Source: Documents made by METI COLOMBIA Under negotiation TPP Concluded between 12 countries (Feb. 16) Agreement in principle (Nov. 17) Concluded between 11 countries (Mar. 18) 3
Copyright (C) 2017 JETRO. All rights reserved. FTAs in effect between Japan and other member countries of TPP 11 - The TPP 11 will be Japan s first FTA with Canada and New Zealand. - Chile already has an FTA with each member of the TPP 11. CANADA MEXICO PERU CHILE AUSTRALIA NZ SINGAPORE MALAYSIA VIETNAM BRUNEI JAPAN CANADA MEXICO Concluded PERU CHILE AUSTRALIA 0 0 0 Concluded NZ 0 0 0 SINGAPORE 0 0 MALAYSIA 0 0 0 VIETNAM 0 0 0 BRUNEI 0 0 0 JAPAN 0 0 Note: 1. While the Global System of Trade Preferences among Developing Countries (GSTP) has entered into force between Mexico, Singapore, Malaysia and Vietnam, and between Peru, Malaysia and Vietnam, these countries are considered as not having prior FTAs between them because of the small number of product categories covered. 2. There are cases of other FTAs being under negotiation between countries entering into an FTA for the first time with the TPP 11. Source: Data from each government FTAs which entered into force FTAs will enter into force by the effectuation of TPP 4
Today s contents 1. Japan s activities for FTAs and significance of TPP 11 2. Supply chains in Chile and Asia, and roles of Japanese companies 3.Expectation for TPP 11 by Japanese companies 5
Copyright (C) 2017 JETRO. All rights reserved. Japan s trade structure and TPP 11 ASEAN s high proportion - Regarding trade between Japan and other TPP member countries, ASEAN (Singapore, Brunei, Malaysia and Vietnam) accounts for a high proportion of both exports and imports. Exports to the four countries mentioned above account for 7% of Japan s total exports to the world, and occupy over half of the exports to all other member countries of TPP 11 (with TPP 11 accounting for 12.8% of total exports). Likewise, imports account for 7% of Japan s total imports from the world (with TPP 11 accounting for 16% of total imports). Product CANADA NZ Source: Trade Statistics of Japan Ministry of Finance AUSTRA LIA TPP11 ASEAN TPP4 MEXICO CHILE PERU TPP11 Total ( Unit:% ) TPP11 Newly total Transportation equipment 2.9 0.8 4.2 3.4 2.1 0.5 0.2 14.2 3.7 General machinery 0.7 0.2 1.2 6.0 1.8 0.1 0.1 10.2 1.0 Export Electrical equipment 0.6 0.0 0.4 9.2 1.7 0.0 0.0 11.9 0.6 Chemical products 0.5 0.1 1.0 6.0 0.8 0.2 0.1 8.8 0.6 Steel products 0.6 0.1 0.8 9.9 4.5 0.2 0.2 16.3 0.8 Total 1.3 0.3 2.2 7.0 1.7 0.2 0.1 12.8 1.6 Mineral fuels 0.8 0.0 17.0 7.6 1.2 0.0 0.1 26.8 0.8 Machinery and equipment 0.4 0.0 0.1 7.0 1.1 0.0 0.0 8.6 0.4 Import Chemical products 1.0 0.3 0.5 6.6 0.3 0.2 0.0 8.9 1.3 Foods 4.0 2.1 6.1 4.0 1.7 2.6 0.3 20.8 6.1 Textile products 0.1 0.0 0.1 11.2 0.1 0.0 0.1 11.7 0.1 Total 1.5 0.4 5.0 7.0 0.9 0.9 0.2 16.0 1.9 Two way trade 1.4 0.4 3.6 7.0 1.3 0.6 0.2 14.4 1.8 6
Increase of investment from Japan to ASEAN As of June 2017, there are a total of 3,114 Japanese companies in the four ASEAN countries of TPP 11. (The membership of "Camara Chileno Japonesa" is 76.) FDI from Japan CHINA BRUNEI INDONESIA MALAYSIA SINGAPORE PHILIPPINES THAILAND CAMBODIA LAOS MYANMAR VIETNAM Left: FDI to China from Japan Right: FDI to ASEAN from Japan CHINA Unit:1b USD INDONESIA MALAYSIA Membership of Japanese chambers of commerce and industry Country Jun. 15 Jun. 16 Jun. 17 THAILAND 1,624 1,716 1,749 VIETNAM 1,463 1,562 1,683 SINGAPORE 832 854 854 PHILIPPINES 745 776 805 SINGAPORE INDONESIA 743 786 773 PHILIPPINES THAILAND MEKONG Note: New criteria has been applied to the Balance of Payments Statistics since 2014. Please be aware that this results in a lack of continuity with data from 2013 and before. The data for Brunei, Cambodia, Laos and Myanmar in 2015 was as of the third quarter. Source: Bank of Japan and other organizations. MALAYSIA 607 610 574 MYANMAR 239 310 351 CAMBODIA 192 218 245 LAOS 77 79 93 BRUNEI 3 3 3 Total 6,525 6,914 7,130 Source: Japanese Chambers of Commerce and Industry in ASEAN 7
Potential to expand trade between Chile and ASEAN members While Chile and the four ASEAN countries of TPP 11 have already concluded FTAs, the trade share is small. Statistics of bilateral trade with TPP 11 member countries (2016) Partner Country Presence of bilateral FTA (Unit: 1m USD, %) Export Import Trade balance USD Share USD Share USD Export items from Chile Items imported by Chile Refined petroleum products, Motor vehicles US 〇 8,160 13.2 9,433 16.6 1,273 Copper, Fish fillets CANADA 〇 958 1.5 604 1.1 354 Copper, Gold Wheat, coal MEXICO 〇 1,216 2.0 1,890 3.3 674 Chickens, Fish fillets Television receivers, Motor cars Miscellaneous Edible PERU 〇 1,480 2.4 947 1.7 533 Preparations, Frozen fish JAPAN 〇 5,035 8.1 1,578 2.8 3,457 Copper, Frozen fish SINGAPORE 〇 79 0.1 64 0.1 15 Iodine, Frozen fish MALAYSIA 〇 106 0.2 184 0.3 78 Copper, Slag VIETNAM 〇 201 0.3 603 1.1 402 Copper, Sawn wood Copper, Molybdenum ores Motor cars, Refined petroleum products Pharmaceutical products, Tugs And Pusher Craft Vessels Apparel articles and accessories, Furniture and parts thereof Electrical Apparatus For Line Telephony Or Line Telegraphy, Footwear BRUNEI 〇 0 0.0 0 0.0 0 - - AUSTRALIA 〇 328 0.5 355 0.6 27 Copper, Frozen fruit & nuts coal, Paper NZ 〇 77 0.1 90 0.2 13 Wood pulp, Fruit & nuts Cheese, Butter 11 countries total - 17,640 28.4 15,748 27.6 1,892 - - 10 countries total 9,480 15.3 6,315 11 3,165 World - 62,042 100.0 56,964 100.0 5,078 - - Note: Data on the amount and balance of bilateral trade is based on the statistics of Chile. The component ratio for each country is the percentage of Chile s total trade with the world represented by that country. Source: Statistics from Chilean customs 8
Optimal strategies along with full accumulation system through TPP 11 In the rules of origin of the TPP 11, a full accumulation system is adopted with the potential to increase added value and production processes throughout the entire TPP 11 region. This system enables Japanese companies to realize optimal strategies for production allocation and site location for various production networks. Example: In the case that the rules of origin require 45% or more added value. (Figures and pictures are samples.) Japan A country outside of TPP Core component with 25% added value Country A within TPP11 域内国 A TPP 11 Assembly of refrigerator with 20% added value Preferential tariff of TPP 11 Export Country B within TPP11 域内国 B TPP 11 Finished product General parts If no accumulation rule is applied, because the value contributed by Country A within the TPP is only 20%, it is unable to fulfill the 45% required by the rules of origin. But with the accumulation system, the 25% value added by Japan can be added to the 20% of Country A, enabling it to meet the 45% value added requirement to be considered a local product. 9
Full accumulation through TPP 11 and future supply chains - There is room for Japanese companies active in ASEAN to expand supply chains to Latin America (Chile and Peru). - Japanese companies can play an active role in establishing supply chains with the Asia-Pacific region which Chile hopes to build. Vertical integration (Supply chains between parent companies and subsidiaries) High density JAPAN SINGAPORE VIETNAM MALAYSIA Low density CHILE Source: IDB(Juan Blyde, Lead Trade Economist of the Inter- Americas Development Bank) (http://voxeu.org/article/latin-americas-missing-global-value-chains) 10
Today s contents 1. Japan s activities for FTAs and significance of TPP 11 2. Supply chains in Chile and Asia, and roles of Japanese companies 3.Expectation for TPP 11 by Japanese companies 11
Improving access of Japanese products to the Chilean market Among products which were decided in an EPA between Chile and Japan to be excluded from liberalization or gradually liberalized over 15 years, tariffs will be eliminated just after the entry into force of the TPP 11 for a number. This is a chance for Japanese manufacturers to look at Chile anew. Examples of products which were excluded from liberalization or to be gradually eliminated over 15 years Chilean import tariffs of products from Japan HS code Product Basic tariff (%) Current rate Japan-Chile EPA (%) TPP11 Tariff rate (%) 1 st yr. 2 nd yr. 3 rd yr. 4 th yr. 5 th yr. 6 th yr. Import from Japan(2016) : 1,000 USD) 2501.00.40 Pure sodium chloride 6.0 6.0 0.0 0 2523.30 Aluminous cement 6.0 1.5 0.0 0 3822.00 Diagnostic or laboratory reagents on a backing, prepared diagnostic or laboratory reagents whether or not on a backing Retreaded or used pneumatic tyres of 40.12 rubber,etc Plywood and laminated wood 4412.99.00 -coniferous 6.0 6.0 0.0 3,015 6.0 1.5 0.0 0 6.0 6.0 0.0 0 4419.11.00 Tableware and kitchenware, of wood 6.0 1.5 0.0 0.3 5002.00 Raw silk 6.0 6.0 0.0 0 7608.10.00 7608.20.00 7610.10.00 Aluminium tubes and pipes 6.0 6.0 0.0 5.7 Aluminium structures(windows and their frames, etc)and parts of structures 6.0 6.0 0.0 0 Reference: Tariff elimination schedule of "B15" category of the Japan-Chile EPA.1.5 1.1 0.8 0.4 0.0 0.0 - Note: It is assumed that the CPTPP will enter into force in April 2019. The import value from Japan is as of 2016. The products (X) of which the current tariff on import from Japan set in the Japan-Chile EPA is 6% are excluded from liberalization, and that of 1.5% is categorized in "B15." Source: The Japan-Chile EPA and articles of the TPP 12
Example: Comparison of the rules of origin by product - Even for the same products, the rules of origin differ depending on the agreement. - Companies are allowed to select the most beneficial rule. - As seen below, the TPP 11 will allow some products, such as parts of copy machines and medical equipment, to more easily fulfill the conditions of rules of origin. Example HS code Product Criteria of the rules of origin of the Japan-Chile EPA Criteria of the rules of origin of the TPP 11 8443.99 Parts of copy machines The product can meet criteria by adding value using materials other than those in HS code 8443 and changing the product to the code 8443.99 The product can meet the criteria by using materials other than those of HS code 8443.99 and changing the code to 8443.99. Otherwise, the product can fulfill the condition if the local procurement rate reaches 30% (with an accumulation scheme) or 40% (with a deduction scheme). Note: As materials of products of the six digit HS code are more similar to original products than that of the four digit, less processing (added value) is required. 13
Merit (1): Expediting customs clearance (1) Release of Goods (Article 5.10) Each Party shall adopt or maintain procedures that provide for the release of goods within a period no longer than that required to ensure compliance with its customs laws and, to the extent possible, within 48 hours of the arrival of the goods. Based on the data of Doing Business (2018), average time for custom clearance in Chile is 54 hours for import and 60 hours for export. JETRO Business Conditions of Japanese Companies in Chile, released in January 2018. Issues in the field of trade systems Chile(n=37) in CHILE (n=37) Significant time required for customs clearance Complex procedures for customs clearance Inadequate communication and enforcement of notices and rules High import tariffs 2.7 2.7 8.1 13.5 Strict or unclear quarantine system Unclear variation assessment / classification criteria for tariffs Unclear inspection system High non-tariff barriers Export restriction and export tax 2.7 0.0 0.0 0.0 0.0 Other issues 13.5 No particular issues 70.3 (%) 0.0 20.0 40.0 60.0 80.0 100.0 14
Merit (2): Expediting customs clearance (2) Advance Rulings (Article 5.3) Each Party shall issue an advance ruling as expeditiously as possible and in no case later than 150 days after it receives a request to notify the tariff classification, the application of custom valuation criteria and whether a good is originating in accordance with the Rules of Origin. Reference Exporters, importers and producers Confirming the tariff classification as well as original products in advance. Providing necessary information. Notifying as promptly as possible. Issuing it as expeditiously as possible and in no case later than 150 days after receiving a request. Government agency of trade partner country (customs) Survey on actual conditions of the Japan-Chile EPA, released in March 2018 Q: Regarding expanding business in Chile, what issues are you facing in tax and public administration matters, and approvals and permits? When we requested the Chilean customs to notify us of the HS codes of Japanese products we were considering exporting to the country at that time, the customs officials were not aware of the system, and hence we were unable to obtain the information. 15
Other merits Hopes for improving conditions surrounding intellectual property - The TPP obliges member countries to ratify or accede to either of the following agreements: the Madrid Protocol, which defines the international registration of marks stipulating collective application of international trademarks, or the Singapore Treaty, which harmonizes and simplifies the international system of trademark application procedures. (Article 18.7) - While Chile has acceded to neither of them as of now, the country will be able to apply for international trademark registration in the future if it accedes to either. Self certification or certification by a third party - In the Japan-Chile EPA, a third-party certification system is adopted to issue the certificate of origin of products. Designated organizations: the Japan Chamber of Commerce and Industry, and the Chile s Industrial Development Company (SOFOFA) - In the TPP, a self-certification system is adopted. In the case of exporting a number of the same products, it enables exporters to save time and costs (issuance fees by designated organizations). -> In this regard, exporters have to take all measures to ensure compliance with the system such as document management. The reason is that there is the possibility of increased inquiries from the customs of an import country to check whether the submitted report has faults or not. 16
JETRO s report, Business Conditions of Japanese Companies in Chile are available in both Japanese and Spanish. Japanese version: Scan the QR code on the right side and visit the website. Spanish version: Scan the QR code on the right side and visit the website. Thank you very much! Muchas gracias! Disclaimer: The Japan External Trade Organization (JETRO) and the author are neither directly nor indirectly responsible for punitive damages and forfeiture of benefits caused by actions taken based on the contents of this report. Copyright 2018 JETRO. All rights reserved. 禁無断掲載 17