Why Free Trade Agreements Matter?

With a substantial growth of LED market from over years, imagine around 15% of your profit eaten up just to ship your goods to customers around the world.

However, with an expansion of free trade agreements (FTAs) across the world and efficiently utilizing the associated forms, you can put all that dollars paid for duties in your pocket : ka-ching!

Below newsletter will brief on overview of FTAs, benefits you get, how does FTA work, FTAs partners and associated forms.

What is FTA?

A Free Trade Agreement (FTA) is a legally binding agreement cooperated between at least two countries to reduce trade barriers such as import quotas and tariffs facilitate the cross border movement of, goods and services between the territories of the Parties.

What's in it for you?

1. Improve free trade and create stronger ties with trading partners.
2. Enhance market accessibility and business productivity.
3. Strengthen competitiveness and attract foreign investment.

FTA & LED Lighting

Since import duties for components such as drivers, heatsinks and optics which cost around 10% of the total cost of the product are reduced significantly due to FTAs, this allows a huge room to make profits.

Quick Headline: From June 1^st, all GST is eradicated in Malaysia.

How does FTA Improve Price Competitiveness

It is crucial to know that FTA only cuts off the import duties and the other costssuch as local taxes, insurance and freight will still be charged.

How much FTA Reduces

Below three tables brief about how FTA significantly reduces import duties for each LED component one of the main trading zones.

Reference 1 : ACFTA Tariff Reduction Schedule

Reference 2 : AIFTA Tariff Reduction Schedule
Reference 3 : CHAFTA Tariff Reduction Schedule

Types of FTAs

Below represents the list of some FTAs agreed globally.

ASEAN and Free Trade Areas

China and Free Trade Areas

Associated Forms for AFTAs

In order to enjoy FTA benefits, the manufacturer must issue the associated forms to certify that the goods to be imported are manufactured in respective countries that can meet ROO (rules of origin) criteria.

Link1: Form D Template
Link2: Form E Template
Link3: Form AI Template
Link4: Form AJ Template
Link5: AANZFTA Form Template
Link6: AKFTA Form Template
Link7: CHAFTA Form Template
Link8: APTA Form Template

Rules of Origin

Rules of Origin (ROO) helps to represent the origins of where the goods are shipped from. Goods that meet the criteria of ROOs under a free trade agreement scheme can be considered as originating goods and will benefit lower or no import duties when they are shipped into a Party under FTA.

An originating good in an exporting Party can be broadly classified under 2 categories:

1. A good that is Wholly Obtained (WO)

2. A good that is manufactured using non-originating materials

Goods that are produced using non-originating materials will have to go through transformation in a country for the good to be qualified as originating.These include:

1. Change in Tariff Classification (CTC)

To meet this criterion, the final goods must not have the same HS code with the non-originating components. Depending on the FTA requirement, the final goods' HS code must be changed to meet the CTC rule.

2. Regional Value Content (RVC)

This rule requires that a certain percentage of the good’s value originates in a Party to the Free Trade Agreement (FTA) for the good to be considered as originating. A non-originating material with RVC content of less than 40% will not meet the ROO requirement.

3. Process rule

This rule is applicable for chemical goods which are produced through a specific chemical process that occurred in a Party to the Free Trade Agreement will meet ROO requirement.

Below table depicts a common ROO of some FTAs and conditions that can meet ROO for non-originating goods.

Operational Certification Procedures

Operational Certification Procedure covers the procedures to get of Certificates of Origin (COs) issued and verified.

1. Third Country Invoicing (TCI)

TCI refers to the drop shipment invoicing where an invoice that accompanies the Preferential Certificate of Origin (CO) and used for the clearance of goods in the importing Party, is not issued from the exporting Party but from another country who may not necessarily be a Party to the same FTA. In some FTAs, TCI is commonly referred to as Third Party Invoicing.

2. Back-to-Back Certificate of Origin

The back-to-back Preferential Certificate of Origin (CO) is issued by the issuing authorities in the intermediate Free Trade Agreement (FTA) country for re-exports of goods, based on the Preferential CO issued by the first exporting Party. The good is allowed to undergo operations such as bulk breaking and other necessary operations to facilitate the transport without losing its originating status.

However, this is applicable provided there are more than two Parties in the same FTA and that the exporter in the intermediate Party is able to meet all the requirements stipulated under that FTA to be eligible for back-to-back Preferential CO application which can be found here.

FTA Application Process