How to Reap the Benefits of Asian Free Trade Agreements
Asian governments began developing bilateral free trade agreements (FTA) in addition to region-based multilateral agreements in 2000. These bilateral agreements were viewed as easier to negotiate and provided a quicker way to open up new export markets. The growth of bilateral FTAs in this region has led to what many economists refer to as the "noodle bowl problem." Rather than having an integrated set of trade rules applicable to the various governments, the region is complicated by dozens of bilateral agreements that are often inconsistent.
These squiggly lines connecting trade agreements result in a variety of tariff rules and administrative processes. This makes it more difficult for companies to manage the compliance requirements so they can take full advantage of FTAs within the Asian region.
In 1992, The Association of Southeast Asian Nations (ASEAN) established a trading agreement known as the ASEAN Free Trade Area (AFTA). The original members were comprised of Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand. Vietnam, Laos, Myanmar and Cambodia all joined throughout the remainder of the 1990s.
AFTA delivers a competitive edge for importers and manufacturers within these countries through tariff reductions and relaxed trade requirements. Benefits include reduced importer costs, improved customs clearance times, less complicated trade procedures, and increased access to a wide range of products eligible for preferential treatment. However, AFTA doesn’t make trade less complex. Complexities exist as each ASEAN member still administers AFTA through their own national trade authorities and agencies. This places a burden on companies as they seek to meet each respective country’s declaration and qualification requirements.
Asian FTA procedures differ from others. Taking NAFTA as an example, which allows self-certification where the exporter issues the preferential certificate valid up to one year, and importers claim preference using the ‘blanket certificate’ for multiple shipments until such certificates are valid. In contrast, Asian FTAs have more pre-shipment compliance requiring companies to obtain a Certificate of Origin from the exporting country agency to achieve duty savings. As a side note: counterfeit government-issued certificates of origin have become a significant global trade issue. Actions have been taken to inhibit this practice including the addition of linear bar codes and online platforms to validate authenticity.
Software technology solutions are transforming the ability of companies to manage and track the multiple factors and various data required to take advantage of Asian FTAs. To comprehensively address the challenges, companies should equip their supply chain and global trade professionals with software solutions that address the following elements:
- Automate the BOM analysis and qualification
- Fully manage certificates of origin by linking them with products
- Accurately calculate, submit and store manufacturers’ cost statements to better meet qualification requirements
- Efficiently collect and summarize supplier information to support preferential claims
- Analyze product, supplier and import/export activity to identify potential FTAs available
The benefits can be significant. With the right software solution, importers and exporters can address the complexities of managing Asian FTAs resulting in the following benefits:
- Boost duty and tax savings
- Increase process efficiency
- Ensure all country-specific compliance requirements are met
- Maximize duty savings
- Reduce manually intensive processes
More and more companies are realizing the benefits of fully managing eligible FTAs within the Asian region. Executives are becoming more familiar with the significant cost savings that can result and are directing supply chain and trade staff to realize the benefits preferential trade can have on the company’s bottom line and global supply chain performance.
Global Trade Management (GTM) solutions play a key role in providing the deep expertise and software solutions required to meet the regulations mandated by Asian bilateral and multilateral agreements. By efficiently addressing pre-shipment and other requirements unique to Asian FTAs, your global supply chain can reduce the administrative burden, obtain preferential duty rates and improve the flow of goods across Asian borders.