The ASEAN Trade in Goods Agreement (ATIGA): Local Content Requirements

By Dezan Shira & Associates

Posted: 17th March 2016 10:12

In light of significant reductions in tariffs between ASEAN members and the steady harmonization of regulation through the ASEAN Economic Community, regionally oriented value chains have risen significantly in terms of profitability. For those considering investments of this nature, it’s important to understand not only the tariff reduction schedules that have been negotiated, but more importantly, the conditions under which exports and imports may benefit from reduced rates.
 
Within the vast majority of trade agreements, rules of origin are included to prevent third parties from freeriding on the sacrifices made by those party to the agreements. These rules set out who may qualify for benefits of a given agreement and under which circumstances these parties may do so.
 
The ASEAN Trade in Goods Agreement (ATIGA)
 
Currently, the ASEAN Trade in Goods Agreement (ATIGA) – ASEAN’s primary agreement concerning the reduction of regional tariffs – contains a set of criteria used to determine the country of origin of a good as well as guidelines to determine if specific goods are eligible to benefit from preferential tariff treatment.
 
Guidelines established under ATIGA utilize the Harmonized System (HS) of Tariff Classification as a means of clarifying the differences between goods and setting out standards that certain goods must meet. Under the HS system products are divided into:
 
Origin Criteria
 
Under the ATIGA, goods classified as “originating” are qualified to receive the benefits of tariff reductions. The agreement indicates that a good imported into the territory of a Member State from another Member State shall be treated as an originating good if it is wholly obtained or in compliance with requirements set out for goods that are not wholly obtained.
 
1) Wholly Obtained or Produced Goods
 
The following shall be considered as wholly obtained or produced in the exporting Member State:
2) Not Wholly Obtained or Produced Goods
 
Provided that a good isn’t part of ATIGA’s list of 2000 goods with specific requirements, exporters and manufacturers have the option to apply either the regional value content criterion or the change in tariff classification criterion:
 
According to ATIGA, goods shall be deemed originating in the Member State where working or processing of the goods has taken place. This is determined by meeting at least one of the following conditions:
 
        i.            if the goods have a regional value content of not less than 40% – determined using one of the two methods outlined in the infographic below.
      ii.            if all non-originating materials used in the production of the goods have undergone a change in tariff classification at four-digit level (HS header) – see introduction for more information.
 
Cumulation
 
Within ATIGA, the concept of cumulation is applied to the agreement’s rules of origin. Generally speaking, this concept allows countries party to a trade agreement to share production and jointly comply with the relevant rules of origin provisions. For producers within ASEAN, this concept allows materials to be sourced from all ASEAN member states without forgoing tariff reductions. 
 
De Minimis
 
The de minimis principle allows goods which have non-originating materials and are unable to meet their relevant change in tariff classification requirements to enjoy preferential tariff treatment given special conditions.  Certain goods can be considered originating under the ATIGA if:
 
Further Support from Dezan Shira and Associates
 
With the AEC launched and harmonization of regional standards growing, the importance of regional supply chains cannot be overstated. Continued progress towards regional integration is likely to continue these trends, further reducing barriers to trade and decreasing the impact of regulatory compliance for firms throughout the region. Although ASEAN’s prospects are bright, success will ultimately hinge on the ability of entrants to understand and leverage opportunities within agreements such as the ASEAN Trade in Goods Agreement. Employing qualified professionals with years of experience in market entry and corporate establishment, Dezan Shira & Associates is perfectly positioned to assist companies in their efforts to maximize operations and expand throughout the region. 
 
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
 
For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com

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