Interpretation of China-ASEAN Free Trade Area Agreement on Trade in Goods
On November 29th, 2004, the 8th China-ASEAN Leaders’ Meeting was held in Vientiane, Laos. Under the witness of Premier Wen Jiabao and the leaders of the 10 ASEAN countries, the Minister of Commerce and the economic ministers of the 10 ASEAN countries jointly signed the China-ASEAN Framework Agreement on Comprehensive Economic Cooperation and the Agreement on Trade in Goods. On July 20th this year, the tax reduction plan of China-ASEAN Free Trade Area, the core content of the Agreement on Trade in Goods, was fully launched. This marks that the Agreement on Trade in Goods has officially entered the implementation stage, and also marks that the construction process of China-ASEAN Free Trade Area has been fully kicked off. In order to make readers have a more comprehensive understanding of the contents of the Agreement on Trade in Goods, grasp the specific arrangements of the construction process of China-ASEAN Free Trade Area, and make good use of the opportunities that the Free Trade Area will bring, this paper makes a general introduction to the Agreement.
The Agreement on Trade in Goods is a legal document regulating the arrangement of tariff reduction and dealing with non-tariff measures in the trade in goods between China and ASEAN. It has 23 clauses and 3 annexes, mainly including tariff reduction and cancellation, revision of concessions, quantitative restrictions and non-tariff barriers, safeguard measures, accelerated implementation of commitments, general exceptions, security exceptions, institutional arrangements and deliberations.
I. Classification of Free Trade Zone Products
According to the Agreement on Trade in Goods, all products are divided into two categories: normal products and sensitive products, except for the early harvest products with tax reduction arrangements.
In normal products, products are divided into two categories: first-track products and second-track products. What they have in common is that the final tax rate should be zero, but the difference is that the second-track products can enjoy certain flexibility in the time of canceling tariffs. Among the sensitive products, according to the degree of sensitivity, the products are subdivided into general sensitive products and highly sensitive products. What they have in common is that the final tax rate may not be zero, but the difference is that the general sensitive products will reduce their tariffs to a relatively low level after a period of time, while the highly sensitive products will eventually retain relatively high tariffs.
The product classification of China-ASEAN Free Trade Area can be illustrated by the following table:
Second, the tax reduction mode of normal products
The negotiation of goods trade in China-ASEAN Free Trade Area adopts a "negativelist" mode, and all products that are not included in the list of sensitive products are regarded as normal products. Therefore, under the framework of China-ASEAN Free Trade Area, most products are normal products.
The Agreement on Trade in Goods specifies in detail the mode of tariff reduction and elimination for normal products, among which the special and differential treatment for new ASEAN members is an important principle embodied in the Agreement. The main provisions are:
(1) Tax reduction steps: For China and six ASEAN countries (old ASEAN members, namely Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand), the normal products will be reduced in July 2005, and the tariffs will be reduced once on January 1, 2007 and January 1, 2009 respectively, and the tariffs will be finally reduced to zero on January 1, 2010; For the new members of ASEAN (Cambodia, Laos, Myanmar and Vietnam), the tariff will be reduced from July 2005, and the tariff will be reduced on January 1st every year from 2006 to 2009, and the tariff will not be reduced in 2010, and the tariff will be reduced every two years from 2011, and the tariff will be reduced to zero by 2015.
(2) Starting tax rate for tax reduction: The Agreement on Trade in Goods classifies products according to their starting tax rate, and each category follows a certain tax reduction model, and finally the tariff is reduced to zero. Generally speaking, at present, products with higher tax rates have a larger tax reduction rate and a faster rate of reduction, while products with lower tariffs have a smaller tax reduction rate and a slower rate, which can ensure the steady tax reduction of all products. Compared with China and the old ASEAN members, the new ASEAN members have a finer product classification, a more gentle tax reduction, and a longer time from the beginning of tax reduction to the abolition of tariffs.
(III) Normal products on Track 2: The tax reduction mode of normal products on Track 2 is exactly the same as that of normal products on Track 1. The only difference is that when the tariff of normal products on Track 2 is reduced to below 5% according to the tax reduction mode, the tariff can be kept at no more than 5%, and it will be zero later than that of normal products on Track 1. For China and six ASEAN countries, the tariffs on normal products on Track 2 should be abolished on January 1, 2012, and for new ASEAN members, the tariffs on normal products on Track 2 should be abolished on January 1, 2018. However, there are certain restrictions on the number of track two products. The track two products of China and six ASEAN countries shall not exceed 150 six-digit tax items, and the new ASEAN members shall not exceed 250 six-digit tax items.
(four) the specific tax reduction model of normal products in various countries:
1. China and six ASEAN countries.
2. Vietnam
3. Cambodia, Laos and Myanmar
To sum up, the tariffs on track one normal products of China and six ASEAN countries should be abolished on January 1, 2010, and the tariffs on track two normal products should be finally abolished before January 1, 2012. The tariffs on normal products of Track 1 of new ASEAN members should be abolished on January 1, 2015, and the tariffs on normal products of Track 2 should be finally abolished before January 1, 2018.
Tax reduction mode of sensitive products
(I) Types of Sensitive Products Sensitive products are products that need to be protected for the development of domestic industries. It has certain particularity, and it takes a long time to reduce taxes, and the final tax rate cannot be zero, but it should be kept at a certain tariff level. According to the Agreement on Trade in Goods, sensitive products can be divided into general sensitive products and highly sensitive products according to their sensitivity. China put forward a list of sensitive products for the ten ASEAN countries, which is also applicable to the ten countries; Ten ASEAN countries put forward their own lists of sensitive products for China, and the listed sensitive products are only applicable to China.
In China-ASEAN Free Trade Area, each party has put forward different sensitive products according to its own situation. China’s sensitive products mainly include rice, natural rubber, palm oil, some chemicals, digital TV, plates and paper products. ASEAN countries have put forward sensitive products such as rubber products, plastic products, ceramic products, some textiles and clothing, steel products, some household appliances, automobiles and motorcycles.
(II) Upper Limit of Sensitive Products According to the Agreement on Trade in Goods, sensitive products are subject to two indicators, namely, the number of tax items and the import amount. In other words, the number of sensitive products cannot exceed a certain tax item, and the import amount affected by sensitive products of one party cannot exceed a certain proportion of the total import of that party, but the agreement also makes special arrangements for new members of ASEAN. The upper limit of sensitive products in each country is as follows: 1. China and six ASEAN countries: the number shall not exceed 400 (six tax items), and the import value shall not exceed 10% of the total import value (based on the data in 2001).
2. Cambodia, Laos and Myanmar: The number does not exceed 500 (six tax items), and there is no import ceiling.
3. Vietnam: The number shall not exceed 500 (six-digit tax items), and there is no upper limit for import, but Vietnam shall reduce the tariffs on sensitive products to a certain extent within the specified time.
(III) Tax reduction mode of sensitive products Generally, the tax reduction mode of sensitive products is different from that of highly sensitive products. Generally, the final tax rate of sensitive products is lower than that of highly sensitive products because of their low sensitivity, but the number of highly sensitive products is also subject to certain constraints.
1. Tax reduction mode for general sensitive products: (1) China and six ASEAN countries: reduced to 20% on January 1, 2012, and further reduced to below 5% on January 1, 2018.
(2) Cambodia, Laos, Myanmar, and Vietnam: it was reduced to 20% on January 1, 2015, and further reduced to less than 5% on January 1, 2020.
2. Tax reduction mode of highly sensitive products: China and six ASEAN countries should reduce the tariff of highly sensitive products to less than 50% on January 1, 2015, but the number of highly sensitive products should not exceed 100 six-digit tax items.
The new ASEAN members should reduce the tariffs on highly sensitive products to less than 50% on January 1, 2018, but the number of highly sensitive products in Vietnam should not exceed 150 six-digit tariff items, and Cambodia, Laos and Myanmar should not exceed 150 six-digit tariff items.
Rules of origin
Rules of origin are the yardstick to determine the "identity" of products. The rules of origin of China-ASEAN Free Trade Area are based on "value-added standards". According to the Agreement on Trade in Goods, if the value-added of local processing of a product is not less than 40% of the total value of the product, the product can be considered as a product originating from China-ASEAN Free Trade Area and enjoy the preferential tax rate of the free trade area in import and export trade. Because the early harvest products are mainly agricultural products, the criterion of "complete acquisition" is basically adopted. A few products with special circumstances, such as textiles and wool products, adopt other methods of origin determination, such as processing procedures and tax number change.
At present, the certificate of origin of China-ASEAN Free Trade Area uses FormE, which is different from the format of WTO certificate of origin. In China, it is issued by the General Administration of Quality Supervision, Inspection and Quarantine and local inspection and quarantine departments. With this certificate, you can enjoy the preferential tariffs of China-ASEAN Free Trade Area at customs clearance.
safeguard measure
Trade remedy measures are the "safety valves" of import and export trade, mainly including anti-dumping, countervailing and safeguard measures. The Agreement on Trade in Goods stipulates that the anti-dumping and countervailing measures of China-ASEAN Free Trade Area shall be subject to the relevant provisions of WTO. However, in terms of safeguard measures, in order to ensure that their domestic industries are not seriously affected, the agreement stipulates safeguard measures for the free trade zone, allowing all parties to adopt them when necessary.
The main content of safeguard measures in China-ASEAN Free Trade Area is that when the domestic production department of a product suffers substantial damage or threat of material injury due to the surge of imports from within China-ASEAN Free Trade Area, a contracting party may initiate safeguard measures and raise tariffs on products from China-ASEAN Free Trade Area. However, in order to avoid abuse of safeguards, the agreement also stipulates the restrictive conditions for each party to use safeguards. First, as far as specific products are concerned, the time limit for the use of safeguard measures is within five years from the date when the product starts to reduce taxes to the date when the product reduces taxes; Second, one implementation period shall not exceed three years, and the extension period shall not exceed one year; Third, the tariff rate for implementing safeguard measures shall not be higher than the MFN tariff rate for this product when taking safeguard measures; Fourthly, FTZ safeguard measures should not be used at the same time as WTO safeguard measures. The formulation of these rules, on the one hand, ensures the right of members to use safeguard measures, on the other hand, maintains the normal trade order.
Quantitative restrictions and non-tariff barriers
According to the Agreement on Trade in Goods, each contracting party should not keep any quantitative restrictions, and non-WTO contracting parties should gradually lift their quantitative restrictions. At the same time, all parties should determine their remaining non-tariff barriers as soon as possible and gradually abolish them. This provision is of great significance to effectively ensure the degree of self-ownership of China-ASEAN Free Trade Area.
Recognize China’s market economy status
In Article 14 of the Agreement on Trade in Goods, the ten ASEAN countries explicitly recognized that China is a complete market economy, and promised not to apply Articles 15 (anti-dumping substitute pricing clause) and 16 (special safeguard measures clause) of the Protocol on People’s Republic of China (PRC)’s accession to the World Trade Organization and paragraph 242 (special textile safeguard clause) of the Report of the Working Party on China’s accession to the World Trade Organization to China. This provision is of special significance to China, which not only strives for a fair and just trade competition environment for Chinese enterprises in the free trade zone, but also plays a good exemplary role in promoting other countries in the world to recognize China’s market economy status.
Other issues
The Agreement on Trade in Goods stipulates that all parties shall abide by the relevant provisions of the WTO in terms of technical barriers to trade, sanitary and phytosanitary measures and intellectual property agreements. The provisions of WTO multilateral trade in goods that are not specifically mentioned or amended in other agreements shall be applicable to China-ASEAN Free Trade Area after being amended. The agreement also provides for transparency standards, accelerated tax reduction arrangements, general exceptions, security exceptions, and related procedures and institutional arrangements.
The Agreement on Trade in Goods is a landmark agreement between China and ASEAN. Its achievement and implementation laid the foundation and paved the way for the comprehensive construction of China-ASEAN Free Trade Area. We should fully understand this agreement, seize the new opportunities arising from the FTA, and make new efforts to deepen and develop mutually beneficial and win-win cooperation with ASEAN countries.
(Editor: Fan Wei Source: International Business Daily China ASEAN Business Weekly Reporter: Shang Guofan)