Maximising the benefits of FTAs in Asia

Report
Maximising the benefits of
FTAs in Asia
Asia Pacific Tax Centre
November 2012
Agenda
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Recap on FTAs & key features
New Zealand’s FTA coverage + insight on CN & ASEAN
Progressive FTA benefits
Optimising value from FTAs
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Identifying benefits and “quick wins”
Progressive benefits - interaction with supply chain optimisation
Supply chain impact: examples
Lessons learned
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Strategic sourcing, realignment of substance
Maximising the benefits of FTAs in Asia
Focus of today’s session
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Key aims:
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Evaluate how FTA benefits can be claimed
Explain the impact of FTAs through the supply chain
Evaluate opportunities to maximise FTA benefits
Examine opportunities to add incremental benefits
Key learning:
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Page 3
How reviewing FTA claims in conjunction with supply chain
planning can drive optimal value
Maximising the benefits of FTAs in Asia
Key features of FTAs in general
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General features of FTAs include:
Feature
Summary considerations
Impact
Rules of
Origin
►ROO
must be met to claim preferential duty rates – in general:
►“Wholly obtained” (resources) or “substantial transformation” (manufactures)
►“Substantial transformation” if transformed into new good by manufacturer –
►(1) Value Added Rule (2) Change in Tariff Classification (3) Process Rule
►Accumulation principle important in multi-stage value chain
High
Admin
issues
►Significant
– main requirement often is obtaining certificate of origin (COO)
►COO is issued by authority of exporter but benefits borne by importer
►Generally, must prove compliance with ROO to obtain
High
Direct
shipment
►Generally,
delivery must be direct between member countries to obtain benefit
►Transit allowed in some cases
Med
Third
country
invoicing
►Goods
Med
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shipped between two Members, but invoiced through a third country
►Most FTAs do not prohibit this, but “silence” risks prevention of FTA benefits
Maximising the benefits of FTAs in Asia
Summary of key New Zealand FTAs
And a comparison between ASEAN-China
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Key features of New Zealand’s key FTAs are as follows:
ANZ-ASEAN
NZ-China
ASEAN-China
ROO
(differs
per
product)
►Accumulation
principle
►Co-equal approach (tariff
change or value add w.
40% FOB threshold)
►Reduced red tape
►Transit allowed
►Accumulation
principle
►Tariff change or value add
w. 40% FOB threshold
►Reduced red tape
►Transit allowed
►Accumulation
Admin
►COO,
►COO
►COO
simplified procedure
(but not on CN
principle
►Tariff change or value add
w. 40% FOB threshold
►Reduced red tape
►Transit allowed
import)
Benefits
►Accumulation
principle
►Eliminates 90% of tariffs
►Liberalised trade / access
►Investor protection
►Facilitate goods movement
►Eliminates
96% of tariffs to
2019, inc. key exports
►Increased cooperation
►Investor protection
►Liberalised trade/access
►“Normal”
Overall
►High
►Medium/High
►Medium
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benefit
benefit
Maximising the benefits of FTAs in Asia
vs. “sensitive”
►Normal duties almost
eliminated
►Liberalised services trade
►Greater investor protection
benefit
Optimising FTA benefits through the supply
chain – three tiers
1. Quick wins
1
Claim FTA benefits
2/3. Supply chain restructuring
2
Strategic sourcing
3
Supply chain
optimisation
Benefit
Map FTA benefits
with current flows
to claim FTA
benefits
Map potential FTA
benefit with
strategic sourcing
opportunities
Restructure supply
chain to optimise
FTA, tax and
operational
benefits
Complexity and implementation challenges
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Maximising the benefits of FTAs in Asia
1. Quick wins - claiming existing benefits
Mapping supply chain flows and claiming FTA benefits
5-point process to evaluate, apply and obtain strategic FTA benefits:
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1.
2.
3.
Identify FTA coverage based on current supply chain product flows
Ascertain overlaps between FTAs for these flows
Evaluate the respective benefits of the FTAs, including overlaps (see table below)
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4.
5.
Including duty, market access, relaxed ROO / qualification, reduced admin (may conflict)
Make application
Ongoing management/administration of the process
Multilateral and bilateral agreements with ASEAN
SG
TH
MY
Bru.
ID
PH
VN
CM
LA
MM
AU
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
AANZ
TPP
TPP
TPP
BL
BL
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TPP
BL
AANZ: ASEAN:
TPP:
BL / SP:
TPP
BL
Australia & New Zealand FTA
Trans Pacific Partnership
Bilateral
Maximising the benefits of FTAs in Asia
US
CN
TPP
Peru
Chile
TPP
TPP
BL
Bilateral only
for CN
1. Quick wins – other concerns
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Examples in evaluating the benefit include:
Question
Summary considerations
If multiple FTAs,
which to claim?
1.
2.
3.
Concerns outside
of duty rates
1.
2.
3.
Services or
investment flows
1.
Other
provisions?
•
►
2.
Differs based on type of product, service or investment flow
E.g. bilateral tariffs may be lower than ASEAN-ANZ for NZ exports to ASEAN
Not only the tariff is important: must evaluate whole package
Variance of ROO between parties, self-declaration
Special measures for certain products (e.g. textiles, clothing, agriculture)
The existence or removal under the FTA for non-tariff barriers
“Negative list” under the TPP – beneficial for services
…but no investment chapter in TPP
Competition policy, IP considerations – NZ FTAs affirm multilateral obligations
in this area
But challenges remain:
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Complexity of ROO requirements, admin process and duration for COO
Full awareness of benefits available
Maximising the benefits of FTAs in Asia
2. Opportunities through supply chain
restructuring
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Assuming claims are both possible and feasible:
1.
2.
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Could the product flow or supply chain footprint be changed to maximise FTA
benefits?
How may FTA benefits be enhanced by operational and tax savings?
Two major opportunities to enhance existing potential FTA benefits
1. Strategic sourcing
2. TESCM planning
Concept
1.
Evaluate alternative raw material
supplies to maximise FTA benefits
1.
Full supply chain restructuring including
FTA benefit optimisation
Applies
1.
All NZ importers / exporters
1.
All companies – discrete or full scale
Process
1.
Spend and FTA analysis, full cost /
benefit evaluation and implementation
1.
5-stage process: opportunity assessment,
feasibility, design, implementation, sustain
Example
1.
NZ importer of raw materials
Sources currently from Europe at 10%
Changes to MY, claims treaty benefits
Reduces duty to 0% for this product
1.
NZ domestic value chain, goods exporter
Sets up MY manufacturing, procurement
FTA benefits claimable on purchase/sale
Tax/operational benefits added
2.
3.
4.
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2.
3.
4.
Maximising the benefits of FTAs in Asia
2. Strategic sourcing process
Identify savings opportunities
Strategic
sourcing
1.
2.
3.
4.
5.
Undertake full spend analysis
Identify quick wins
Select priorities
Benchmarking
Blueprint
Recommend
ways to
Full evaluation
6. Supplier selection
Realise
savings
7. Final analysis
Realise savings
8.
Negotiate per blueprint
Realise
9. Claimsavings
FTA benefits
Project enablers
Analysis
Definition
Transition
Examples where strategic sourcing may apply:
A. Import of raw materials to NZ manufacturing site
B. NZ co with ASEAN or CN manufacturing presence, buy/sell from region
C. NZ co with ASEAN or CN manufacturing presence, buy/sell from NZ (NZ materials export)
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Maximising the benefits of FTAs in Asia
2. Option A – changing the source of imported
materials
1.
1
NZ co with domestic
manufacturing, source
overseas & import to NZ
1.
Goods for import currently
sourced from EU
2.
Evaluation of potential suppliers
undertaken
1.
EU
2.
3.
Product characteristics / quality
Benchmark costs
FTA benefits mapped indicate
overall cost advantages,
1.
2.
Net of quality and FTA benefits
Full costs included in review
New flow
Existing Flow
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Key
Plants
R&D
Maximising the benefits of FTAs in Asia
Distribution
Sales
HQ
2. Option B – changing the source of imported
materials to overseas location
1.
2
NZ co with ASEAN or CN
manufacturing presence,
buy/sell from region
1.
Goods for import currently
sourced from EU
2.
Similar to A, evaluation of
potential suppliers undertaken
1.
EU
2.
3.
3.
Product characteristics / quality
Benchmark costs
FTA benefits potential
Net cost benefits, as before
1.
2.
Differing FTA arrangements
Origin rules on further
manufacturing & supply key
Future flow
Existing flow
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Key
Plants
R&D
Maximising the benefits of FTAs in Asia
Distribution
Sales
HQ
2. Option C – increased export opportunities for
NZ companies
1.
3
Independent co with
ASEAN manufacturing,
buy/sell from NZ
1.
Goods for import currently
sourced from EU
2.
Opportunities for NZ exporters
to maximise access to ASEAN
1.
EU
3.
Importer can also benefit from
reduced duty, accumulation rule
Net cost benefits, as before
1.
2.
Note admin requirements for NZ
exporter, but benefit in importer
Main benefit to exporter is increased
scale through access
Future flow
Existing flow
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Key
Plants
R&D
Maximising the benefits of FTAs in Asia
Distribution
Sales
HQ
3. Case study (1/3): incremental benefits through
supply chain planning
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Supply chain planning can drive
incremental benefits on FTAs
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1.NZ co with MY manufacturing presence, SG
buy/sell procurement in a “Supply Chain
Principal”
Operational benefits through more effective
operating model
Tax benefits through incentives, substance
Fact pattern:
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Procurement operations converted to
centralised model (in Singapore)
Manufacturing in MY converted to contract
Entails functional shift to SG site
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Demand aggregation
Supplier identification
Negotiation, potentially contracting
Supplier management
Supply chain planning, manufacturing strategy
Inventory ownership, management
Maximising the benefits of FTAs in Asia
Sourcing
Sale to manufacturer
Sale to customers
Accumulation benefit on sale of
processed goods from MY
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Export still qualifies for ANZ-ASEAN
FTA preference – 0% duty
Medium
► Supplier identif ication
► Demand
aggregation
and
f ramework agreements
► Supplier management
and development
Sourcing
company
4.
5.
Goods to not enter SG, but 3rd
country invoicing allowed
Tax incentives on centralised
procurement in SG and
manufacturing functions in MY
Import and
export
company
Full Principal
with intellectual
property
Sales and
marketing
Principal
Plus
► Sales and
marketing strategy
► Pricing policies
Plus
► Logistics management
► Import and export
processing
► Freight f orwarding
Service
company
Business impact
High
►Must
carefully review differences in
ROO / accumulation of benefits
►Careful
planning essential: switch
sale/trade may be insufficient to claim
ROO in other examples
Further operational benefits
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Plus
► Brand management
Supply chain
management
company
► Contracting
Low
3.
Plus
► Supply chain planning
► Inventory ownership
and management
► Manuf acturing strategy
► Research and
development strategy
► Negotiation
Low
2.
FTA benefits claimable on
import of raw materials to
manufacturer – 0% duty
Benefit
1.
High
2. Case study (2/3): key features and benefits
Maximising the benefits of FTAs in Asia
Case study (3/3): tax incentives – further adding
to the potential benefits
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Centralised procurement and manufacturing operations in ASEAN
country (Singapore in this example)
Incremental tax benefits, adding to FTA and operational benefits,
through tax incentives
Including Singapore, example incentives include:
Singapore
Thailand
► Board
Incentive type
► IHQ
or RHQ (DEI incentive)
► Global
Trader Program
of Investment (BOI)
inc.
► International
Procurement
centre
► Tax
Typical benefits
rate potentially to below
5%
► Up
to 10 years (5 + 5)
► Spend,
Conditions
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headcount,
functions, product, industry,
etc
► Potential
tax exemptions
(BOI)
► 15%
tax rate (IPC)
► 200%
R&D deductions
► Location,
spend, turnover,
and other criteria
Maximising the benefits of FTAs in Asia
Malaysia
► Pioneer
status
► Investment
tax allowance
ITA
► Partial
or full tax exemption
(Pioneer)
► Enhanced
tax allowance
(ITA)
► Up
to 10 years
► Product,
industry, spend,
technology
Key lessons learned
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FTA benefits can be extensive, if claimed
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These benefits can be enhanced by tax and operationally effective
supply chain planning
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Strategic sourcing in a centralised procurement entity is one example
of this:
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There are several others
Care should be taken to analyse ROO, admin requirements and other
key factors:
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Common experience is that admin burden is extensive and the rules are
complex
Maximising the benefits of FTAs in Asia
Questions
Page 18
Maximising the benefits of FTAs in Asia
Thank you

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