China Free Trade Agreement to commence on 20 December 2015

The Free Trade Agreement between Australia and China will commence on 20 December bringing with it an immediate round of tariff cuts and a further round of cuts on 1 January 2016. With only few days’ notice of commencement, importers and exporters need to act quickly to prepare.

 WHAT GOODS WILL QUALIFY?

The benefits of the FTA will not apply automatically. Importers looking to claim the benefit of the FTA can only do so if the goods meet the rules of origin and the applicable paperwork is held. For most importers this will be a certificate of origin issued by an authorised body (see below authorised bodies listing) OR a ruling has been obtained from the Customs Authority of the importing country, along with a self-certified declaration of origin provided by the exporter in place of a certificate of origin.

Certificates of Origin – Authorised issuing bodies

Chinese Authorities will be able to issue Certificates of Origin [COO]:

•             AQSIQ (General Administration of Quality Supervision, Inspection and Quarantine) where the actual certificates will be issued by provincial Entry-Exit Inspection and Quarantine Bureaus, which are administered by AQSIQ; and

•             CCPIT (China Council for the Promotion of International Trade: (China Council for the Promotion of International Trade).

Australia's authorised bodies are:

•             the Australian Chamber of Commerce and Industry;

•             the Australian Industry Group and affiliated bodies; and

•             the Australian Grape and Wine Authority.

(COOs will not be issued prior to the commencement date of CHAFTA)

WHAT IF I DON’T HAVE A CERTIFICATE OF ORIGIN?

Certificates of origin will not be issued until after the FTA commences. Further, there will be goods already on the water for which no certificate of origin is held. If those goods arrive on or after 20 December the goods can be entered and duty paid, with the importer having 6 months to retrospectively obtain a certificate of origin. Once the certificate is held, a refund can be claimed.

For goods that arrive prior to 20 December whether the FTA potentially applies will depend on whether an import declaration had already been lodged, whether the goods are warehoused until 20 December and whether the Customs Authority considers that warehousing of goods prior to clearance means the goods are in the process of being transported.

If the arrival of the goods will be close to 1 January, importers should consider delaying the lodgement of an import declaration and clearance of the goods until after 1 January. Delaying clearance until after 1 January will mean that goods will benefit from the second round of tariff reductions. Of course this is only relevant if the duty rate wasn't reduced to zero on implementation.

Declaration of Origin

Alternatively, an exporter or producer may choose to complete a Declaration of Origin (DOO). A DOO may be accepted in place of a COO for goods covered by an advance ruling on origin. More information about advance rulings please speak to Seabridge.

A DOO must be based on a template set out in Annex 3-B of ChAFTA. Using a DOO is a form of self-certification and does not require the DOO to be issued by an authorised body. DOOs apply to a single shipment and remain valid for one year.

20 DECEMBER IS DAYS AWAY – WHAT TO DO NOW?

If you haven’t already done so, there are some preliminary steps that need to be taken:

Assess how the FTA affects your goods – Are the duty saving significant enough to invest time into ensuring the FTA is utilised? Generally the savings on imports into Australia will be a maximum of 5%. Imports into China may have duty savings in excess of 20%.

If it makes commercial sense, determine whether your goods qualify for the reduced rate. FTAs are underutilised because the qualification rules are difficult. However, with a proactive holistic approach, the challenges of FTAs can be overcome.

Speak to your supplier (for importers) or customer (for exporters) about the FTA. Will your suppliers be able to provide a certificate of origin? Will your customers actually claim the FTA if you go to the effort of obtaining a certificate of origin?

Appoint someone in your organisation to be responsible for your organisation’s use of FTAs. Utilisation of FTAs is much higher for organisations where there is someone managing FTAs. Use of FTAs requires input from accounting, legal and logistics. This approach needs to be managed as high FTA use will not happen by accident

It is crucial that traders take FTA use seriously. Issues such as tariff concessions are often seen as merely operational matters. However, failure to properly manage FTA use can result in either a loss of competitive advantage, or more alarmingly, customs non-compliance.

Seabridge is experienced at helping importers and exporters manage the challenges of international trade, including FTA use. Please contact us if you need assistance with how the Australia China FTA affects your organisation.

 

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