Keywords: Free Trade Agreement, regulatory, trade developments,

Mayer Brown Consulting, based in Asia, is pleased to bring you the latest Asia Trade Update for January–February 2015. This Newsletter contains Free Trade Agreement, regulatory and trade developments around the region.

FREE TRADE AGREEMENT DEVELOPMENTS

Indonesia Considering Termination Of Japan-Indonesia EPA

Indonesia is reviewing its bilateral trade agreement with Japan, the Japan-Indonesia Economic Partnership Agreement ("JIEPA"). The government is concerned that the JIEPA has resulted in the growing trade imbalance with Japan. It claims that Japan's inconsistent realization of their commitments, particularly in terms of open market access for Indonesia's priority sectors, and the lack of technology transfer which is an essential part of Japan's JIEPA commitment, are major contributing factors.

The Industrial International Cooperation of the Ministry of Industry ("KII-MOI") highlighted three possible options that Indonesia may take with regard to the JIEPA:

  • Indonesia could undertake a general review and propose to suspend its commitments under the JIEPA. At the ministerial level, Indonesia could request Japan to realize its commitments on market concession for Indonesia's priority products;
  • Modify the JIEPA agreement through negotiations with Japan; or
  • Terminate the JIEPA.

The MOI indicated that both Indonesia and Japan have agreed to further discuss the JIEPA evaluation. Thus far, there is no exact date scheduled for the bilateral meeting, but it will likely be conducted in the first quarter of 2015.

FTA Negotiations Between Philippines And EFTA Countries To Commence In March 2015

The Philippines and the European Free Trade Association ("EFTA") countries agreed to start negotiations on a bilateral free trade agreement ("FTA") in March 2015. The two sides expect to conclude negotiations by 2016 or before the Aquino Administration ends its term.

The Philippines and the EFTA countries had signed a Joint Declaration on Cooperation ("JDC") in June 2014, which provides, among others, that "the EFTA states and the Philippines will examine the feasibility of establishing a FTA , taking into account WTO commitments".

Currently, the two sides are preparing for the negotiations. For EFTA, a chief negotiator will be appointed by the EFTA Secretariat in Geneva. For the Philippines, the Department of Trade and Industry ("DTI") will be in charge of the negotiations, assisted by various representatives from other government agencies.

DTI Secretary Gregory Domingo said that DTI's target is to complete the discussions by March 2016. For the Secretary, it is a very tight schedule but doable. The Philippine government had scheduled consultations in January 2015 while some Philippine experts have finalized technical studies.

Malaysia To Re-Launch FTA Negotiations With Bangladesh

On January 13, 2015, Malaysia and Bangladesh agreed to reinitiate consideration of FTA negotiations, which had been set aside five years ago. Malaysian Minister of International Trade and Industry ("MITI") Datuk Seri Mustapa Mohamed agreed with his counterpart Bangladesh Commerce Minister, Tofail Ahmed, that a joint commission will conduct further discussions on the matter in Kuala Lumpur in March. In addition, the two countries will also hold the first meeting of the Malaysia- Bangladesh business forum before June 2015.

Thailand And Pakistan Undertake FTA Feasibility Study

Thailand and Pakistan are undertaking a feasibility study on a proposed Thailand-Pakistan free trade agreement ("FTA"). The feasibility study is expected to be finalized in March 2015 and its results will be discussed in more detail during the 3rd Thailand-Pakistan Joint Trade Committee meeting which will be held in Pakistan in April 2015.

Earlier during the 2nd Joint Trade Committee meeting held in Thailand in December 2014, Thailand and Pakistan had set the goal of increasing bilateral trade to reach USD 2 billion in 2018. In addition, the meeting also discussed bilateral economic cooperation on automobile, jewellery, fisheries, textile and garments, agricultural goods and food processing, energy, leather goods, services, public healthcare and infrastructure.

POLICY DEVELOPMENTS

China

China Simplifies Processes for Importing Used Equipment

On December 31, 2014, the General Administration of Quality Supervision, Inspection and Quarantine ("AQSIQ") issued Circular AQSIQ [2014] No145, clarifying that the new policy for supervising used equipment importation includes (1) pre-shipment inspection, (2) inspection at port, and (3) inspection after delivery. The pre-registration requirement is no longer applicable. AQSIQ also published the revised Catalogs to further clarify the types of used equipment that are:

  • Prohibited from importation;
  • Allowed to be imported but are subject to pre-shipment inspection; and
  • Allowed to be imported and are exempted from pre-shipment inspection.

The circular also makes it clear that companies violating the above requirements will be penalized, in addition to a mandatory order to return the equipment.

China Allows Car Parallel Imports in Shanghai FTZ

On January 7, 2015, the Committee of Shanghai FTZ announced that the central government has approved the pilot scheme for "parallel car imports" in the Shanghai FTZ. The pilot program has formally started, and local sales of parallel imported cars will start in February. the prices of parallel imported cars are expected to be 20 percent lower than cars imported via regular channels.

China is also in the process of revising the relevant regulations. The current 2005 Enforcement Measures on Administration of Automobile Brands Sales prevents parallel car imports. Under the 2005 Measures, dealers can only sell cars after getting authorization to do so by the vehicle maker. Overseas carmakers have to set up or authorize a local company to be their chief dealer for selling cars in China. In late 2014, the State of Administration of Industry and Commerce had already withdrawn the registration requirement of "chief dealer".

The 2005 Measures are expected to be replaced by the new Measures on Administration of Automobile Sales. According to the latest draft of this new regulation, parallel car imports will be allowed. However, importing and sale of cars already registered or used in other countries will be prohibited.

Indonesia

MOT Mandates L/C Payment for Exports of Certain Products

On January 5, 2015, the Ministry of Trade ("MOT") issued MOT regulation no. 04/M-DAG/PER/1/2015 ("MOT-04-2015") stipulating that payment for exports of certain goods, namely mineral products, coal, oil & gas and crude palm oil ("CPO") and CPO kernel, must be in the form of a Letter of Credit ("L/C"). MOT-04-2015 will be effective on April 1, 2015.

MOT-04-2015 requires an exporter of affected products to do the following prior to exportation:

  • Payment for the export transaction shall be in the form of a L/C;
  • The price stated on the L/C should be at least the same as the international market price;
  • The L/C payment should be received by foreign banks in Indonesia;
  • For goods that require surveyor report prior to exportation (i.e., pre-shipment-inspection), the surveyor shall also confirm that the payment method is through L/C. Otherwise, the surveyor shall not release its report.

Any export of affected goods not using the L/C payment method would not secure an export permit, and the goods could not be exported.

According to informal discussions with the ESDM, this policy was triggered by the government's need to monitor the trade flow of sensitive products such as oil & gas, mineral products, and CPO. It appears that a common practice for trade in such goods is to not route payments through financial institutions (including banks) in Indonesia although the transactions occur in Indonesia. In other words, the government is concerned that exporters are "parking" the profits overseas and that Indonesia is losing revenues from its natural resources.

Government to Limit Cash Outflow from Indonesia

On December 23, 2014, the Director General of Customs and Excise ("DGCE") announced the government policy to monitor the flow of cash into and out from Indonesia through a permit mechanism. This would apply to:

  1. Persons (and corporate) carrying out cash of not less than IDR 100 million, as well as those bringing in other currencies of equivalent amount to IDR 100 million and above. Permit application can be done through filing the Customs Declaration ("CD") and submitting it to the Customs officer at the airport. A penalty of 10% of the amount will be imposed for missing or false declaration.
  2. Other forms of payment, such as check, traveler's checks or electronic transfers, are also subject to the same requirement. However, this would only apply to Indonesia citizen (warga negara Indonesia – WNI).

Philippines

European Parliament Approves Philippine Eligibility under EU GSP Plus

On December 18, 2014, the European Parliament approved the Philippines' inclusion in the EU Generalized System of Preferences Plus ("GSP+") program. Under the GSP+, about 6,274 products from the Philippines are eligible for zero-duty entry into the EU. The program will be in place for 10 years starting on December 25, 2014.

The Philippines is already a beneficiary of the EU's standard GSP. The Standard GSP covers a total of 6,209 Philippine products, of which 2,442 products or 39.33% have duty-free status while 3,767 are dutiable at reduced tariffs.

To qualify for GSP+ status, the Philippines had to show implementation of a number of good governance measures which are measured by having ratified and adopted 27 conventions on human rights, genocide, labor rights, child labor, etc. Thus far, there are only 13 other GSP+ beneficiary countries. The Philippines is the only ASEAN country eligible for the program.

According to the Department of Trade and Industry ("DTI"), Philippine exports under the GSP+ are estimated to increase by 611.8 million Euros in the first year. This translates into 267,587 jobs generated in both the agriculture and industrial sectors. The DTI has laid out plans to enable more domestic exporters to maximize the benefits of GSP+. Activities include investment and economic briefings for business chambers, councils and industry associations.

Bills on Competition Policy Advance in Congress

The respective bills on competition policy have advanced through the two chambers of the Philippine Congress.

  1. On December 18, 2014, the Senate approved the third and final reading of Senate Bill ("SB") No. 2822 entitled "Fair Competition Act of 2014".
  2. Rep. Apostol, one of the authors of the bills, consolidated the 12 bills on competition policy into the "Philippine Fair Competition Act". On October 28, 2014, the House Committees on Trade and Industry and Appropriations approved the consolidated bill. The next step was the second reading after the Christmas holiday.

As soon as the Lower House has approved its version, a bicameral conference will be held to consolidate both versions.

Some common elements of the Senate-approved bill and the Lower House consolidated bill are as follows:

  1. Creation of a Fair Trade Commission to, among others, ensure that industrial concentration will not limit economic power to a few firms or groups;
  2. Heavy penalties on violators;
  3. Definition of monopolies; and
  4. Listing of unfair trade or business practices.

In view of the need to legislate competition policy in order to make local firms more competitive amid an integrated regional economy, legislators from both chambers have identified the enactment of a law on competition policy as a priority measure. The private sector also supports this Congressional action.

It is likely that the law on competition policy will be approved before the Aquino Administration ends its term in July 2016.

Singapore

Singapore and the US Sign MRA Enabling Faster Customs Clearance for Certified Companies

On December 1, 2014, Singapore Customs and the United States Customs and Border Protection ("U.S. CBP") signed a mutual recognition agreement ("MRA") to enhance supply chain security and facilitate trade between the two countries.

Under the MRA, the US will recognize the supply chain security measures implemented by companies certified under Singapore Customs' Secure Trade Partnership ("STP") program while Singapore will similarly recognize validated members of the U.S. CBP's Customs-Trade Partnership Against Terrorism ("C-TPAT") program. These companies will have their exports recognized by their respective Customs authorities as being low-risk, allowing them to enjoy faster customs clearance of their goods when they export to the United States and Singapore, respectively.

The two Customs authorities further strengthened cooperation with the signing of a US-Singapore Customs Mutual Assistance Agreement ("CMAA"). This agreement allows the US and Singapore to exchange information and provide assistance (such as sharing of experiences on enforcement best practices) in the prevention and investigation of customs offences.

Thailand

Thailand and Russia to Strengthen Bilateral Trade by 2016

Thailand and Russia held their second trade and economic cooperation meeting in November 2014, discussing the possibility of doubling bilateral trade to USD 10 billion by 2016, focusing mainly on tourism, investment and other areas.

Proposals include :

  1. Thailand to supply more agricultural and fishery products to Russia;
  2. Thailand to grant tax privileges to encourage Russia to invest in rubber processing in Songkhla province;
  3. Thailand to provide more Russian-speaking tour guides to attract more Russian tourists;
  4. Russia to relax its import regulations and sanitary requirements for products from Thailand, especially for those in high demand by Russia; and
  5. The two countries to promote investment in research and development, aircraft-and -parts production and machinery-and-parts production.

Certain quarters in Thailand see the trade sanctions against Russia by Western countries as a game-changer. Before the Ukraine crisis, for example, the US was Russia's largest poultry supplier (47.8 percent), followed by Brazil (27 percent) and Ukraine (9.75 percent). Thailand was ranked in 12th place (0.51 percent). Under the current circumstances, Thailand would have greater opportunity to export chickens to Russia.

Vietnam

MOIC Issues Guidance on License Application for Import of Radio Equipment

The Ministry of Information and Communication ("MOIC") issued Circular No. 18/2014/TT-BTTTT dated November 26, 2014 ("Circular 18") providing detailed guidance on the issuance of import license for radio equipment. Circular 18 came into effect on January 16, 2015.

Circular 18 sets out the conditions and procedures for issuance of import license in respect of microwave equipment, equipment for radio broadcasting and radio broadcasting recorder having frequency ranges from 9KHz to 400GHz and capacity of 60MW or more (hereinafter referred to as "Radio Equipment") under the management of the MOIC.

Radio Equipment that needs an import license is listed in Schedule 1 to Circular 18.

Circular 18 also exempts the following entities from the import license requirement: diplomatic representative offices, foreign consular offices, representative offices of international organizations, foreign senior delegates visiting Vietnam entitled to diplomatic incentives status and exemptions, foreign journalists conducting journalism activities and not residing in Vietnam (provided that they obtain a permit for journalism activities issued by the MOIC). Terrestrial mobile phones are also exempt from an import license.

An import license is only valid for a particular shipment under a particular commercial contract.

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