ASEAN-CHINA FREE TRADE AGREEMENT

A C F T A
HAROLD B. DURAN, LCB

ASEAN-China Free Trade Area
( A C F T A )

ASEAN-CHINA FREE TRADE AREA
It is a Free Trade Area among the 10 Member States of
ASEAN and China.
The ACFTA Framework Agreement was signed at Phnom
Penh, Cambodia on 04 November 2002.
The Agreement on Trade in Goods was signed in
Vientiane, Laos on 29 November 2004.

The Agreement on TIG of the ACFTA covers 2
programs of tariff reduction, namely:
I. Normal Track (NT): (covers general goods)
ACFTA tariff reduction to 0%:
Up to 01 Jan. 2012 (ASEAN-6 & China)
Up to 01 Jan. 2018 (CLMV)

II. Sensitive Track (ST): (covers sensitive goods)
a. Sensitive List (SL)
ACFTA tariff reduction to 0-5%:
b. Highly Sensitive List (HSL)
ACFTA tariff reduction to 50%:

EARLY HARVEST PROGRAM UNDER THE ACFTA
 Accelerated the implementation of the Agreement on
TIG for the ACFTA.
 Covers the reduction to 0% import duty on products
under Harmonized System (HS) Chapters 01 to 08 not
later than 01 Jan. 2006.
 Under Executive Order (EO) No. 485 issued on 29
December 2005, the Philippines implemented its
commitment under the Early Harvest Program (EHP) of
the ACFTA.

PHILIPPINE LEGAL ENACTMENTS FOR THE ACFTA
NORMAL TRACK (NT):
EO 487 signed on 12 January 2006
EO 613 signed on 17 April 2007
EO 814 signed on 30 June 2009
(Transferred certain Tariff Lines from the
ST to the NT)

SENSITIVE TRACK (ST):
EO 618 signed on 23 April 2007 (Implemented
the granting of Reciprocal Tariff Rate
Treatment on products under the ST list)
Tariff lines not included in EOs 487, 613 and
814 (the applicable import duty is the MFN
rate)

SENSITIVE TRACK (ST):
EO 71 signed on 16 April 2012 (Tariff
reduction of certain HSL products)
EO 72 signed on 16 April 2012 (Tariff
reduction of SL products and transfer of
products in the ST to NT)

Mechanisms on the Application of Preferential Tariff
under the ACFTA
A product can enjoy the preferential tariff rate if:
It is placed under the NT list of both the
importing and exporting countries;
It is Wholly-Obtained or complied with at
least 40% Regional Value Content (RVC) rule
or under the Product Specific Rules (Rules of
Origin - ROO);

under the ACFTA
With Certificate of Origin (CO) Form “E”;
and
In the Exporter’s ST list with tariff rates of
10% or below (Reciprocity Rule).

How can Products under the ST List Enjoy
Preferential Tariff Rates?
RECIPROCITY RULE:
Exporter’s ST rate of duty of such Sensitive
Products have been reduced to 10% or
below;

RECIPROCITY RULE:
Applicable Tariff Rate:
 NT rate of the importing party or ST rate
of the exporting Party, whichever is
HIGHER. However, the applied import
duty SHOULD NOT EXCEED the MFN rate of
the importing party.

RECIPROCITY RULE:
* Further, nothing in the Agreement prevents
the importing Party from granting to the
exporting Party the Normal Track or Early
Harvest Programme rate even if such rate is
lower than the exporting Party’s tariff rate.

APPLICATION OF TARIFF RATE
Country A
(Exporting Party)
Country B
(Importing Country)
Applicable ACFTA Tariff Rate
EHP
EHP EHP Rate of Country B
NT NT Rate of Country B
ST ST/MFN Rate of Country B
NT
EHP EHP Rate of Country B
ST > 10%
EHP MFN Rate of Country B
NT MFN Rate of Country B
ST < 10%
EHP
EHP rate of Country B or ST Rate of Country A whichever is
HIGHER (MFN rate of Country B is applied if it is lower than ST
rate of Country A)
NT
NT Rate of Country B or ST Rate of Country A whichever is
HIGHER (MFN rate of Country B is applied if it is lower than ST
rate of Country A)
RECIPROCAL TARIFF RATE ARRANGEMENT

EXPORTER IMPORTER
The product is
in the EHP or NT List
of the exporting
country
- If the product is in the EHP of
the importing country:
Applicable rate is EHP rate
- If the product is in the NT List
of the importing country:
Applicable rate is NT rate
- If the product is in the ST List of
Applicable rate is ST/MFN rate

EXPORTER IMPORTER
The product is:
in the ST List
of the exporting
country and
have a rate of
MORE than 10%
Applicable rate is still MFN rate
- If the product is in the NT List
Applicable rate is still MFN rate
- If the product is in the ST List of
Applicable rate is the MFN rate

EXPORTER IMPORTER
RECIPROCAL TARIFF TREATMENT
The product is:
in the ST List
of the exporting
country and
have a rate of
10% or BELOW
Applicable rate is EHP rate of
importer or ST rate of Exporter,
whichever is HIGHER. OR the
MFN rate if it is lower than ST
rate of Exporter.
EXAMPLE:
EXPORTER:
ST rate of 9%
(1) ST rate (exporter) : 9%
EHP rate (importer) : 0%
MFN rate (importer) : 10%
EHP rate (importer) : 0%
REMINDER:
The applied import duty rate
should NOT be higher than
the importer’s MFN rate.

EXPORTER IMPORTER
The product is:
in the ST List
of the exporting
country and
have a rate of
10% or BELOW
- If the product is in the NT of the
importing country:
Applicable rate is the NT rate of
importer or ST rate of Exporter,
whichever is HIGHER. OR the
MFN rate if it is lower than ST
rate of Exporter.
EXAMPLE:
EXPORTER:
ST rate of 8%
NT rate (importer) : 3%
NT rate (importer) : 5%

EXPORTER IMPORTER
The product is:
in the ST List
of the exporting
country and
have a rate of
10% or BELOW
- If the product is in the ST
Applicable rate is the
ST/MFN rate of the
importer.

ASEAN-Korea Free Trade Area
► It is a Free Trade Area Agreement among the 10
Member States of ASEAN and South Korea.
► The AKFTA Framework Agreement was signed at
Kuala Lumpur, Malaysia on 13 December 2005.
► The Agreement on Trade in Goods under the
Framework Agreement was signed at Kuala Lumpur,
Malaysia on 24 August 2006.

The Agreement on TIG of the AKFTA covers 2 programs of tariff
reduction, namely:
I. NORMAL TRACK:
- AKFTA tariff reduction to 0%
Up to 01 Jan 2010 (ASEAN 6 & Korea)
Up to 01 Jan 2016 (Viet Nam)
Up to 01 Jan 2018 (CLM)
II. SENSITIVE TRACK:
a) Sensitive List (AKFTA tariff reduction to 0-5%)
b) Highly Sensitive List (AKFTA tariff reduction to 50-20%)

- EO 638 issued on 21 Jul 2007 (to implement the granting of
reciprocal tariff rate treatment for products under the ST list);
- EO 639 issued on 21 July 2007 (to implement the reduction of
tariff rates on certain products in the NT list);
- EO 812 signed on 15 June 2009 (NT list - reduced 90% of tariff
lines to 0% import duty (w/ flexibility);
- EO 895 signed on 18 June 2010 (Transfer of tariff lines from the
ST list to the NT list);
- EO 73 issued on 16 April 2012 (Tariff reduction of certain HSL
products);
- EO 74 issued on 16 April 2012 (Tariff reduction of certain SL
products and transfer of products from the ST to NT list).
PHILIPPINE LEGAL ENACTMENTS FOR THE AKFTA

under the AKFTA
► It is placed under the NT list of both the importing and
exporting countries;
► It is Wholly-Obtained or complied with RVC 40 or PSR of
the governing ROO;
► With Certificate of Origin Form “AK”; and
► In the Exporter’s ST list with tariff rates of 10% or below
(Subject to Reciprocity Rule).

How can Products under the ST List Enjoy Preferential Tariff Rates?
(RECIPROCITY RULE)
► Exporter’s ST rate of duty of such Sensitive Products have been
reduced to 10% or below (with Notification);
* Further, upon the discretion of the importing Party, the Normal Track rate
can be applied even if such rate is lower than the exporting Party’s tariff
rate.
NT rate of the importing party or ST rate of the exporting Party,
whichever is HIGHER. However, the applied import duty SHOULD
NOT EXCEED the MFN rate of the importing party.
► Applicable Tariff Rate:

Country A
(Exporting Party)
Country B
(Importing Country)
Applicable AKFTA Tariff Rate
NT
ST > 10%
NT MFN Rate of Country B
ST < 10%
NT
NT Rate of Country B or ST Rate of Country A
whichever is HIGHER (MFN rate of Country B is
applied if it is lower than ST rate of Country A)
RECIPROCAL TARIFF RATE TREATMENT

EXAMPLE (AKFTA RECIPROCITY RULE)
A product from Korea covered by a CO Form AK and deemed as
originating by the governing ROO was imported into the Philippines.
The product was under Korea’s ST list with 9% ST rate. On the other
hand, in the Philippines, the product has an MFN rate of 10% and was
classified under the AKFTA NT list with 0% NT rate. What is the
applicable import duty rate of the product?
- This transaction is qualified under the AKFTA Agreement’s
Reciprocity Rule since:
- The product is under the Exporter’s ST list with ST rate of 10% or
below; and
- Is in the Importer’s NT list
- 1st, simplify the problem:
EXPORTER (KR) IMPORTER (PH)
ST (9%) NT (0%)
MFN (10%)
- The Applicable import duty rate is the HIGHER rate between the
Exporter’s ST and Importer’s NT rates. Therefore, ANS.: 9%

ASEAN-CHINA FREE TRADE AGREEMENT

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