M.A.D.NESS IN ACTION NAVIGATING TRADE AND CUSTOMS IN MERGERS, ACQUISITIONS AND DIVESTITURES - PWC
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M.A.D.ness in
action
Navigating trade and customs in Mergers,
Acquisitions and Divestitures
Trade Intelligence Asia Pacific
August/September 2020
Trade Intelligence Asia Pacific - August / September 2020 1
Key intelligence
ASEAN-wide self certification takes effect
9
• Territory specific implementations 23, 25, 30, 32,
34, 35 , 37
EU - Vietnam FTA enters into force, duty refunds available
12
Australia and Singapore sign digital trade agreement
12
17
China amends catalogue of technologies prohibited or
restricted from export
India announces stricter rules for administration of rules of
origin under FTAs 21
Indonesia, Philippines, Singapore, Thailand and Vietnam issue 23, 32, 34,
local guidelines to implement ASEAN-wide self-certification
under ATIGA 35, 37
Philippines exporters may lose GSP access to EU
31
Vietnam introduces one-time customs valuation consultation
mechanism 37
2 Trade
TradeIntelligence
Intelligence Asia Pacific - August / September 2020
Index
Trade Intelligence Asia Pacific seeks to capture the essence of selected issues that are of particular interest to
clients of PwC. Our regional network of customs and international trade consultants routinely gather, analyse and
disseminate information and knowledge to our clients. Based on studies as well as meetings and discussions
that take place across the region with various trade and customs officials, we consolidate our findings into Trade
Intelligence Asia Pacific.
Feature article Territory reports
M.A.D.ness in action 4 Australia 15
Navigating trade and customs in Mergers,
China 16
Acquisitions and Divestitures
Hong Kong, China 19
ASEAN India 20
Roll out of ASEAN-Wide Self-Certification Scheme 9 Indonesia 23
Japan 24
Export control Malaysia 25
US and China ramp up trade restrictions on 11 Myanmar 28
various specific entities
Philippines 31
EU follows the US and UK in restricting sensitive 11
exports to Hong Kong Singapore 34
China amends export control technology list 11 Taiwan, R.O.C. 34
Singapore updates Strategic Goods Control Order 11 Thailand 35
Vietnam 37
Free Trade Agreements focus
Around the world
ASEAN-Japan CEPA upgrade enters into force 12
Summary of COVID-19 related trade measures 39
EU-Vietnam FTA enters into force 12
WTO issues two new reports on COVID-19 impact 40
First Protocol to amend ATIGA enters into force, 12 on trade
AWSC takes effect
Updates on US – China Trade War 41
Australia and Singapore sign digital trade 12
agreement World Customs Organisation
ASEAN and ASEAN+ members reaffirm 13 Capacity building efforts for implementation of 41
commitment to RCEP conclusion by November e-commerce framework
2020
2019 Illicit Trade Report 41
Cambodia and South Korea conclude second 13
round of FTA negotiations 2020 annual report 42
Japan and the United Kingdom inch closer to 13 World Trade Organisation
trade deal
WTO goods trade barometer 42
Malaysia and Bangladesh to resume FTA talks 13
2020 World Trade Statistical Review published 43
Philippines pushing for continuation of trade 14
negotiations with Turkey WTO General Council agrees on guidelines for DG 43
final selection process
Philippines and South Korea target completion of 14
trade deal this year Goods schedules e-library launched 43
Taiwan to explore bilateral trade agreement with 14 New import licensing database 44
the US
Disputes at the WTO 45
Thailand to restart FTA negotiations with the EU 14
Trade Intelligence Asia Pacific - August / September 2020 3
Lead article
M.A.D.ness in action
Navigating trade and customs in Mergers, Acquisitions and
Divestitures
“Caveat Emptor!” A Latin phrase commonly used in contract law deemed sufficiently material, or – perhaps more often, because
meaning “Let the buyer beware!” is sound advice in many areas it is simply overlooked. However, with many companies highly
of business, but especially so when you are buying a business. dependent on interconnected global supply chains, failing to
Even then, buying is one thing, integrating is quite another, consider trade management implications could very easily lead
particularly when it comes to trade and customs management, to serious implications down the line, if not on Day One. So let’s
which is often hidden in the depths of an organisation. This start there.
article reflects on some of the good, bad and ugly we have
Considering customs and trade implications as part of the
seen working with companies going through the process of
deal process
evaluating another company’s trade and customs management,
or integrating it into its own, be that as part of a merger or an Unless a target company is in an industry that is subject to high
acquisition. customs and excise duties, it is rare that financially, customs
and trade compliance carries material risks or becomes a deal
A brief explanation of terms - A merger is where two (or more)
breaker. However, many companies are learning that the bigger
companies combine to form a new company. In an acquisition
risk is not in the space of duties payable, but in the ability to
one company “purchases” another company. In a divestiture,
carry out cross-border business efficiently or at all. Importer
a business unit or subsidiary is carved out and sold to another
and exporter eligibility and responsibilities, license requirements,
company. The latter could be through a share deal, where a full
use of trade facilitation schemes, and sanctions; all of these
legal entity is taken over, or through an asset deal, where only the
can be major drivers or influencers of deal value. All can lead
target company’s assets are taken over, but the target company
to significant financial, operational and regulatory risks and
continues to operate in its own right on other areas of business.
exposure.
“Day One” is commonly referred to as the first day on which
the resulting “new” company starts operating, i.e. the deal is Even where a buyer recognises that a target company engages
executed and the merger / acquisition / divestiture takes effect in in international trade, there are so many other topics vying
practice. for attention, probably more visible and better known and
traditionally covered in a due diligence, that many buyers typically
The type of deal will typically have an impact on what would be
take a “wait and see” approach in relation to customs and
seen as the starting point for integration: in an acquisition or
international trade matters. They only start to seriously consider
divestiture, the new “owner” will probably look to change the
their impact much later in the deal process, during the planning
processes and systems of its acquisition to be in line with its
and execution phase.
own, regardless of whether those are best suited. In a merger,
there may well not be a “front runner” and more thought is Even then, it should be noted that many deals advisers will
typically given to the choice of new, consistent and consolidated struggle to cover these aspects. A deals specialist will have
processes and systems. Separately, in an asset deal, historic many things on their mind and would not necessarily know
compliance and liabilities typically do not migrate to a new entity, where to look and what to look for. Yet a technical trade and
whereas in a share deal they do. customs specialist will often fail to make the distinction between
a process weakness that would be nice to improve, and one that
Regardless of the deal type, deal success depends to a large
carries a material operational or financial risk. A typical outcome
extent on the efficient and thorough execution of the deal
process from due diligence through integration planning and
execution. While there are significant financial and strategic
benefits to be gained from a merger, acquisition or divestiture,
a deal can also carry substantial risk and costs, especially if
transition requirements are not systematically identified and
properly managed. Most companies entering into a deal would
carry out a due diligence study, both financial and operational.
We find that in many cases trade and customs compliance is not
covered in such a due diligence exercise, either because it is not
4 Trade Intelligence Asia Pacific - August / September 2020
of consulting a technical trade and customs specialist is therefore a due diligence report that lists many and detailed technical areas
for improvement that are not well quantified from a deals risk perspective. With that, the real issues are hidden and may therefore be
ignored altogether.
Consequently, common lapses in managing customs and trade risk assessments during the deal process include:
(1) Due Diligence (2) Integration Planning (3) Integration Execution
• Inadequate and incomplete • Insufficient planning for • Inadequate or non-
evaluation of customs and integration or divestment of comprehensive execution
trade risks the customs function plan covering the necessary
• Inaccurate assessment of • Overconfidence in timelines customs and trade
historical liabilities due to and underestimation of work touchpoints
non-compliance and other required – assumption that • Lack of disciplined and
carry-on costs to be inherited operations will continue as-is coordinated cross functional
by the buyer on Day One management
• Lack of attention to alignment • Ambiguity in roles and
and change management responsibilities in the new
issues organisation
Given tight execution timelines upon deal closure, when inherent risks are not identified upfront, the buyer takes on additional risks that
it was not aware of, which are not taken into consideration in the deal package. By the time the deal closes, or on Day One, the buyer
will be caught by surprise and may not have enough time to deal with these issues. For example, some territories will have a rule that
a new importer will be subject to 100% physical inspection of imports. Hence a company believing that it is simply continuing with the
same business under a new name will suddenly be required to allocate additional resources to handle such inspections. Not only that,
these resources will probably know less about the products being imported and thus struggle to answer a customs official’s questions.
Plus, of course, with additional inspection comes additional uncovering of errors.
If integration planning is not conducted properly, it is likely that the buyer will find itself in a position with insufficient time to respond or
achieve operational readiness on Day One. In practice it can take days, weeks or even months of intensive work, sometimes requiring
external help, to refine processes, rectify identified compliance issues and integrate all import and export processes. Whether during
that time “business as usual” can take place is far from guaranteed.
So what could possibly go wrong?
Often, without recognition of customs risks and their onward operational implications, companies, and their responsible employees,
have the misconception that nothing will change. They carelessly assume that cross-border trade activities will function as-is on Day
One.
However, in practice any changes to business or corporate structures, operations and even the type of enterprise resource systems
used will often have trade and customs consequences. A company that has a larger trade footprint or enjoys significant trade facilitation
will naturally have a larger risk exposure if it changes the way it operates. Under a share deal, if a target company currently utilises
manufacturing plants or warehouses in under customs-controlled schemes, e.g. licensed manufacturing, registered under its own
entity name, a change in legal ownership may cause it to lose the facility it has been enjoying. Additional costs as well as supply chain
disruptions are the immediate result. Under an asset deal, often considered less risky from a customs perspective, the duty exempt
status of equipment used on the facility may be lost, because it is typically tagged to a named entity. This results in either an immediate
duty cost, or – more likely – if not picked up in time, a delayed duty cost plus penalties in a future customs audit.
These are but two example of well-hidden issues that should be identified as early as possible such that a mitigation plan can be
created and implemented. So clearly, many things can go wrong. Below, we have picked out some of the more common trade and
customs impacts that we see badly managed in a deal, generating unexpected and unnecessary costs or liabilities. They are not
comprehensive, nor in any particular order, but should be illustrative and helpful.
Æ Business as not-so-usual
The most immediately felt impact is on daily business processes. Existing import and export operational processes may no longer be
adequate or even possible come Day One. Issues typically arise from changes to the organisational structure leading to new roles, risks
and responsibilities, and the incorporation of new trading entities which need to obtain the necessary trade approvals in order to carry
out their intended import and export business. Here are some examples of what may be needed:
• Creation of new importing and exporting entities: Where new importing and exporting entities are created, it is necessary to
ensure that all the required registrations are carried out to enable such new entities to trade on Day One. The effort and lead time
to make this happen can be significant. As mentioned above, it is also important to note the implications of trading as a new
importer or exporter. While the company may believe that it has good processes in place and good compliance records, to the
customs authority, it is a new entity which should be subject to higher scrutiny at point of importation. Instead of assuming that
Trade Intelligence Asia Pacific - August / September 2020 5
customs clearance will happen as it always did, companies according of approvals are typically quite lengthy. In some
should check these implications ahead of time, and ensure jurisdictions, they may even require consultations with the
that it mitigates or plans for expected delays in customs local authorities. We worked with one company for which
clearance. This could include upfront dialogue with the obtaining some licenses turned out to be an 18-month-
authorities, customer management, allocation of additional long process! Failure to obtain the necessary approvals and
resources etc. certifications in advance could lead to the inability to trade
come Day One, and delays to goods clearance at port could
• Qualification for special trade facilitation schemes:
easily rack up hefty demurrage and terminal costs. If unable
Companies accredited under Authorised Economic Operator
to import, companies may even need to resort to scrapping
(AEO) schemes (which go by a variety of terms) enjoy
already shipped products or paying extra carrier fees to re-
facilitation benefits in the form of deferred duty payments,
export goods back to origin.
reduced inspection rates and faster clearance times.
However, as such schemes are typically entity specific • Changes to supply chain partners: As part of a deal
and require fulfilment of very specific criteria to be granted integration process, relationships with supply chain partners
facilitation, it could well be that the relevant accreditations are often reviewed and consolidated for cost and efficiency
of the target company are no longer available post-deal. reasons. For example, a company may decide to terminate
The new owner may not be eligible for such accreditations, or re-negotiate existing broker contracts, or even consider
hence immediately subject to additional red tape and switching to a single broker for multiple territories in Asia.
administrative processes at borders. As AEO criteria typically Changes to existing carrier and broker arrangements, or
require companies to have an active and compliant track usage of third-party logistic providers may create challenges
record over a certain time period, newly incorporated trading for risk management, especially if roles and responsibilities
entities will often themselves in a position where they are not in relation to customs compliance are not clearly defined.
able to continue to enjoy benefits, and subject to additional In some cases, brokers may play different roles in different
administrative red tape without an interim mitigation plan. jurisdictions – from functioning only as a declaring agent
in some to taking care of outsourced bonded facilities
• Continued usage of bonded facilities: To facilitate
in others. This will need to be carefully managed during
manufacturing and regional distribution operations,
contract re-negotiations to ensure that newly selected
companies commonly utilise bonded manufacturing facilities
brokers can continue to provide the same level of service
primarily for deferment or exemption of duty and other
and that there are no compliance lapses during the
import taxes on input material, capital goods or equipment
transition.
used for manufacturing. They may also use bonded
warehousing premises for cashflow benefits, for example to For all the above examples, potential liabilities can range from
store imported finished goods before they are released into significant fines and duties to the loss of access to markets
the domestic market, or to avoid having to pay import taxes for customers, or loss of inputs for onward manufacturing
on goods intended for re-export. It is common for authorities or distribution due to the inability to ship. Day-to-day routine
to prescribe strict conditions on the use of bonded facilities, customs issues such as tariff classification, valuation and rules
e.g. export requirements or reporting requirements, that of origin can result in significant retroactive duty assessments.
companies will need to meet to be allowed to operate such Looking at it in this way, it is easy to imagine that potential direct
facilities. and indirect liabilities can be enormous. Given that customs
authorities commonly assess duties and penalties for reporting
For example, a Chinese company that underwent an
and compliance errors on a transactional basis under legal
entity name change due to a divestment realised that they
provisions allowing them to look back 5 or more years, hefty
were unaware and unprepared to manage the additional
bills may ensue. Apart from financial consequences, customs
requirements prescribed by China Customs to continue
violations can also lead to supply chain disruptions – for example,
with existing bonded processing operations. To manage
a downgrade to a company’s enterprise credibility ranking in
this change, Customs had required the company to
complete a host of administrative processes including the
consolidation and re-opening of its existing e-handbook,
submission of new supporting documents and switching
facility registrations to another province. All of this required
extensive time to prepare and process prior to go-live. This
could result in the push-back of the closing date of a deal
or result in loss of trade facilitation in the interim. Not only
would that negatively impact cash flow, it could even bring
operations to a stand-still.
• Re-application for import and export licenses: Import
and export licenses are typically both entity and product
specific. They must be obtained prior to import or export
to prevent clearance delays. Like bonded facilities and
facilitation schemes, these approvals may need to be
re-applied for and obtained under the importing entity’s
new business registration if any changes to organisational
structures are made. As products subject to import or
export license requirements are nationally controlled
goods, the administrative process for verification and
6 Trade Intelligence Asia Pacific - August / September 2020 Trade Intelligence 6
China due to non-compliance can result in more inspections at efficiency measures. It is thus important ensure that as part of
port level, and increased customs inquiries. the deals process, ideally at due diligence stage but certainly
when planning for integration, companies plan for and ensure
Æ FTA benefits
that products can still be shipped and imported into destination
Many governments complain that not enough companies are markets at preferential tariff rates.
making use of the benefits that are available to them under the
Worst case, if a company is self-certifying origin and happily
plethora of Free Trade Agreements (FTA) that exist. In practice,
continues to claim FTA preferences, a future customs audit
however, we work with many companies that do benefit, but
may well pick this up and result not only in back-demands for
may not protect those benefits adequately. Managing the impact
duty, but also penalties, neither of which can be recouped from
of the merger, acquisition or divestment on preferential claims
customers. There are war stories of whole industries going out of
is critical to prevent any unnecessary financial liabilities due to
business because of such mishandling of preferential origin.
loss of tariff preferences. Most companies that use FTAs are
aware that benefitting from them is crucial to their business. Æ System transitions
Nevertheless, in deal situations we often see that it is simply
Customs functions have become highly automated and data-
assumed the necessary reviews on ongoing qualification and
dependent, with companies relying largely on the accurate
compliance have been completed and thus, no further work is
functioning of their ERP systems to ensure that import and export
required.
operations run smoothly. Consequently, any changes in systems
What is often overlooked is how the changes in business and data can also result in new risks for a new organisation. To
structure might impact the qualification or documentation capture synergies, system integrations via migration to or from
essential for claiming FTA benefits. Typical examples are: a single shared services platform tend to happen frequently as
part of the integration approach. This typically involves extensive
• New importing and exporting entities: As the new
data migration, data validation or even the adoption of new ERP
organisation streamlines operations, dissolving and merging
systems.
existing legal entities, creating new trading entities and
distribution hubs, or effecting legal entity name changes are Consequently, inaccurate maintenance of customs and trade
common activities to ensure business alignment. Given that data within systems can lead to supply chain disruptions and
the issued proofs of origin, e.g. a certificate of origin issued delays, and even penalties. From a customs point of view, even
by the authorities, are entity specific, new trading entities will changes to data or document formats can have a huge impact
need to re-certify and obtain new certificates under their own on the resulting output. With many customs authorities focused
name in order to continue to claim for preferential rates. This on upfront document verification, the associated risk of customs
can be quite a complex and lengthy administrative process. challenge is especially high if the important trade documents
such as invoices, certificates of origin or shipping documents
• Supply chain changes: Corporate restructuring for efficiency
are incorrect or inconsistently populated across shipments.
purposes can trigger changes to supply chains, such as
Increasingly customs authorities are using their own technologies
changes to suppliers and supplier locations, or changes
to spot such errors, and they are getting very good at it.
to manufacturing or warehousing locations. When these
kinds of changes occur, a company may find that products Æ Historical liabilities
no longer qualify for origin. For example, cumulation no
In the eyes of the law, government agencies such as customs
longer applies as some suppliers are no longer located in a
authorities or other competent authorities can apply the principle
territory that is a party to an FTA. Alternatively, costing has
of successor liability, and hold acquiring companies liable for any
changed such that a regional value content rule is no longer
misconduct or trade violations committed by the target prior to
satisfied. Changes to physical product flows can also affect
acquisition. For instance, errors in existing tariff classifications
eligibility of the finished products for FTA qualification. For
or in FTA qualification determination processes can create
example, a company currently importing goods of European
new liabilities for the buyer, who may continue to submit errant
origin into Vietnam under the EU-Vietnam FTA may find that
declarations and wrongly claim preferential tariffs in the importing
pursuing a regional integration strategy and routing goods
territory. Record keeping lapses can also be costly should the
through a regional hub in Singapore may affect the ability
company be subject to future customs audits and investigations.
to continue to qualify and claim for preferential rates on
This especially applies to companies that utilise trade facilitation
import into Vietnam. The result of all the above examples is
schemes, where it is common practice for Customs to claw
that it is no longer possible to continue to sell products into
back duties and taxes from a new organisation for shoddy
destination markets using FTA benefits, making products
recordkeeping practices or non-compliant activities by the
less competitive.
acquired company in the past.
If a certificate of origin cannot be obtained in time, companies
Some errors, e.g. export control non-compliance, are more
could be forced to continue shipping and importing goods
serious in nature than others. Penalties per transaction can add
under higher duty rates to ensure business continuity, which
up to hundreds of thousands of dollars per transaction. It may
will result in additional customs duty liability. Even if the relevant
also be time consuming and costly for a company to implement
documents can eventually be issued retroactively, duty refund
corrective plans to remedy past mistakes and strengthen current
approvals are typically difficult to obtain in practice. It could take
import and export compliance programs in a rush, prior to go-
months (or even years!) to claim back the excess duties paid.
live.
This cash impact can be especially large for traditionally high
duty industries – such as automotive, tobacco, alcohol, textile Æ Roles and responsibilities in the new organisation
and apparel products, and foodstuffs, to name a few. Sharp
Deal transitions typically involve some level of back-office
increases in effective ad valorem duty rates can easily cancel out
consolidation driven primarily by the needs of the new
any profits achieved through careful cost cutting and operational
organisation and cost synergies. In the same vein, responsibilities
Trade Intelligence Asia Pacific - August / Trade
September 2020 7
Intelligence
for customs and trade compliance may be shared or re-shuffled import and export licensing, export controls, record
between existing functional teams. New staff may be hired to keeping and customs broker management etc.
take up additional roles, or existing staff may take on expanded
• Historical trade violations and potential liabilities: Did
responsibilities to manage customs and trade risks. For example,
the acquired or divested party commit any customs or
during a divestment, the new standalone company will no longer
trade compliance violations? What is the nature of these
have access to its previous parent entity’s shared services
violations and the associated risk exposure and liability?
platform.
The typically very short lead times and limited data access
From a customs and trade perspective, all customs
will hamper a robust assessment. It is thus important to keep
compliance roles will need to be covered by personnel in the
flexibility in approach and focus on key customs and trade
new organisation, e.g. determination of tariff classifications or
touchpoints in consideration of the target’s supply chain
assistance with operational trade functions. Companies can
structure and likely material issues. The aim is not to resolve
struggle to manage these changes, especially if existing or new
non-compliance at this point, but to uncover potential risks such
staff are not equipped with the technical skills to perform such
that there are minimal surprises once the deal progresses to the
functions.
transition period.
How to get it right?
2. Create a Day One “Customs Plan”
Clearly, much can, and does, go wrong. Although there is no
A comprehensive customs integration plan covering
standard fool-proof way of managing the customs and trade
both implementation and execution is integral to provide
aspects of a deal, we see lots of room for improvement, be
employees in the new organisation with guidance on the
that during due diligence, in preparation for Day One, or even
key areas that should be considered and managed prior
after Day One. Early involvement by knowledgeable personnel,
to the start of the transition phase and eventually Day One
appropriately assessing the level and implications of customs
operations. It also serves as a control mechanism. Typically,
risks during the due diligence process is a must. If discovered
it should take the form of an extended list of “Customs
in advance, the buyer and seller in the deal can take calculated
and trade essential tasks and activities”, organised by key
steps to mitigate their risks.
customs and trade touchpoints, and tailored to suit business
The benefits are twofold. From the perspective of the purchasing unit operations and specific territory processes. The plan
company or the buyer, it limits successor liability by being aware should lay out the decisions and action items that need to
of the effects of historical non-compliant practices within the be managed to ensure trading readiness before closing, as
acquired party that could result in regulatory fines, penalties or well as identify any process gaps that need to be addressed.
additional duty costs. From the perspective of the acquired entity,
The responsibility for management of customs risks
it proactively identifies risks, allows for measures to be taken
rarely sits with a single department or individual within an
to avoid go-forward customs and trade violations and ensures
organisation. It spans across multiple functions, including
smooth business continuity post-deal.
supply chain, logistics, finance, tax, legal or compliance and
Practically, the following steps and approaches would be of quality control. It is therefore often necessary for the plan to
immeasurable benefit. be construed of multiple concurrent functional workstreams.
The larger the (new) organisation, the more detailed and
1. Ask the right questions pre-deal
intricate the plan will be. Progress should be continually
Given the dual financial and operational aspects of a trade monitored to ensure that any identified issues are resolved in
and customs function, an effective customs due diligence a timely manner.
review looks at both the financial and operational aspects
3. Monitoring and follow-up post Day One
of the target company. Involving internal trade compliance
experts or even third-party consultants sooner rather Post go-live, it remains as important for companies to
than later in the process is critical towards managing continue to audit and monitor trade operations to evaluate
regulatory and operational risks. This ensures that the right ongoing compliance and mitigate customs risks. This
questions are asked, assessed and answered during the can include conducting regular assessments of identified
pre-acquisition or divesture phase, and reduces blind spots risk areas or by subject matter, monitoring the activities
and unwanted surprises after go-live. The questions should of customs brokers, performing periodic audits of import
cover: transactions and implementing procedural changes to
optimise customs and trade related costs and improve
• Future customs and trade management: Does
efficiency.
the divested company or acquiring company have
dedicated trade compliance staff responsible for The next time your company is considering a merger, acquisition
managing and overseeing such functions? or divestment, it would be wise not to immediately disregard
customs and international trade risks as being immaterial. If the
• Operational continuity: What will the new organisational
target company engages in any kind of international trade, there
structure look like and what form will the new
are likely to be many hidden risks and potential exposures that
organisation take? This will dictate the necessary
cannot be gleaned from financial statements, even if they were
operational changes that need to be made.
available in a data room. They could however have significant
• Existing compliance policies and procedures: Does the implications on future business success. Not assessing the
company have in place an existing import and export customs and international trade impacts of the organisational
compliance program, or adequate control policies and change, not having a clear plan to manage identified risks,
procedures for all key customs and trade areas? E.g. not integrating a newly acquired business customs and trade
Customs valuation, classification and FTA management, processes ready for Day On – that would be M.A.D.ness indeed.
8 Trade Intelligence Asia Pacific - August / September 2020 Trade Intelligence 8
ASEAN
Roll out of ASEAN-Wide Self- Step 2: Register with the Competent Authority
Certification Scheme Depending on the local rules, this may be done electronically
and/or in writing. A list of the Competent Authority of each mem-
On 20 September 2020, the ASEAN-Wide Self-Certification ber state is summarised in the table below.
(AWSC) Scheme entered into force. The AWSC is a trade
ASEAN member state Competent Authority
facilitation scheme which allows businesses registered as
Certified Exporters (CE) to have an option to self-certify their Brunei Ministry of Finance & Economy,
goods and make an origin declaration on commercial documents Trade Facilitation & Promotion
instead of applying for a Certificate of Origin to be issued by Division
specific Competent Authorities (Form D). Ultimately, this should Cambodia The Steering Committee
simplify export procedures and reduce administrative workload Indonesia Directorate General of Foreign
and costs for CEs. Trade, Ministry of Trade
The AWSC is now implemented by all 10 ASEAN member states Lao PDR Ministry of Industry & Commerce
through an amendment to the ASEAN Trade in Goods Malaysia Ministry of International Trade &
Agreement (ATIGA). The First Protocol to amend ATIGA lays out Industry
the general rules for implementation of the AWSC in all ASEAN
Myanmar Ministry of Commerce
member states, amongst other amendments. Refer to the FTA
Philippines Bureau of Customs
Focus section for other changes brought about by the entry into
force of the First Protocol. We have provided an overview of Singapore Singapore Customs
changes relating to the AWSC below as a step by step guide to Thailand Department of Foreign Trade
be(com)ing a CE. Vietnam Ministry of Industry & Trade
Step 1: Check eligibility to be a CE
Step 3: Grant of CE status
Individual companies interested in becoming CEs should check
their eligibility. The minimum eligibility criteria is detailed in Rule Once CE status has been granted to a company, it will receive a
12A of the ATIGA Operational Certification Procedures, and are written authorisation from the Competent Authority. This contains
as listed: a CE authorisation code that must be indicated on the origin
declaration.
• Registered in the exporting member state;
• Know and understand the Rules of Origin in ATIGA; Each member state is also expected to update an AWSC data-
• Experienced exporter; base that is overseen by the ASEAN Secretariat. This requires
the furnishing of details including the name and address of the
• No record of any Rules of Origin fraud;
company; CE authorisation code; issuance and expiry date of
• Good compliance measured by local risk management rules;
CE authorisation (if applicable); list of products subject to the
• If the exporter is a trader, he/she must have a
authorisation (including HS code or AHTN code); and list of
“manufacturer’s declaration” which indicates the product authorised signatories and specimen signatures for the company.
origin subject to self-certification and the readiness to coop- Each member state is required to update the information in the
erate in a database should there be changes (e.g., change of information,
retroactive check and verification visit if required; and withdrawal or suspension of authorisations).
• Has a sound bookkeeping and recordkeeping system.
The receiving member state can refuse to grant preferential ac-
Although the above minimum eligibility criteria apply to all ASEAN cess if an origin declaration is not covered in the database.
member states, each ASEAN member state may apply its own
additional requirements. This could create inconsistencies across
territories in terms of the criteria, procedures and supporting
documentation required to be granted a CE status. Companies
interested in becoming CEs should therefore ensure they are able
to comply with specific in-territory rules before registering. Refer
to the individual territory reports for details.
Trade Intelligence Asia Pacific - August / September 2020 9
Step 4: Complete origin declaration
An origin declaration should be made out on a commercial invoice, to the extent possible. Where this is not possible,(e.g. the exporter
does not issue an invoice for the exported goods) it may be made out on a billing statement, delivery order, or packing list a commercial
invoice must also be submitted at the time of importation.
The following information will need to be provided in an origin declaration:
• CE authorisation code;
• Goods description;
This includes product name; HS code or AHTN code; origin conferring criterion; Country of Origin; FOB price (if the Regional Value
Content origin criterion is used); quantity of goods; trademark; and in cases of a back-to-back origin declaration, the original Proof
of Origin reference number, date of issuance, Country of Origin of the first exporting country, and the CE authorisation code of the
exporter from the first exporting country, if applicable.
• Certification and signature by an authorised signatory of the CE that the goods meet all the relevant requirements.
Refer to Rule 12B of the Operational Certification Procedures for more details. Note that e-Form Ds and paper-based Form Ds remain
valid and can still be used. Exporters with CE status may also choose to use e-Form Ds and paper-based Form Ds if they prefer.
Step 5: Cooperate during verification checks
Companies with CE status under the AWSC should expect to be subject to verification checks.
• Verification checks triggered by Competent Authority that granted the CE status
Each member state’s Competent Authority will monitor CEs’ use of their authorisation, for instance, by verifying the correctness
of the origin declarations made out. Rule 12C of the Operational Certification Procedures states that the frequency and depth of
such monitoring and verification efforts should be risk-based, but there is no further guidance or parameters provided. We expect
national customs administrations to take different approaches and apply varying levels of scrutiny.
• Verification checks triggered by customs authorities of the importing member state
Customs authorities of the importing member state can request for the Competent Authority of the exporting member state to
perform retroactive checks, either at random or when there is doubt as to the authenticity of the document or its claim. Competent
Authorities receiving such a request are obliged to conduct retroactive checks on the producer/exporter’s cost statements, and
respond to the customs authority of the importing member state. Under the rules, the customs authority of the importing member
state can then re-assess and determine whether or not the good is originating to be granted preferential treatment. In exceptional
circumstances, the customs authority of the importing member state may opt to perform a verification visit to the exporting mem-
ber state. Refer to Rules 12C, 18 and 19 of the Operational Certification Procedures for details.
Refer to the individual territory reports for details on how each ASEAN member state has implemented the AWSC.
10 Trade Intelligence Asia Pacific - August / September 2020Export controls
US and China ramp up trade China amends export control
restrictions on various specific technology list
entities
On 28 August 2020, China’s Ministry of Commerce and Ministry
of Science and Technology jointly issued Announcement [2020]
On 27 August 2020, the US Commerce Department’s Bureau of
No. 38 amending the Catalogue of Technologies Prohibited or
Industry and Security (BIS) published its ‘final rule’ on restrictions
Restricted from Export, which entered into effect on the same
which included an additional 24 new Chinese state-owned
day. The amended list:
entities to the existing Entity List of SCS Designees. These
restrictions bar any export, re-export or transfer of commodities, • adds 23 new categories of technologies to the list of
software or technology from all US-based and non-US based technologies restricted from export,
suppliers to a SCS Designee (or entity listed under the Entity List). • modifies the control parameters for 21 categories of
The US BIS cited land reclamation and construction activities technologies already included, and
in disputed territories in the South China Sea as reasons for • removes an existing 4 and 5 categories of technologies from
this restriction. Previously cited reasons include human rights the list of technologies prohibited and restricted from export
violations and involvement in the “One Belt One Road” project. respectively.
In retaliation, the Ministry of Commerce of the People’s Republic Refer to the China Territory Section for more details on the
of China (MOFCOM) issued Regulations on Unreliable Entity List specific changes and updates .
(UEL Regulations) on 19 September 2020. The UEL Regulations,
which entered into effect on the same day, may impose
restrictions on: (1) China-related import or export activities; (2)
Singapore updates Strategic Goods
investments in China; (3) personnel or vehicles from entering Control Order
China; and (4) work permits and qualifications to stay or reside
in China. Entities found to be in breach of the UEL Regulations
Singapore Customs gazetted its new Strategic Goods (Control)
may be subject to monetary penalties based on the severity of
Order 2020, which is expected to enter into force on 16
their infringements. No specific foreign entity has been added
November 2020. The new legislation is intended to ensure that
into the UEL yet at the time of writing. Refer to the China Territory
Singapore’s strategic goods control list remains up to date with
Section for more details on the specific details of the provisions
the latest 2019 Wassenaar Arrangement’s Munitions List and the
for inclusion in the UEL.
2019 European Union’s List of Dual-Use Items.
Refer to the Singapore Territory Section for more details on the
EU follows the US and UK in specific changes and updates .
restricting sensitive exports to Hong
Kong
On 28 July 2020, the EU published a press release on imposing
EU-wide export measures on sensitive exports to Hong Kong.
Such sensitive exports include technology and equipment
for end-use in Hong Kong, with specific mention for usage
in relation to “internal repression, the interception of internal
communications or cyber surveillance”. This recent measure
follows previous US and UK measures in response to China’s
new National Security Law for Hong Kong.
Trade Intelligence Asia Pacific - August / September 2020 11FTA focus
Agreements signed Date
Australia-Singapore Digital Economy Agreement 6 August 2020
Agreements entered into force Date
ASEAN-Japan Comprehensive Economic Partnership (AJCEP) - First Protocol 1 August 2020
EU-Vietnam Free Trade Agreement 1 August 2020
ASEAN-Trade in Goods Agreement - First Protocol 20 September 2020
ASEAN-Japan CEPA upgrade enters First Protocol to amend ATIGA enters
into force into force, AWSC takes effect
As reported in the ASEAN section, the first protocol to amend the
The upgrade, or more formally, the First Protocol to ASEAN-
ASEAN Trade in Goods Agreement (ATIGA) came into force on
Japan Comprehensive Economic Partnership (AJCEP)
20 September 2020. The protocol incorporates the ASEAN-Wide
agreement, entered into force on 1 August 2020 following
Self Certification Scheme (AWSC), a trade facilitation scheme
Japan’s announcement that it had completed its domestic
which allows businesses registered as Certified Exporters (CE)
procedures. As of writing, the revised deal applies to Laos,
to have an option to self-certify their goods and make an origin
Japan, Myanmar, Singapore, Thailand and Vietnam, as they
declaration on commercial documents instead of issuing a
have already completed their necessary domestic procedures.
Certificate of Origin (Form D).
It has been reported that the remaining ASEAN members will
complete their procedures before the end of 2020. The First Another change under the ATIGA Operational Certification
Protocol adds provisions on trade in services, movement of Procedures, is that the FOB price will now only be required to
persons, and investment to the AJCEP, which entered into force be declared on Certificate of Origin (Form D) for goods exported
in 2008. from and imported to Cambodia, Indonesia and Laos. For goods
exported from other parties the FOB value no longer needs to be
The text of the First Protocol can be accessed here: declared on the Form D, thereby eliminating the administrative
https://www.mofa.go.jp/policy/economy/fta/page23e_000570. burden of having to cross-reference values declared in Form D
htm with those indicated on other trade documents.
With the entry into force of the first protocol, many ASEAN
EU-Vietnam FTA enters into force member states, including Indonesia, Philippines, Singapore,
Thailand and Vietnam, have issued local guidelines and
As reported in the June - July 2020 edition of Trade Intelligence procedures for implementation of the AWSC under ATIGA. The
, Vietnam’s Free Trade Agreement and Investment Protection respective territory specific procedures implemented are covered
Agreement (IPA) with the European Union (EU) entered into force in the individual territory sections.
on 1 August 2020. Under the EVFTA, Vietnam exporters can
enjoy tariff benefits including the elimination of customs duties for
85% of tariff lines or 70.3% of Vietnam’s export value to the EU
Australia and Singapore sign digital
upon entry into force. 99% of tariff lines will have customs duties trade agreement
eliminated after 7 years.
On 6 August 2020, Australia and Singapore signed a Digital
48.5% of tariff lines or 64.5% of the EU’s export value to Vietnam,
Economy Agreement (DEA) aimed at broadening economic
will also enjoy duty free treatment. After seven years, the EU will
engagement and enhancing digital trade opportunities for
eliminate customs duties for 99.2% of the tariff lines and in return,
businesses and consumers in both territories. This agreement
Vietnam will eliminate duties for the 91.8% tariff lines. After 10
upgrades the existing Singapore-Australia Free Trade Agreement
years, Vietnam will have customs duties eliminated for 98.3%
(SAFTA) via the incorporation of a new Digital Economy chapter.
tariff lines.
The DEA proposes more comprehensive and modernised digital
The text of the agreement can be accessed here:
trade rules and regulations, as well as a robust partnership
http://trade.ec.europa.eu/doclib/press/index.cfm?id=1437
framework, to improve cross-border data flows and facilitate
https://ec.europa.eu/taxation_customs/sites/taxation/files/evfta-
digital trade. Under the DEA, both sides also signed seven
guidance.pdf
Memoranda of Understanding (MOUs) to operationalise certain
12 Trade Intelligence Asia Pacific - August / September 2020modules in the DEA by identifying or mapping collaboration and knitted textiles to Cambodia. Cambodia’s exports to South
projects, specifically in the areas of artificial intelligence, data Korea are mainly textile articles such as clothes and shoes.
innovation, digital identities, personal information protection,
E-invoicing, trade facilitation and E-certification on agricultural
commodities.
Japan and the United Kingdom inch
closer to trade deal
In terms of trade facilitation, both sides have agreed to
pursue the digitisation of trade administration documentation On 11 September 2020, the Japan-UK Comprehensive
for efficient cargo clearance, improve coordination between Economic Partnership Agreement was agreed in principle by
existing Authorised Economic Operator (AEO) programs both governments. Dubbed as the UK’s first major post-Brexit
and explore single window connectivity between Singapore trade agreement, the deal is expected to smoothen the economic
Customs and the Australian Border Force. Both sides have relationship of the two parties after the UK’s exit transition
also committed to promote and harmonize digital trade period from the European Union ends in December 2020. Come
standardisation. January next year, the UK will no longer be part of the European
The full DEA legal text, MoUs and fact sheets can be Union and therefore, its obligations and benefits from the EU-
accessed here: Japan Free Trade Agreement, will cease.
https://www.dfat.gov.au/trade/services-and-digital-trade/
As of writing, the full text of the agreement is not yet publicly
Pages/australia-and-singapore-digital-economy-agreement
available. Based on reports, the deal has been agreed after both
parties came to a compromise on agriculture and automotive.
ASEAN and ASEAN+ members Initially, Japan had denied the UK of any new quotas for some
of its agricultural products such as cheese and tea extracts.
reaffirm commitment to RCEP However, under the agreed Japan-UK deal, the UK will now be
conclusion by November 2020 able to use any quantities left over by the EU. For the Japanese
automotive industry, the deal will eliminate the current 10% tariff
During the Ministerial meeting held via video conference on vehicles in stages to zero by 2026.
on 27 August 2020, the ministers of the member parties to
the Regional Comprehensive Economic Partnership (RCEP) The UK claims that the bilateral trade deal with Japan has greater
Agreement announced that they have made significant benefits and reach compared to the current EU-Japan FTA that
progress to ensure the finalisation and signing of the came into force in February 2019. For example, the deal contains
agreement by November 2020. Highlighting the negative digital and data provisions that go “far-beyond” the EU-Japan
impacts and challenges brought by COVID-19, particularly trade agreement. This will likely benefit financial technology firms
on the trade and investment flows in the region, officials have in the UK. UK trade officials have also expressed that this deal
emphasised the agreement’s critical role in achieving growth would mark an important milestone for the territory’s plan to
and stability around the region in the post-COVID landscape. potentially join the 11-member Comprehensive and Progressive
Agreement Trans-Pacific Partnership (CPTPP).
At the meeting, the committee reaffirmed that RCEP’s
door is still open for India should it decide to rejoin the
agreement. However, our observations of the recent policies
Malaysia and Bangladesh to resume
and increased scrutiny of free trade agreement claims by FTA talks
the Indian Authorities suggest that it is still taking a more
protectionist focused approach and is likely to maintain its Bangladesh recently requested Malaysia to resume FTA talks
position of not taking part in the regional agreement in the as soon as possible with officials from Bangladesh, targeting
foreseeable future. a comprehensive FTA deal covering trade in goods, trade in
services, and investment.
Cambodia and South Korea Having a young population, Bangladesh’s main focus for the
conclude second round of FTA planned deal is trade in services, to ensure movement of human
resources to Malaysia. Key imported products from Malaysia
negotiations include mineral fuels, oils, metals, machinery, electronic and
electronic equipment. Bangladesh’s exports to Malaysia are
After four days of virtual meetings commencing on 3 August mainly apparels and agricultural products.
2020, Cambodia and South Korea concluded the second
round of bilateral talks on a new FTA. The discussion covered
chapters for trade cooperation and market access, and other
chapters of the agreement. Both sides have indicated that
there is more work to be done to agree on other chapters,
which are expected to be ironed out in the next round of
negotiations. Officials are expecting at least two more rounds
of negotiations, with targeted finalisation by end 2020. That
seems ambitious to say the least. The third round of virtual
discussion has been scheduled for November this year.
According to reports, trade volume between both territories
has reached USD 1 billion in 2019, 6% higher than 2018.
South Korea mainly exports ships, cargo trucks, beverages
Trade Intelligence Asia Pacific - August / September 2020 13Philippines pushing for continuation health concerns associated with the feed additive ractopamine.
Authorities in Taiwan are now preparing for the market opening
of trade negotiations with Turkey and introduction of new measures to ensure proper labelling of
such imported meat products.
Negotiations for a trade deal between the Philippines and Turkey
have been hampered by COVID-19, with the cancellation of the Business groups in Taiwan and the US have also formed a
second round of negotiations that was planned to be held in coalition to push for negotiations for a bilateral trade agreement.
Manila earlier this year. Despite the challenges, both parties have The coalition will allow businesses and organisations from
expressed commitment towards continuing with negotiations and different sectors to express support for the trade deal.
advancing their economic relationship into an FTA. Turkey, which
already has an existing FTA with Malaysia and Singapore, is also Thailand to restart FTA negotiations
negotiating for a trade agreement with Thailand and Indonesia.
with the EU
Philippines and South Korea target FTA negotiations between Thailand and the EU have been stalled
completion of trade deal this year for years due to political tensions. Nevertheless, Thailand’s Trade
Negotiations Department (DTN) has expressed commitment
The Philippines and South Korea are targeting to complete towards concluding the overall review for an FTA with the EU,
bilateral FTA negotiations by the end of 2020. Negotiations were which is expected to be delivered to the Commerce Minister later
originally planned to be completed last year but were put off as this year for consideration.
both parties failed to agree on the preferential tariffs to be applied On 22 September 2020, the DTN hosted a public forum to
on Philippines’ agricultural products and South Korean cars and gather input on the proposed FTA from the private sector, civil
automotive parts. Recent changes to the lead negotiators from society and farmers. The results of the forum will be included
South Korea, and travel restrictions imposed due to COVID-19, in the final study to be presented to the Commerce Minister.
have also affected progress. Both parties will be pursuing further Based on a 2019 joint study report, an FTA with the EU will
negotiations through virtual meetings to clear key concerns help boost Thailand’s imports, exports and investments. Key
blocking the completion of the trade deal. products exported from Thailand to the EU include computers
and their parts, automobiles and their parts, gems and jewellery,
Taiwan to explore bilateral trade air conditioners and their parts, rubber products and processed
chicken. Thailand’s main imports from the EU include machinery
agreement with the US and its parts, aircraft, electrical machines and their parts and
chemicals.
Taiwan’s recent announcement of easing import restrictions of
pork and beef from the United States signals that a bilateral
trade agreement between both parties may be nearing. Starting
on 1 January 2021, US pork containing ractopamine within
permitted levels and beef obtained from cattle aged 30 months
or older are allowed to be imported into Taiwan. Previously,
import restrictions were in place for these products due to the
14 Trade Intelligence Asia Pacific - August / September 2020Territory reports
Australia Possible reforms to Australia’s
geographical indications regulatory
framework
Gary Dutton
The Australian Government has launched a public consultation
+61 (7) 3257 8783
process with relevant stakeholders in relation to a possible new
gary.dutton@pwc.com
Geographical Indications (GIs) right as a part of the current FTA
negotiations with the European Union (EU). A GI is a distinctive
sign used to identify goods with a particular geographical
China initiates anti-dumping and origin to which their qualities, characteristics or reputation are
countervailing investigations on attributable. Once a GI is protected, the name may not be used
except by producers who meet the rules protecting the GI.
Australian wine exports
The EU has identified the protection of GIs as one of its key
objectives during negotiation of an FTA with Australia. Thus,
On 18 August 2020, the Chinese Ministry of Commerce
should Australia agree to protect GI terms as part of an FTA
(MOFCOM) formally commenced an anti-dumping investigation
with the EU, reforms to Australia’s legislative framework for the
on Australian wine exports into China. This investigation will
protection of GIs would be required. To ensure alignment with the
analyse whether Australian winemakers have sold wine (in
interests of Australian producers, businesses and consumers,
containers of less than 2 litres) into China at prices below
the Australian Government is requesting stakeholders to provide
domestic market prices. This relates to wine products classified
a submission, complete an online survey or attend an online
under tariff code 2204.21.00 under China’s Customs Import
webinar to share views on a potential new regulatory framework.
and Export Tariff. On 31 August 2020, MOFCOM confirmed
the initiation of a second countervailing duties investigation
being launched into alleged subsidies arising from Australian
Government programs.
In 2019, Australian wine exports to China were valued at AUD
1.25 billion dollars and accounted for more than a third of
Australian wine exports. Should investigations conclude that
dumping has occurred and that the subsidies provided have
suppressed Australian wine prices, therefore causing injury
to China’s domestic wine industry, an anti-dumping tariff of
potentially 202.70% in addition to a potential anti-subsidy tariff
could be applied on the concerned products. This would amount
to duties of up to 290% for Australian wine imported into China.
Prior to this, China had also launched past investigations on
other Australian exports. In May 2020, following the conclusion
of a one-year anti-dumping investigation, China had announced
the imposition of an 80.5% tariff on Australian barley imports for
five years.
Trade Intelligence Asia Pacific - August / September 2020 15You can also read
