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Free trade agreement provides complexity amid the opportunities

2 March 2009

The ASEAN-Australia-New Zealand free trade agreement signed last week will increase opportunities for businesses across the region but will create an extremely complex strata of tariff measures and other free trade commitments, according to a leading South East Asian lawyer.

Allens Arthur Robinson (Allens) Partner Marcus Clark said multinational companies operating across the new ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) and those looking to expand or align operations to best capture AANZFTA benefits will need to be aware of the differences in tariff rates from country to country and the existence of free trade agreements between different AANZFTA member countries and other countries such as the United States and China.

'The Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area includes some very attractive tariff reductions but it is not a one-size-fits-all agreement because it has been formed within a complex web of World Trade Organization, regional and bilateral trade arrangements,' Mr Clark said.

'Companies looking to take advantage of the provisions of the new agreement will need to be acutely aware of what lies beneath.'

Mr Clark said that while the commitments given by each member were generally available to all, some anomalies will arise.

'For example, the introduction of "regionally cumulative" rules of origin mean that a Thai exporter of goods to Australia can treat materials imported from the Philippines as if they had been produced in Thailand for the purpose of satisfying the rules of origin used to determine whether AANZFTA preferential tariffs are available.

'But the exporter may actually be better off accessing more favourable preferential tariffs under the Thailand-Australia Free Trade Agreement, which does not use regionally cumulative rules and hence would need to think carefully about whether sourcing materials from the Philippines was actually the right way to go.'

Mr Clark said businesses would need to:

  • think about what sort of tariff waivers and reductions may be available under domestic investment promotion laws. Why develop complex regional arrangements to avoid tariffs when their could be an easier way?
  • watch that regional arrangements do not trigger ineligibility for preferential tariffs enjoyed in other markets such as the United States (for Australian and Singaporean exporters).

AANZFTA involves some real tariff gains and with the most significant reductions to be in place by 2013, now is the time for businesses to start thinking about how to best order their regional supply arrangements to best capture competitive advantage.

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Notes for editors.

Allens Arthur Robinson has staff in 14 cities and eight countries across the Asia Pacific.