Free Trade Agreement Developments

CHINA, S. KOREA CONCLUDE FTA TALKS

China and the Republic of Korea (“ROK”) concluded substantive negotiations on a bilateral free trade agreement (“FTA”) on November 10, 2014.

The agreement will remove tariffs on 90 percent of bilateral trade. The China-ROK FTA will have the widest coverage and involve the biggest trade volume among all the FTA talks that China has engaged or is engaging in. China is the ROK’s largest trading partner and the largest market for ROK exports. In 2013, two-way trade between the two countries reached USD 274 billion, and the leaders have promised to increase this to USD 300 billion by 2015.

World Trade Organization (“WTO”) negotiations to expand the Information Technology Agreement (“ITA”) almost came to a halt in early December when China refused to deviate from the bilateral agreement reached with the United States and meet demands from the ROK and Taiwan to drop duties on flatpanel displays and other products. Analysts are of the view that, while China and the ROK could have agreed on a liberalization schedule for the products under their bilateral FTA, China may be reluctant to do so for all other WTO members on a most-favored-nation (“MFN”) basis.

China and the ROK expect to formally sign the FTA in the first half of 2015 for implementation in the second half of the year, after domestic ratification in both countries. The two countries also agreed to continue negotiations on the negative lists for service trade and investment.

The conclusion of the China-ROK FTA talks is putting pressure on:

  • Japan, as the trilateral ChinaJapan-South Korea FTA negotiations have failed to make any substantial progress; and
  • Taiwan, in moving forward with respect to the China-Taiwan Comprehensive Economic Cooperation Agreement negotiations. Taiwan competes with the ROK in many industrial sectors.

CHINA AND AUSTR ALIA FINALIZE FTA NEGOTIATIONS

China and Australia finalized substantial negotiations on a bilateral FTA on November 17, 2014, after nearly a decade of talks.

Australia will reduce tariffs to zero on all goods imported from China, and China will remove tariffs on a vast majority of Australian goods, including agriculture and food products, resource and energy products, pharmaceuticals, and manufactured good such as plastic products, car engines, and cosmetic products.

The FTA will cover more than 10 areas, including a simplified review procedure for investments, favorable market access rules and market transparency.

China is hoping that, with the signature of the bilateral FTA in 2015, the pressure of the US-led Trans-Pacific Partnership pact would be eased. A further spillover effect is that there are now voices in Canada advocating for the country to start bilateral FTA talks with China. etailed plans for the th

Policy Developments

CHINA

China to Launch Three New Free Trade Zones

On December 12, 2014, the Chinese government formally announced that it will establish three new free trade zones (“FTZs”) modeled on the China (Shanghai) Pilot FTZ which was established one year ago. The new FTZs will be in Guangdong province in southern China, Fujian in the east, and the provincial-level city of Tianjin, southeast of Beijing.

The decision to establish these three FTZs was announced after a State Council executive meeting, in hopes of replicating the Shanghai model’s success. At that meeting, it was also concluded that more experiments would be conducted in the existing Shanghai FTZ to encourage foreign investments and the development of advanced manufacturing and services sectors.

While 70-80 percent of the plans for the three new FTZs will be identical to those for Shanghai, each FTZ is also expected to develop its own local characteristics. For instance, the FTZ in Guangdong is expected to focus on customs clearance and financial reforms due to its proximity to Hong Kong and Macao. The Fujian FTZ is predicted to have more favourable policies concerning trade with Taiwan, and the Tianjin FTZ will focus on financial leasing.

Detailed plans for the three new FTZs have not yet been made public. Some local officials are expecting the plans to be published and the new FTZs to be launched by the end of first quarter of 2015.

INDONESIA

Ministry of Energy and Mineral Resources Simplifies Permit Procedure for Mineral Sector

At the end of October 2014, the Ministry of Energy and Mineral Resources (“ESDM”) announced its intention to simplify business permit procedures for the mineral sector. Currently, there are 101 business permits required for the mineral sector. The ESDM will reduce and consolidate those into 71 business permits.

According to the ESDM, the new business permit procedures are expected to achieve the following:

  • No overlapping permits issued by the ESDM and other agencies;
  • Reduce the number of permits required, with the elimination of duplication/redundancy;
  • Provide clear technical guidance in obtaining permits;
  • Provide clear information on the costs for obtaining permits;
  • Simplify the procedures for obtaining permits; and
  • Provide for permit application mostly through online system.

MALAYSIA

Prime Minister Reveals Budget 2015

On October 10, 2014, Prime Minister and Minister of Finance Datuk Seri Najib Tun Razak tabled the Budget 2015 in the Dewan Rakyat. The Budget 2015 prioritizes concerns over rising cost of living while, at the same time, tries to reduce the country’s budget deficit. In particular, the government announced the following:

  • More items, including essential foodstuff and medicines, will be exempted from application of the Goods & Services Tax;
  • New measures will be introduced to rationalize subsidies, particularly petroleum subsidies;
  • Corporate income tax rate will be reduced one percentage point to 24 percent; and
  • Several incentive programs will be introduced/ enhanced to spur economic growth, covering economic corridors; industrial areas; automation; technology, innovation and knowledge investments; principal hubs; research and development and commercialization.

PHILIPPINES

House of Representatives Approves Customs Modernization and Tariff Act

On November 17, 2014, the House of Representatives Committee on Ways and Means approved the draft Customs Modernization and Tariff Act (“CMTA”). The CMTA will change the orientation of the Bureau of Customs from being a collector of revenue to a facilitation agency, through:

  • Simplification of customs procedures;
  • Instituting steeper penalties for illegal practices;
  • Raising the de minimis value of incoming goods exempted from duties; and
  • Fully operationalizing the Philippine National Single Window.

The CMTA will replace the Tariff and Customs Code of the Philippines of 1978. The CMTA is a priority measure for Congress, and whose passage is expected before the end of 2014.

Department of Health Issues Graphic Warning Templates for Cigarettes

On July 18, 2014, President Aquino signed Republic Act 10643 or “An Act to Effectively Instill Health Consciousness through Graphic Health Warning on Tobacco Products”. To implement the law, on October 28, 2014, the Department of Health issued Administrative Order 2014-0037 which contains 12 graphic warning templates. These warnings shall be printed simultaneously and rotated periodically for each brand family and for each variant. This means that every month, variations of the graphic warnings and messages shall be used on retail packages of cigarettes with equal frequency.

Tobacco companies have one year after the release of the templates to comply with the law and retailers have a further eight months to dispose of their old stocks that do not have the graphic warnings.

SINGAPORE

Health Sciences Authority Seeks Public Feedback on Regulatory Controls Relating to Pharmaceutical Products

From October 27 to November 23, 2014, the Health Sciences Authority (“HSA”) conducted public consultations on the transfer of regulatory controls for certain pharmaceutical products to the Health Products Act. Specifically, the consultations relate to the controls on advertisements and retail pharmacies licensing of therapeutic products, including:

  • Broad principles and requirements for advertiser self-regulation;
  • Advisories/warnings on all direct-to-consumers advertisements of Pharmacy-Only Medicines; and
  • Provisions on telepharmacy by licensed retail pharmacies.

Pharmaceutical products will be introduced as “therapeutic products” under the Act. “Therapeutic product” is defined as a health product intended for a therapeutic, preventive, palliative or diagnostic purpose, and includes chemical and biologic drugs.

The HSA is aiming to finalize and implement the proposed regulatory framework for such products in the third quarter of 2015.

THAILAND

The Department of Trade Negotiations (“DTN”) of the Ministry of Commerce conducted a public seminar titled “Turkey: impact and implications on Thailand” in November 2014. The DTN is seeking feedback on the feasibility and impact of a bilateral FTA with Turkey.

Turkey is Thailand’s 39th largest trading partner, and seventh largest among countries in the Middle East. In 2013, trade between the two countries was valued at USD 1.43 billion. Exports from Thailand to Turkey were worth USD 1.11 billion, and imports to Thailand USD 318.6 million.

Major Thai exports to Turkey include foodstuff, plastics, refrigerators, auto parts, rubber products, and garments. Turkish products that would enjoy higher exports to Thailand are marble, jewellery and ornaments, garments, and automobiles and automotive parts.

VIETNAM

State Bank of Vietnam Amends Anti-Money Laundering Provisions

On November 11, 2014, the State Bank of Vietnam (“SBV”) issued Circular No. 31/2014/TT-NHNN (“Circular 31”) amending a number provisions of Circular No. 35/2013/TT-NHNN (“Circular 35”) relating to anti-money laundering (“AML”). The new anti-money laundering provisions will come into effect on December 26, 2014.

Key changes under Circular 31 are as follows:

  • Previously under Circular 35, transactions over VND 300 million must be reported to the Department of AML under the SBV. Under Circular 31, the transactional value is increased to VND 500 million.
  • Circular 31 requires cross-border transactions of USD 1,000 or more to be reported to the Department of AML. Debit card and credit card transactions are exempted from this reporting requirement.
  • With respect to the “know your customer” procedure, Circular 31:
    • No longer requires the transferring bank to collect the family information of clients.
    • Now requires entity clients to declare their revenues of the last two years. 

Circular 31 will take effect on December 26, 2014.