China Free Trade Agreement to Commence on 20 December

Fresh sheep wool in bags ready to be shipped

China Free Trade Agreement to Commence on 20 December

The Free Trade Agreement between Australia and China will commence on 20 December bringing with it an immediate round of tariff cuts and a further round of cuts on 1 January 2016. With only 11 days’ notice of commencement, importers and exporters need to act quickly to prepare.

What goods will qualify?

The benefits of the FTA will not apply automatically. Importers of goods need to claim the benefit of the FTA, and they can only do so if the goods meet the rules of origin and the applicable paperwork is held. For most importers this will be a certificate of origin issued by an authorised body. If a ruling has been obtained from the Customs Authority of the importing country, a self-certified declaration of origin can be provided by the exporter in place of a certificate of origin.

What if I don’t have a certificate of origin?

Certificates of origin will not be issued until after the FTA commences. Further, there will be goods already on the water for which no certificate of origin is held. If those goods arrive on or after 20 December the goods can be entered and duty paid, with the importer having 6 months to retrospectively obtain a certificate of origin. Once the certificate is held, a refund can be claimed.

For goods that arrive prior to 20 December whether the FTA potentially applies will depend on whether an import declaration had already been lodged, whether the goods are warehoused until 20 December and whether the Customs Authority considers that warehousing of goods prior to clearance means the goods are in the process of being transported.

If the arrival of the goods will be close to 1 January, importers should consider delaying the lodgement of an import declaration and clearance of the goods until after 1 January. Delaying clearance until after 1 January will mean that goods will benefit from the second round of tariff reductions.  Of course this is only relevant if the duty rate wasn’t reduced to zero on implementation.

What to do now?

If you haven’t already done so, there are some preliminary steps that need to be taken:

  • Assess how the FTA affects your goods – Are the duty saving significant enough to invest time into ensuring the FTA is utilised? Generally the saving,s on imports into Australia will be a maximum of 5%. Imports into China may have duty savings in excess of 20%
  • If it makes commercial sense, determine whether your goods qualify for the reduced rate. FTAs are underutilised because the qualification rules are difficult. However, with a proactive holistic approach, the challenges of FTAs can be overcome
  • Speak to your supplier (for importers) or customer (for exporters) about the FTA. Will your suppliers be able to provide a certificate of origin? Will your customers actually claim the FTA if you go to the effort of obtaining a certificate of origin?
  • Appoint someone in your organise who will be responsible for your organisation’s use of FTAs. Utilisation of FTAs is much higher for organisations where there is someone managing FTAs.  Use of FTAs requires input from accounting, legal and logistics. This approach needs to be managed as high FTA use will not happen by accident

It is crucial that traders take FTA use seriously. Issues such as tariff concessions are often seen as merely operational matters. However, failure to properly manage FTA use can result in either a loss of competitive advantage, or more alarmingly, customs non-compliance.

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