The ASEAN-Korea Free Trade Area (AKFTA)

is a trade agreement between the ten (10) Member States of the Association of Southeast Asian Nations (ASEAN) and Korea. The Framework Agreement on Comprehensive Economic Cooperation Between the ASEAN and Korea was signed on December 13, 2005 in Kuala Lumpur, Malaysia. The Agreement on Trade in Goods reflecting the Parties' commitment on goods was signed on August 24, 2006 in Kuala Lumpur, Malaysia. The AKFTA covers economic cooperation projects on selected areas, e.g., effective trade and investment facilitation measures, and procedures and mechanisms for these measures’ effective implementation. It also provides for special and differential treatment to newer ASEAN Members to compensate for different levels of economic development and to enable them to fully participate and take advantage of the AKFTA benefits.

What are the objectives of the AKFTA?

The AKFTA seeks to strengthen and enhance economic, trade and investment cooperation among ASEAN Member States and Korea by progressively liberalizing and promoting trade in goods and services as well as create a transparent, liberal and facilitative investment regime. The Agreement also aims to explore new areas and develop appropriate measures for closer economic cooperation and integration; facilitate more effective economic integration of the new ASEAN Member States and bridge the development gaps; and, establish a cooperative framework to further strengthen economic relations among the countries.

What is the product coverage of the AKFTA?

All products, except arms and ammunitions, clinical and municipal wastes and specialized medicine for cancer, AIDS and other dreaded diseases, are covered under the program of progressive reduction/elimination of tariffs.

What are the timelines in the Agreement on Trade in Goods?

Under the Trade in Goods Agreement, parties commit to progressively reduce/eliminate tariffs on substantially all goods by:

· January 1, 2010 for Korea, Brunei, Indonesia, Malaysia, Philippines and Singapore;

· January 1, 2016 (with flexibility until 2018) for Viet Nam; and

· January 1, 2018 (with flexibility until 01 January 2020) for Cambodia, Lao PDR and Myanmar.

What are the modalities for tariff reduction and elimination under the AKFTA?

Normal Track (NT):

· About 90% of all tariff lines are to be progressively reduced to 0% by 2009 for Korea and by 2010 for ASEAN-5 (Brunei, Indonesia, Malaysia, Philippines and Singapore) with limited flexibilities until 2012.

· For ASEAN-5 and Korea, the following modalities apply: X = Applied MFN Rate (as of 01 January 2005) ASEAN-5 and Korea Tariff Reduction Modality 2006 2007 2008 2009 2010 X ≥ 20% 20 13 10 5 0 15% ≤ X < 20% 15 10 8 5 0 10% ≤ X < 15 % 10 8 5 3 0 5% < X < 10% 5 5 3 0 0 X ≤ 5% Standstill 0 0

Sensitive Track (ST):

· About 7% of all tariff lines and 7% of total import value for 2004 are included in the Sensitive List (SL) and some 200 tariff lines or 3% of all tariff lines and 3% of total import value are categorized in the Highly Sensitive List (HSL).1

· For ASEAN-5 and Korea, the following modalities apply: Sensitive List Highly Sensitive List Ø Reduction to 20% by 2012 Ø Reduction to 0%-5% by 2016

§ Group A: Reduction to not more than 50% by 2016

§ Group B: Reduction by not less than 20% by 2016

§ Group C: Reduction by not less than 50% by 2016

§ Group D: Tariff lines subject to tariff rate quotas

§ Group E: Tariff lines exempted from concessions (maximum of 40 tariff lines)

What is reciprocal tariff treatment under the AKFTA?

Reciprocal tariff treatment means determination of the preferential rate to be applied to an article placed in the ST of an exporting Party (except those excluded from the concession – Group E) for which the same article is placed by the importing Party in its NT. It applies if the tariff rate (MFN) of the exporting Party is 10% or below and the importing Party from whom reciprocity is sought has been duly notified. The following conditions shall determine the reciprocal tariff rate to be applied under the AKFTA:

a.       the reciprocal tariff rate shall either be the tariff rate of exporting Party, or the NT tariff rate of the importing Party from whom reciprocity is sought, whichever is higher; 1 Annex 2 of the Trade in Goods Agreement

b.       notwithstanding sub-paragraph (b), the importing Party can, on its own discretion, apply its NT tariff rate even if such rate is lower than the tariff rate of the exporting Party; and

c.       shall in no case exceed the applied MFN rate of the same tariff line of the importing Party. Below are a few illustrations on the application of reciprocal tariff rate treatment: AKFTA Rate (%) MFN Rate (%) Applicable AKFTA Rate (%) ST of Exporting Party with Tariff Rate < 10% NT of Importing Party Importing Party Importing Party (I) (II) (III) (IV) 10 5 20 · Can be either of the following:

a. 5%; NT rate (II) of importing party (importing party’s own discretion)

b. 10%; higher than importing party’s NT rate (II) of 5% but not exceeding the importing party’s MFN rate (III) of 20%* 7 15 20 · The applicable rate should be 15%, i.e., NT rate (II) of importing party. · This is higher than exporting party’s ST rate (I) of 7% but not exceeding the importing party’s MFN rate (III) of 20% 7 10 10 · The applicable rate should be 10%, i.e., NT rate (II) of importing party. · This is higher than exporting party’s ST rate (I) of 7% and equal to importing party’s MFN rate (III) 10 5 7 · Can be either of the following: a. 5%; NT rate (II) of importing party (importing party’s own discretion) b. 7%; importing party’s MFN rate (III). Note that exporting party’s ST rate (I) of 10%, which is higher than importing party’s NT rate (II) of 5%, exceeds the importing party’s MFN rate (III) * * the Philippines is applying

What are the Rules of Origin (ROOs) in the AKFTA?

Products which are wholly obtained or produced in the exporting Party shall be deemed originating and eligible for preferential tariff treatment. The “General Rule” of Regional Value Content (RVC) 40 is applicable to all other goods except where there is a Product Specific Rule (PSR). The PSR becomes either the exclusive rule or an alternative to the “General Rule” or a combination with the “General Rule” depending on the provisions of the FTA.

1. ROO Criteria – General Rule RVC 40 or Change in Tariff Heading

2. Certificate of Origin (CO) Form AK

3. Reciprocity Rule Conditions:

1. The product to be imported is in the NT of the Philippines and in the ST of the exporting FTA partner.

2. The ST rate of FTA partner should be 10% and below.

3. The applicable rate is whichever is higher between the FTA partner’s ST rate and the Philippines’ NT rate.

4.The applicable rate should not be greater than the Philippines’ MFN rate.

What Executive Orders (EOs) were issued to implement the Philippines’ tariff commitments under the AKFTA?

EO No. Philippine Commitment Effectivity Date 638 Reciprocal tariff treatment November 01, 2007 639 Tariff reduction schedule for NT products November 02, 2007 812 90% Reduction to 0% for NT with flexibility until 2012 July 07, 2009 895 Transfer of cochin from SL to NT September 15, 2010 52 Compensation to Korea for delayed implement of tariff commitments August 12, 2011 73 Tariff reduction schedule for HSL products April 26 , 2012 74 Tariff reduction schedule for SL products and accelerated reduction for products transferred from HSL or SL to NT April 26, 2012