How to enjoy preferential tariff rates through EPAs/FTAs
An EPA (Economic Partnership Agreement) is an agreement for trade and investment.
Recently, Japan has concluded six EPAs and a number of EPAs are under negotiation, mainly with countries in Asia.
EPAs give us an opportunity to import products from Japan with zero or low tariff rates.
We hope that this pamphlet is instructive for the use of EPAs.
Websites and information on EPAs/FTAs
The Number of CO Issued in Japan
FAQ
- [Q1]
- What are EPAs/FTAs?
- [Q2]
- What are the benefits of EPAs?
- [Q3]
- How are EPAs used?
- [Q4]
- What is the HS Code?
- [Q5]
- How are EPA tariff rates defined?
- [Q6]
- What are the Rules of Origin?
- [Q7]
- How do importers treat a Certificate of Origin (C/O)?
- [Q8]
- Are there any other policies to eliminate tariffs aside from EPAs?
Anser
- [Q1]
- What are EPAs/FTAs?
An FTA(Free Trade Agreement) is an international treaty to eliminate tariffs imposed between countries or regions and to abolish regulation in the field of foreign investments in trade in services.
An EPA(Economic Partnership Agreement) is an international treaty to deregulate regulations for investments and for immigration control in addition to the contents of an FTA.
EPAs (Economic Partnership Agreements) and FTAs (Free Trade Agreements)
It is likely that the contents of an FTA are included in an EPA. Japan has agreed on EPA-style treaties mainly with several Asian countries.
EPAs and FTAs have similar features in terms of tariff reduction or elimination. We describe EPAs/FTAs as EPAs in this pamphlet.
- [Q2]
- What are the benefits of EPAs?
Under EPAs, lower tariff rates (EPA tariff rates) are applied to imported products.
Benefits of EPAs
We have to pay the tariffs set by each country at the time of import.
Commonly, the same tariff rates are applied to all countries on the basis of WTO* principles.
(We call this the MFN (Most-Favored-Nation) rate.)
However, EPAs are able to set lower tariff rates than MFN rates (we call these the EPA rates) among countries that have concluded EPAs.
*WTO: The World Trade Organization - an international organization for legislating fair trade rules. 153 countries are affiliated (as of March 2009).
- [Q3]
- How are EPAs used?
1. To check whether an EPA is applicable or not
2. To specify tariff numbers (HS code)
3. To check tariff rates
4. To check the Rules of Origin
5. To encourage exporters in Japan to obtain a Certificate of Origin (C/O) After checking these five points, start the process of submitting the C/O to the Customs.
- [Q4]
- What is the HS Code?
The HS code is a classification system that classifies products by numbers.
How products are specified by the HS code
The HS code comprises numbers stated by the International Convention in the Harmonized Commodity Description and Coding System that was implemented in 1988 to classify products. Whenever products are imported, they are specified by their HS codes, and their tariff rates are stated by each HS code.
All commodities are specified by the HS code in the following way. “Chapters ” (2 digits) → “Headings” (4 digits) → “Subheadings” (6 digits) → “Subdivisions” (in Japan 9 digits). For instance, Chapter 1 characterizes “Live animals”, Chapter 2 characterizes “Meat and edible meat offal” and the last chapter, Chapter 97, characterizes “Works of art”.
The 6 digit level HS code is stated in international treaties, while smaller HS codes differ according to each country’s divisions. So the same 6 digit level HS codes are being used throughout the world, but the smaller HS codes differ in each country. For example, in Japan “subdivision” is 9 digits, but in other countries such as the U.S., “subdivision” is 10 digits.
If you cannot find the HS code of the products for import, ask the local Customs authority. There are cases where the interpretation of the HS code of the importing country and that of the exporting country are different. In that case, importers must make an import declaration using the HS code designated by the Customs in the importing country, so confirmation of the HS code in the importing Customs is necessary.
《For Reference》 The HS 2012 Issue
The HS code (6 digit level) was revised in
1992, 1996, 2002, 2007 and 2012. The current nine EPAs (between
Japan and Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia,
Brunei, Philippine and ASEAN) were negotiated before the 2007
revision, so all of the nine EPAs are based on the 2002 version.
Also, the other four EPAs (between Japan and Vietnam, Switzerland, India
and Peru) were negotiated during the 2007 revision, so these four EPAs are based on the 2007 version. This means that, to take advantage of EPAs, we
have to use the 2002/2007 version, while we use the 2012 version in normal trade. There are cases in which the HS code in the Import Declaration (ID) and that in the Certificate of Origin (C/O) do not correspond at Customs.
- [Q5]
- How are EPA tariff rates defined?
Typical EPA tariff rates are the following 3 types:
1. Tariff rate becomes 0% when the EPA enters into force.
2. Tariff elimination occurs in a certain period of time after entry into force.
3. No tariff elimination or reduction (the MFN rate is applied).
So, to use the EPA, it is necessary to check that the EPA rate is lower than the MFN rate.
Case 1: After EPA entered into force, the EPA rate becomes 0%, so there is an advantage in using EPA unless the MFN rate is also 0%.
Case 2: After EPA enters into force, EPA rate reduces in annual installments and finally the EPA rate becomes 0%. Normally, after the EPA enters into force, the tariff rate
will become 0% in 3, 5, 7 or 10 years.
So, when the EPA rate is lower than the MFN rate, there are advantages in using the EPA.
Case 3: In this case, the EPA will not commit any tariff elimination or reduction, so the MFN rate must be used.
《For Reference》Tariff rate reversed!?
Normally, EPA tariff rates are lower than MFN tariff rates.
However, for some products MFN rates become lower than the EPA rates. In the EPA system, EPA tariff rates for some products are reduced gradually after the EPA entered into force. If the MFN rates of these products are reduced before the EPA tariff rates are eliminated completely, EPA rates become higher than MFN rates (tariff reverse).
Finally these EPA rates are eliminated to 0% in certain terms, so this tariff reverse issue will be resolved at the time of tariff elimination. It is also possible to select the MFN rates until the EPA tariff rates become lower than the MFN rates.
In the Japan-Mexico EPA, the Japan-Malaysia EPA, the Japan-Thailand EPA,
and Japan-Peru EPA, this tariff rate reverse has actually occurred, so in the case of import, careful confirmation is necessary.
- [Q6]
- What are the Rules of Origin?
The Rules of Origin in EPAs are the conditions for applying EPA tariff rates.
◆Rules of Origin in EPAs
When exporters and importers confirm that applicable tariff rates for their products under the EPA are lower than those on a MFN basis in the importing country, then they are to assure that their products are qualified for the EPA tariff rates for the next step: Confirmation of originating status.
This process is necessary, because the products targeted by the EPA must be goods that originated in the contracting countries.
The Rules of Origin are the criteria to judge whether the products to be imported have this qualification or not.
When exporters and importers consider that certain products satisfy the Rules of Origin in the EPA, those exporters are to apply for a “Certificate of Origin” to be issued.
In the case of importing from Japan, exporters are to prove to the relevant governmental authority in Japan the fact that such products were actually made in Japan in order to acquire the Certificate of Origin.
◆What are the Rules like?
1. Obtained or produced entirely in the territory of the contracting country of the EPA. Agricultural products, or mineral products such as aluminum or copper are likely to
be covered.
or
2. Produced in one contracting country by using materials imported from no contracting countries.
In the case of 1. above, the products are assumed to be “wholly obtained,” and may be conferred originating status.
When 2. above is the case, then exporters are to check whether the production meets the requirements stipulated in the rules, the so-called Product-Specific Rules, specified on a product-by-product basis. The requirements generally define either a change in HS tariff classification or the extent of value added in the contracting country.
- [Q7]
- How do importers treat a Certificate of Origin (C/O)?
Importers are to receive the Certificate of Origin from Japan and submit to the Customs in the importing country.
To treat a Certificate of Origin
- [Q8]
- Are there any other policies to eliminate tariffs aside from EPAs?
For the imports from developing countries to Japan, preferential tariff rates are applicable under Japan's Generalized System of Preferences(GSP)(*) scheme. However, there are some cases where GSP tariff rates cannot be applied to the imports from contracting countries of Japan's EPAs. Please consult with Japan customs before using GSP scheme for the imports from contracting countries.
*Generalized System of Preferences(GSP), based on the agreement reached at UNCTAD, aims at contributing to the economic development of developing countries. Under the system, developed countries voluntarily provides lower rates of duty than WTO bound tariff rates for the imports from developing countries. (In addition, another preferential system exists for the imports from least developing countries(LDCs).)
＜Generalized System of Preferences(MOFA)＞ http://www.mofa.go.jp/policy/economy/gsp/index.html
Websites and information on EPAs/FTAs
Please use this pamphlet as a reference for understanding EPAs. Further information is necessary for using EPAs. Please see the following URLs.
For further information
Contact Information
If you have any questions relating to trade under EPAs, please contact the JETRO advisers in the following countries.
▼ INDONESIA JETRO JAKARTA
Summitmas I, 6th Floor, JI. Jend. Sudirman Kav. 61-62, Jakarta 12190, INDONESIA
TEL:+62-21-5200264
▼MALAYSIA JETRO KUALALUMPUR
9th Floor, Chulan Tower, No.3 Jalan Conlay, 50450 Kuala Lumpur, MALAYSIA
TEL:+60-3-2171-6100
▼MYANMAR JETRO YANGON
Sedona Hotel Business Suites #04-02, No.1 Kaba Aye Pagoda Road, Yankin Township, Yangon, UNION OF MYANMAR
TEL:+95-1-544051
▼PHILIPPINES JETRO MANILA
44th Floor, Philamlife Tower, 8767 Paseo de Roxas, Makati City 1226, Metro Manila, PHILIPPINES
TEL:+63-2-892-4376
▼SINGAPORE JETRO SINGAPORE
Hong Leong Building, #38-04 to 05 16 Raffles Quay, SINGAPORE 048581
TEL:+65-6221-8174
▼THAILAND JETRO BANGKOK
16th Floor, Nantawan Bldg., 161 Rajadamri Rd., Bangkok 10330, THAILAND
TEL:+66-2-253-6441
▼VIETNAM JETRO HANOI
3rd Floor, 63 Ly Thai To, Hanoi, VIETNAM
TEL:+84-4-3825-0630
▼JETRO HO CHI MINH
14th Floor, Sun Wah Tower, 115 Nguyen Hue Street, District 1, Ho Chi Minh City, VIETNAM
TEL:+84-8-3821-9363
▼CHILE JETRO SANTIAGO
Av. Andres Bello 2777, Piso 27, Oficina 2703, Edificio de la Industria, Las Condes, Santiago, C.P. 6760276, CHILE
TEL:+56-2-2033406
▼MEXICO JETRO MEXICO
Paseo de las Palmas No.239 Piso 3, Col. Lomas de Chapultepec, C.P. 11000 Mexico, D.F. MEXICO
TEL:+52-55-5202-7900