With the development of globalization, people are moving from local trade to international trade. Every government in the world has begun collecting taxes and charges on items that are imported or exported. The major reasons for levying taxes/duties are to
- safeguard domestic industries from foreign rivals,
- increase revenue, and
- restrict the flow of specific items
However, in order to spur the economy, many countries in the world have signed Free Trade Agreement (FTA) either between two countries (Bilateral FTA) or several countries (Multilateral FTA). The FTA will lay down specific requirements in terms of goods and services trade, as well as investor protection and intellectual property rights protection between the signatory parties. Among the obligations is the reduction or elimination of tariffs on goods and services being imported. In Malaysia, there are seven Bilateral FTAs and seven Multilateral (Regional) FTAs being signed and in force, and two signed FTAs but pending ratification and entry into force as follows1:
Bilateral FTA
- Malaysia-Japan Economic Partnership Agreement (MJEPA)
- Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA)
- Malaysia-New Zealand Free Trade Agreement (MNZFTA)
- Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA)
- Malaysia-Chile Free Trade Agreement (MCFTA)
- Malaysia-Australia Free Trade Agreement (MAFTA)
- Malaysia-Turkey Free Trade Agreement (MTFTA)
Multilateral (Regional) FTA
- ASEAN Free Trade Area (AFTA)
- ASEAN-China Free Trade Agreement (ACFTA)
- ASEAN-Korea Free Trade Agreement (AKFTA)
- ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
- ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA)
- ASEAN-India Free Trade Agreement (AIFTA)
- ASEAN-Hong Kong Free Trade Agreement (AHKFTA)
FTAs signed but Pending Ratification and Entry into Force
- Regional Comprehensive Economic Partnership (RCEP)
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)
In order to enjoy the preferential rate of tariff, the goods must be included in the tariff reduction and elimination schedule and satisfy the Rule of Origin (ROO). To be eligible for tariff concessions, ROO determines the country of origin of a product. ROO for a product may vary across the different FTAs.
In the other hand, under the Generalised System of Preferences (GSP), developed countries grant preferential treatment to eligible products imported from developing countries, so that developing country exports can compete in developed country markets. The preferential treatment takes the shape of lower import tariffs and is given without any reciprocal commitments on the part of developing countries.
Similar to FTA, ROO shall apply to the goods being imported from the developing countries by the developed countries in order to enjoy preferential treatment under GSP.
Similar to FTA, ROO shall apply to the goods being imported from the developing countries by the developed countries in order to enjoy preferential treatment under GSP.
To comply with the ROO, a competent authority of the exporting country that certifies the origin of the goods will issue a Certificate of Origin (CO). Preferential Certificate of Origin (PCO) and Non-Preferential Certificate of Origin (NPO) are the two categories of CO (NPCO). A PCO is a certificate issued by the exporting country’s competent body that validates the origin of the goods, which allows importers to claim preferential tariff rates based on the ROO of each agreement in force. Whereas NPCO is a certificate that helps in identifying the origin of the goods and it is not used to claim for preferential tariff rates. Despite the fact that NPCO does not qualify for tariff benefits, it is nevertheless frequently utilised and can be used to assess the quality and prestige of exported goods.
In Malaysia context, PCO can be applied by the exporters through the Ministry of International Trade and Industries (MITI). Exporters are required to fulfil the rules and conditions set by MITI. For the full guideline of the process of applying for a PCO, For NPCO, exporters can apply through the Chambers of Commerce and Associations authorized by MITI.
To gain a competitive advantage in the domestic market and reduce the cost of doing business, importers will endeavour to source their supplies/goods from a country whereby they can enjoy the preferential tariffs upon the importation of goods. Therefore, exporters should apply for the CO of their goods/products which are eligible for preferential tariffs included in the relevant FTA in order to gain competitive advantage of their products/goods in international trade.
