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Maximising the benefits of FTAs in Asia

Maximising the benefits of FTAs in Asia. Asia Pacific Tax Centre November 2012. Agenda. Recap on FTAs & key features New Zealand’s FTA coverage + insight on CN & ASEAN Progressive FTA benefits Optimising value from FTAs Identifying benefits and “quick wins”

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Maximising the benefits of FTAs in Asia

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  1. Maximising the benefits of FTAs in Asia Asia Pacific Tax Centre November 2012

  2. Agenda • Recap on FTAs & key features • New Zealand’s FTA coverage + insight on CN & ASEAN • Progressive FTA benefits • Optimising value from FTAs • Identifying benefits and “quick wins” • Progressive benefits - interaction with supply chain optimisation • Supply chain impact: examples • Lessons learned • Strategic sourcing, realignment of substance

  3. Focus of today’s session • Key aims: • Evaluate how FTA benefits can be claimed • Explain the impact of FTAs through the supply chain • Evaluate opportunities to maximise FTA benefits • Examine opportunities to add incremental benefits • Key learning: • How reviewing FTA claims in conjunction with supply chain planning can drive optimal value

  4. Key features of FTAs in general • General features of FTAs include:

  5. Summary of key New Zealand FTAsAnd a comparison between ASEAN-China • Key features of New Zealand’s key FTAs are as follows:

  6. Optimising FTA benefits through the supply chain – three tiers 1. Quick wins 2/3. Supply chain restructuring Claim FTA benefits Strategic sourcing Supply chain optimisation 1 2 3 Benefit Restructure supply chain to optimise FTA, tax and operational benefits Map potential FTA benefit with strategic sourcing opportunities Map FTA benefits with current flows to claim FTA benefits Complexity and implementation challenges

  7. 1. Quick wins - claiming existing benefitsMapping supply chain flows and claiming FTA benefits • 5-point process to evaluate, apply and obtain strategic FTA benefits: • Identify FTA coverage based on current supply chain product flows • Ascertain overlaps between FTAs for these flows • Evaluate the respective benefits of the FTAs, including overlaps (see table below) • Including duty, market access, relaxed ROO / qualification, reduced admin (may conflict) • Make application • Ongoing management/administration of the process • AANZ: ASEAN: Australia & New Zealand FTA • TPP: Trans Pacific Partnership • BL / SP: Bilateral Multilateral and bilateral agreements with ASEAN Bilateral only for CN

  8. 1. Quick wins – other concerns • Examples in evaluating the benefit include: • But challenges remain: • Complexity of ROO requirements, admin process and duration for COO • Full awareness of benefits available

  9. 2. Opportunities through supply chain restructuring • Assuming claims are both possible and feasible: • Could the product flow or supply chain footprint be changed to maximise FTA benefits? • How may FTA benefits be enhanced by operational and tax savings? • Two major opportunities to enhance existing potential FTA benefits

  10. 2. Strategic sourcing process Strategic sourcing Identify savings opportunities Undertake full spend analysis Identify quick wins Select priorities Benchmarking Blueprint Full evaluation Supplier selection Final analysis Recommend ways to Realise savings Realise savings Negotiate per blueprint Claim FTA benefits Realise savings Project enablers Analysis Definition Transition • Examples where strategic sourcing may apply: • Import of raw materials to NZ manufacturing site • NZ co with ASEAN or CN manufacturing presence, buy/sell from region • NZ co with ASEAN or CN manufacturing presence, buy/sell from NZ (NZ materials export)

  11. 2. Option A – changing the source of imported materials • Goods for import currently sourced from EU • Evaluation of potential suppliers undertaken • Product characteristics / quality • Benchmark costs • FTA benefits mapped indicate overall cost advantages, • Net of quality and FTA benefits • Full costs included in review New flow Existing Flow

  12. 2. Option B – changing the source of imported materials to overseas location • Goods for import currently sourced from EU • Similar to A, evaluation of potential suppliers undertaken • Product characteristics / quality • Benchmark costs • FTA benefits potential • Net cost benefits, as before • Differing FTA arrangements • Origin rules on further manufacturing & supply key Future flow Existing flow

  13. 2. Option C – increased export opportunities for NZ companies • Goods for import currently sourced from EU • Opportunities for NZ exporters to maximise access to ASEAN • Importer can also benefit from reduced duty, accumulation rule • Net cost benefits, as before • Note admin requirements for NZ exporter, but benefit in importer • Main benefit to exporter is increased scale through access Future flow Existing flow

  14. 3. Case study (1/3): incremental benefits through supply chain planning • Supply chain planning can drive incremental benefits on FTAs • Operational benefits through more effective operating model • Tax benefits through incentives, substance • Fact pattern: • Procurement operations converted to centralised model (in Singapore) • Manufacturing in MY converted to contract • Entails functional shift to SG site • Demand aggregation • Supplier identification • Negotiation, potentially contracting • Supplier management • Supply chain planning, manufacturing strategy • Inventory ownership, management • NZ co with MY manufacturing presence, SG buy/sell procurement in a “Supply Chain Principal” Sourcing Sale to manufacturer Sale to customers

  15. 2. Case study (2/3): key features and benefits • FTA benefits claimable on import of raw materials to manufacturer – 0% duty • Accumulation benefit on sale of processed goods from MY • Export still qualifies for ANZ-ASEAN FTA preference – 0% duty • Goods to not enter SG, but 3rd country invoicing allowed • Tax incentives on centralised procurement in SG and manufacturing functions in MY • Further operational benefits • Must carefully review differences in ROO / accumulation of benefits • Careful planning essential: switch sale/trade may be insufficient to claim ROO in other examples

  16. Case study (3/3): tax incentives – further adding to the potential benefits • Centralised procurement and manufacturing operations in ASEAN country (Singapore in this example) • Incremental tax benefits, adding to FTA and operational benefits, through tax incentives • Including Singapore, example incentives include:

  17. Key lessons learned • FTA benefits can be extensive, if claimed • These benefits can be enhanced by tax and operationally effective supply chain planning • Strategic sourcing in a centralised procurement entity is one example of this: • There are several others • Care should be taken to analyse ROO, admin requirements and other key factors: • Common experience is that admin burden is extensive and the rules are complex

  18. Questions

  19. Thank you

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