Features

The Future of Trade in Asia

by James Meares, Vice President, Asia Pacific, Integration Point

Fast-changing policies within the global trade stage have stirred predictions of a large trade vacuum to fill. A number of exporters and importers are looking for stronger trade ties to the Asia Pacific region to complete what may be a large void. That leap may just pay off. As of April, the Asia Pacific region has noted some of its best export gains in recent years – a move that has been essentially blocked by policy makers’ thoughts about the future direction of global trade.

China released data in April that showed a 16 per cent increase in exports in March. In addition, a 20 per cent rise in exports has motivated Chinese businesses, according to World Economy News.

South Korea’s exports saw their third straight double-digit gain in March. Moreover, Taiwan’s exports climbed by 15 per cent in the first quarter, according to trade economists.

One part of the world looking to take a leadership role is the Asia Pacific region led by the ten members of the Association of Southeast Asian Nations (ASEAN). In 2014, its total GDP reached US$2.6tr, making it the seventh largest economy in the word, while its total trade was US$2.5tr –the majority of which was intra- ASEAN trade. To help bolster further growth and cooperation across the region for growth, Asia has a number of new and existing trade deals in the works to boost imports and exports in the near future.

Take China’s One Belt, One Road (OBOR), an economic and diplomatic initiative that could transform trade. China’s OBOR initiative aims to further boost trade links with ASEAN, Middle Eastern, and European countries. The initiative is designed to connect China to the world by building high-speed trains and highways through international geographic corridors.

When it comes to trade deals, as noted in a May report from Reuters, China, Japan and South Korea are already in the initial stages of discussing a trilateral trade agreed to resist all forms of protectionism, taking a stronger stand than G20 major economies against any US protectionist policies. Even as TPP (which excluded China) was negotiated, another extensive trade agreement has been under negotiation. China and 15 other Asia Pacific Rim countries have been negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement since 2012.

RCEP involves the 10 members of ASEAN – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – and their six regional trading partners: China, India, Japan, South Korea, Australia and New Zealand.

The timing of the RCEP push matches the growth of China’s trade influence with ASEAN. According to data provided by the ASEAN website, total trade with China amounted to US$345bn in 2015, representing a 15.2 per cent share of total ASEAN trade in that year. If implemented, RCEP could transform the region into a market representing US$22tr in economic activities and of the world’s population.

Japan also announced in early June that it is working with Mexico to push for the TPP to take effect without the US. Mexico is willing to strengthen trade and investment ties with Japan and other Pacific countries.

ASEAN is now an integral part of the Asian FTA landscape, having FTAs with China, India, Japan, Korea, Australia and New Zealand, as well as being a central part of the proposed RCEP.

New initiatives pay off

China’s imports and exports grew in the first two months of this year after weakening toward the end of 2016, according to The Associated Press. In fact, China’s exports rose four per cent from a year earlier in January and February to US$302.8bn, rebounding from a 6.1 per cent contraction in December, according to US Customs. Imports rose 26.4 per cent to US$260.6bn, accelerating from December’s 3.1 per cent growth.

South Korean shipments have increased for three months in a row this year. Surveys reveal strong export pipelines in Japan, Singapore and Taiwan. Japan’s exports rose for the first time in 15 months in December on strong sales of electronics and car parts, a positive sign for the export-reliant economy according to the country’s Ministry of Finance. The data also shows that exports rose 5.4 per cent year-on-year in December, compared with a 1.2 per cent annual increase expected by economists in a Reuter’s poll. The volume of shipments also rose 8.4 per cent from a year earlier, up for a second straight month, underlining a pick-up in external demand. Asian trade stronger with new deals, free trade agreements & compliance With increased trade comes the challenge of remaining compliant with regional and local rules and regulations. Companies within the Asia Pacific arena can boost their trade dominance with a robust modern compliance programme, which helps them operate fast and nimble supply chains while also avoiding audits by Customs authorities.

And it need not be difficult – modern tools can enable two key compliance areas that will take an organisation a long way to being a beneficiary of trade agreements and safe from non-compliant shipments.

Accurate classification

Compliance’s basic focus starts with Classification. Accurate and up-to-date tariff classification plays a large role in market access, costs and profits. Poor classification impacts supply networks dramatically with shipment clearance times blowing out, potential fines, and general rework of shipment transactions. Corporate compliance leaders with a central governance role are responsible for managing the tracking of regulation updates in a territory and updating the relevant internal functions in a timely manner.

Timeliness is the key word. There can be insufficient time from publication of regulatory updates to communication within the supply chain, a roadblock for import and export business-driven deadlines. The 2017 World Customs Organization Tariff (WCO) changes modernise Tariff Chapters for the modern products and services seen today. However, 2017 WCO Tariff changes have a varied roll-out by territory – hence planning to implement the changes in an organisation’s supply chain is complex. This is where compliance automation assists companies by managing their classification. In addition, data centrally managed allows for wide and quick dissemination.

Free trade agreements

ASEAN companies have great opportunities with Free Trade Agreements (FTAs) – however, surveys show that many companies in international trade do not use them. Why would a company pass up paying lower duty fees? Usually, simply, it is due to transaction complexity and management in the supply chain. Utilising FTAs means more opportunities for businesses – but there is also pressure. All current and potential future trade agreements have one thing in common: they expose a company to potential trade compliance issues. Companies cannot afford penalties, delays or reputational damages that will affect their business. These are just a few consequences of violations of trade regulations.

Trade regulations and non-compliance penalties will continue to vary by country until all members adopt ASEAN-wide standards. This means that ASEAN companies now trade with a multitude of regulations and requirements within the region. The number of trade rules and administrative effort make data accuracy and visibility more important than ever.

Increasingly, companies are moving to automation of FTA Rule of Origin analysis as one method to ensure compliance and maintain fully auditable records of every transaction. These business processes are also proactive and generate “right first time” information. Compliance professionals focus on looking for new FTA benefit opportunities in new trade lanes, rather than addressing issues with current product or trade lane shipments.

Asia’s trade will continue to grow and expand if trends are correct. The region has a number of new and existing trade agreements in place to promote international trade and create a region that is a true global trade leader. Companies will benefit from modernisation of their own trade processes by getting the basics right in an easy and timely manner to maximise the cost benefits of FTA usage. Modern best practice supply compliance is available in Asia; and the best are doing this already.

About the Author

With more than 30 years in the leadership of businesses across the Asia Pacific region, James Meares has extensive experience developing and delivering solutions for clients and is responsible for all Integration Point activities in Asia Pacific, working with client senior management in developing strategies and delivering solutions.

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