Duane Morris ASEAN-FTA Dispute Resolution

Introduction
Regionalism and the multilateral trading system
● RTA’S /FTA’S Are vastly in number, scope and coverage and their
number is still growing.
● It is estimated that more than half of world trade is now conducted
under preferential trade agreements.
● Among the best known are the European Union, the European Free
Trade Association (EFTA), the North American Free Trade
Agreement (NAFTA), the Southern Common Market (MERCOSUR),
the Association of Southeast Asian Nations (ASEAN), and the
Common Market of Eastern and Southern Africa (COMESA).
● From its inception, the GATT — and now the WTO — has allowed
member countries to conclude customs unions and free-trade areas,
as an exception to the fundamental principle of non-discrimination set
in the most-favored-nation clause of Article I.

Background
● ASEAN-China FTA / ASEAN-India FTA
 World’s largest FTA
 Market potential - 2.7 billion people
 Substantial manufacturing activities
 Customs duties still significant

Background
● Progress of negotiations
 Framework Agreement – 4 Nov 2002
 Early Harvest Programme – agriculture products
 Agreement on Trade in Goods – 29 Nov 2004
 Dispute Settlement Mechanism Agreement – 29
Nov 2004
 Tariff Concessions – effective from 1 July 2005
 Tariff free access by 2010 to 2015
 Services and investments also to be included in
negotiations (later phases)

Major Principle (Goods)
● Purpose of a RTA should:
 To facilitate trade between the constituent
countries
 Not to raise barriers to the trade of other WTO
members not parties to the RTA (GATT Article
XXIV).
● Note: Preferential trade arrangements on
goods between developing-country members
are regulated by an “Enabling clause” dating
from 1979 (Uruguay Round).

For Services
• Non-reciprocal preferential agreements involving
selected developing and developed countries require
WTO members to seek a waiver from WTO rules.
(GATS Article V.)
• Best known examples:
 The US-Caribbean Basin Economic Recovery Act;
 The Cotonou Agreement signed by the EC;
 And the ACP countries to replace the Lomé Convention

Qualifying for Tariffs Preferences
● To determine Customs Duty Rate
 Tariff Classification (what is the tariff code?)
 Country of Origin determined by Rules of Origin
 Different ROOs for different purposes
 Types of rates:
 Normal rate
 MFN rate
 FTA rate

Trade in Goods
● Two categories of goods
 Normal Track (“NT”) Goods
 “Appendix 1”-List
 Sensitive Track (“ST”) Goods
 Sensitive List
 High Sensitive List (no commitments)

Normal Track Goods
● All goods except ST Goods
● Tariff reductions commencing 1 July 2004
● Tariffs rates to be reduced to 0%
 For ASEAN 6 and China – by 2010
 For Cambodia, Lao PDR, Myanmar, Vietnam (“CLMV”) – by
2015
● NB: Tariff rates for “Appendix 1-Goods”: tariffs to be
eliminated by:
 2012 for ASEAN 6 / China
 2018 for CLMV

NT Tariff Overview Vietnam
X = Applied
MFN Tariff
Rate
ACFTA Preferential Tariff Rate (Not later than 1 January)
2005 - 2006 2007 2008 2009 2011 2013 2015
X > 60% 60 50 40 30 25 15 10 0
45% < X < 60% 40 35 35 30 25 15 10 0
35% < X < 45% 35 30 30 25 20 15 5 0
30% < X < 35% 30 25 25 20 17 10 5 0
25% < X < 30% 25 20 20 15 15 10 5 0
20% < X < 25% 20 20 15 15 15 10 0-5 0
15% < X < 20% 15 15 10 10 10 5 0-5 0
10% < X < 15% 10 10 10 10 8 5 0-5 0
7% < X < 10% 7 7 7 7 5 5 0-5 0
5% < X < 7% 5 5 5 5 5 5 0-5 0
X < 5% Standstill 0

Sensitive Track Goods
● Sub-classified in Sensitive List & High
Sensitive List
● Exempted from tariff concessions
● MFN rate applies
● Sensitive List was to be review by 2008
● No agreement on tariff reduction of High
Sensitive List Goods

Sensitive Track Goods (cont’d)
● ASEAN 6, China up to 400 tariff lines at HS 6-
digit level not exceeding 10% of total import
value based on 2001 statistic
● CLMV up to 500 tariff lines
● ASEAN: automobiles, electronic devices,
textiles, agriculture products rice
● China: tobacco, cars spare parts, paper
products

Rules of Origin (ROO)
● Wholly obtained rule
 Includes products harvested, fished, planted etc. from a
particular country
● Minimum content rule
 40 % minimum content rule (see next slide)
 Cumulative rule of origin
 Not including minimal operations:
 Transportation facilitation
 Packaging
 Ensuring preservation
● Product specific rules of origin

Rules of Origin (cont’d)
● Direct consignment requirement in order to
qualify for tariff reductions:
 Transit through ACFTA member states allowed
 Transit through non-member states possible, if:
 Geographical reasons / transport requirements
 Products must not enter non-member state’s trade
or consumption
 no operation other than unloading or reloading in
non-member state

Rules of Origin (cont’d)
● Certificate of Origin required
 Form E
 Exporting country’s authorities responsible for
issuing the Form E
 PRC: local Entry-Exit Inspection and Quarantine
Bureau

Vietnam in ASEAN
● July 1995: Vietnam entered into the Association
of Southeast Asian Nations (ASEAN)
● Conduced to its policy of openness, economic
reform and structural adjustment
● By implementing the Common Effective
Preferential Tariff, Vietnam can request special
privileges from ASEAN/AFTA

Vietnam in ASEAN
● “Vietnam shall have tariffs on 45 % of its Normal Track
tariff lines eliminated not later than 1 January 2013”
● “Vietnam shall be not more than 40% of the total number
of tariff lines in its Sensitive track or 140 tariff lines at the
HS 6-digit level whichever is lower”
● “Vietnam, [ …] shall reduce the applied MFN tariff rates of
tariff lines placed in their respective Sensitive Lists to 20
% not later than 1 January 2015. These tariff rates shall
be subsequently reduced to 0-5 % not later than 1
January 2020”

After Vietnam’s WTO accession
Other bilateral agreements in effect covering service sector
commitments:
● Vietnam’s Most-Favored-Nation treatment/ National
Treatment with respect to the sectors telecom, banking,
Insurance. ( Commitments differs depending on the single
agreement)
● EU’s Market Access Agreement (MAA)
● MAA not in effect anymore since Vietnam’s WTO
accession

Dispute Settlement Agreement
● Only ACFTA parties (i.e. ASEAN member
states and China) can be parties
● Not private entities
● Applicable to all ACFTA-related disputes
● Parties to designate liaison offices

Dispute Resolution Agreement
● Consultation
 Required prior to Arbitral Tribunal
 Request to be send by complaining party to party
complained against’ liaison office
 To enter consultation within 30 days (if urgent 20
days) after request
 60 days (if urgent 20 days) to settle dispute

● Arbitral Tribunal
 30, max. 60 days to appoint three arbitrators
 Each party to appoint one, jointly appoint Chief
Arbitrator
 If unable to reach consent, Chief Arbitrator to be
determined by WTO Director-General or President
of ICJ
 Held in English language

● Final report
 Objective assessment of the case including an
examination of the facts and the applicability of
and conformity with the Framework Agreement
 To be released within 120 day, max. 180 days (if
urgent 60 days) after composition

● Implementation
 30 days (max. 45 days) for arbitral tribunal to
determine time frame for implementation of final
report’s recommendations and rulings
 Original arbitral tribunal to review implementation
consistency

● “Enforcement”
 Compensation: voluntary, to be consistent with
Framework Agreement
 Suspension of concessions or benefits
 Temporary in nature
 Neither is preferred to full implementation
 30 days (max. 45 days) for arbitral tribunal to
determine the appropriate level of suspension of
concessions / benefits
 Suspension to be in affected sector, other sectors only
if such suspension not practicable

Overview Dispute Resolution
120, max. 180 days (if urgent: 60 days)
after composition to issue final report
Implementation
Proceeding of Arbitral Tribunal
30, max. 60 days to appoint
three arbitrators
60 days to settle dispute
(if urgent: 20 days)
Request for Appointment of Arbitral Tribunal
Consultation
max. 30 days (if urgent: 20 days)
after request to enter consultation
Request for Consultation from Complaining Party

Overview Dispute Resolution (cont’d)
Enforcement
30, max. 45 days for arbitral tribunal
report to determine the appropriate level
of suspension of concessions/benefits
20 days to reach mutual
agreement on adjustment
Determination by Arbitral Tribunal
Negotiations on compensatory adjustment
30, max 45 days for arbitral tribunal to
determine time frame for implementation

THANK YOU FOR YOUR
ATTENTION!
Q & A

DUANE MORRIS VIETNAM LLC
omassmann@duanemorris.com
HO CHI MINH CITY OFFICE HANOI OFFICE
Saigon Tower Pacific Place
29 Le Duan Street 83B Ly Thuong
Ho Chi Minh City Kiet
Vietnam Hanoi
Vietnam

Duane Morris ASEAN-FTA Dispute Resolution

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