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November 19, 2015

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FTAs not tapped for lower tariffs

COMPANIES are still paying a huge amount of tariffs and duties because they are not tapping free trade agreements due to their lack of understanding of the complex rules of origin and documents needed to take advantage of the FTAs, a survey showed yesterday.

The Thomson Reuters and KPMG survey revealed that 70 percent of the respondents said they are not fully utilizing the free trade deals, resulting in them having to pay excessive tariffs and duties.

Nearly 80 percent of the respondents said the biggest FTA roadblocks are the complex rules of origin and the difficulty in collating various documents to benefit from lower tariffs and duties.

The survey was conducted among 446 executives from multinational firms in 11 countries in Asia and Americas.

The FTA utilization is especially low in Asia because of the great number of overlapping deals in the region, the survey said.

Six Asian countries are party to 10 or more FTAs, and 12 are party to at least five.

“Even large companies tend to under-utilize FTAs,” said Hoon Sung, head of FTA at Thomson Reuters. “Sometimes this is driven by lack of knowledge, but more often by concerns about the difficulty of compliance and fear of penalties. With more FTAs coming on stream every year, not using FTAs is going to mean a major competitive disadvantage.”

The survey also found that import classification, documentation and licensing are seen as trade-related activities that pose the greatest risk of penalties, sanctions or higher operational costs.

Transfer pricing, a practice to avoid tax by sending profits to areas with lower corporate tax requirements, is cited as the top risk, the survey said, as countries are cracking down on the practice.


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