BY CHUANG PECK MING

WHAT can an Asean-Japan Free Trade Agreement do for Singapore-based exporters when there is already a Japan-Singapore free trade deal?

In fact, although both pacts cover over 90 per cent of Singapore's trade with Japan, the Japan-Singapore New-Age Economic Partnership Agreement (JSEPA) embraces more areas in which Singapore-based businesses stand to gain - trade in goods and services, investment, intellectual property and government procurement.

The Asean-Japan Comprehensive Economic Partnership Agreement (AJCEP), despite being called 'comprehensive', essentially only offers tariff cuts on trade in goods - at least for now.

But International Enterprise (IE) Singapore, the government's trade promotion arm which is also pushing Singapore-based companies to expand beyond Singapore, says exporters here 'stand to benefit from AJCEP's key features, including more flexible rules-of-origin criteria, the use of back-to-back preferential certificate of origin and third-party invoicing'.

'The latter two features help support various distribution and commercial arrangements,' an IE spokesman says, for instance, the re-export of goods through Singapore and the issue of invoices from third-party countries.

'AJCEP provides for the Asean accumulation of regional content, where materials sourced from Asean countries can count towards the qualifying regional value content,' says the spokesman.

This is more flexible than JSEPA's rules of origin on local content value under which only materials originating from Singapore and Japan count as local content.

So through regional sourcing of raw and intermediate materials from any of the AJCEP signing parties, Singapore-based companies may find themselves in a better position to meet the 40 per cent regional value content required under the Asean-Japan free trade deal.

By Feb 1, 2009, seven signatory countries had implemented AJCEP, which was signed by ministers of Asean member states and Japan on April 14 last year. The seven countries are Japan, Singapore, Malaysia, Brunei, Vietnam, Laos and Myanmar.

AJCEP also has a back-to-back provision that helps make the re-export of goods in the region easy. Such goods, using a back-to-back Certificate of Origin (CO), do not have to undergo further processing in the intermediate party (that is, Singapore), except for repacking or logistics activities.

'The back-to-back CO allows our traders and re-exporters to enjoy cost-competitiveness for their exports to Japan or Asean countries, even if their Asean or Japan-originating goods do not undergo substantial transformation in Singapore,' the IE spokesman says.

Likely companies that can take advantage of the back-to-back provision are regional distributors and trading companies based in Singapore.

Another edge AJCEP has over the JSEPA is that it allows for third-party invoicing. 'This means that even if invoices for Singapore's exports to Asean or Japan were issued in a third country, the originating goods can still qualify for preferential treatment as long as they are accompanied by a Preferential Certificate of Origin,' says the IE spokesman.

Such an arrangement may be attractive to companies headquartered overseas but doing sales for subsidiaries operating in Singapore or other signatory countries.

Companies headquartered or having a sales office here, which order from and sell to other signatory countries, could also be drawn to the arrangement.

With 96 per cent of Singapore's trade volume with Japan covered by AJCEP, Singapore businesses can enjoy lower import tariffs, which will help boost their competitiveness in the Asean and Japanese markets.

The cost-savings are especially useful to companies in the current economic downturn, when it is vital to keep lean and mean to stay in business.

'As FTAs help reduce import duties, tariff savings potentially translate into added price competitiveness and increased overseas sales,' says Wong Toon Joon, deputy director for the domestic exports and re-exports group at IE Singapore.

'It also provides companies operating in the FTA partner countries the opportunity to source and import their raw materials and intermediate products at reduced import costs,' he adds. 'These tariff savings may then be passed on to the consumers through lower product prices, making them more attractive to consumers opting for more affordable products during an economic downturn.'

This article was first published in The Business Times.