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ACHIEVING IMPORT DUTY SAVINGS THROUGH USE OF FREE TRADE AGREEMENTS IN ASIA
European Multinational Company in the consumer electronics sector
The company had established multiple manufacturing plants in Indonesia, Thailand and China, producing a wide range of consumer electronic products for Asia and other regions. The company wants to embark on an internal project to optimise the customs duty savings. The cost of goods sold (COGS) is one of the key operating cost component.
The use of ASEAN and the ASEAN-China free trade agreements through its regional headquarters in Singapore were critical in the company’s strategy to reduce COGS for China and ASEAN markets. However, the Management Team recognised the complexities involved and needs the buy-in from all business stakeholders. This was essential to make the initiative successful as the supply chain flows had to be significantly modified for the end state to have the distribution hub in Singapore set up before goods were distributed throughout ASEAN from China and from ASEAN to the China market.
- Set up free trade agreement utilisation project team involving Supply Chain, Procurement, Business Planning, Finance and Tax together with timelines, milestones and customs duty savings target based on the budgeted sales volumes.
- Set up standard operating procedures (SOPs) to evaluate products’ preferential origin criteria and ensure their eligibilities with Finance and Procurement team prior to actual utilisation of the FTAs.
- Assisted Supply Chain in setting up the customs bonded status of the regional distribution hub in Singapore and at the same time set up the SOP for the 3rd party logistics provider to comply with the FTAs’ documentation requirements.
- Assist Tax team to evaluate financial and invoicing flows to make sure it fit into tax and business requirements.
Benefits to company:
- Brought all business stakeholders together and getting their buy-in with clear goals set.
- Achieved significant import duty savings of more than USD 1 million under 2 FTAs within a year.
- Developed clear SOPs for the various work flows that were operationally sustainable for post entry customs FTA audits.
- Increased awareness within the company on the use of FTAs and generated greater interest from more business units to start re-assessing their supply chains and evaluate the potential opportunities in optimising their manufacturing activities and supply chain routes.
- Increased awareness at the management level on the benefits of FTAs and how it could increase price competitiveness of the product.
- Assisted Management Team to adopt a more holistic approach in their formulation of strategic growth initiatives through consideration of trade and customs related issues.