ASEAN INDUSTRIAL COOPERATION (AICO) SCHEME 1.What is the AICO Scheme?

The AICO Scheme is the latest industrial cooperation program in ASEAN that superseded the ASEAN Industrial Joint Ventures (AIJV) and the Brand-to Brand Complementation (BBC) Schemes. Signed on April 27, 1996 during the ASEAN Economic Minister Meeting in Singapore and entering into force on November 1, 1996, the Scheme seeks to promote the sharing of industrial activities between ASEAN-based companies.A minimum of two companies in two different ASEAN countries are required to form an AICO Arrangement. The AICO Scheme offers 0-5% preferential tariff rate. This preferential tariff rate is applicable to all products identified in the approved AICO arrangements. This would mean, all intermediate products and/or raw materials required in the manufacture of an AICO Final Product and the AICO Final Products itself are entitled to the preferential tariff rates. The preferential tariff rates are exclusive and applicable only to the approved participating companies, products and countries. 2.What are the objectives of the AICO Scheme? -Improvement of the competitive position of ASEAN companies in the global and ASEAN markets by providing the means to apply the principles of economies of scale and scope in the manufacturing process, supported by preferential import duties to enhance across ASEAN border transactions. - Stimulation of intra and extra-ASEAN investment through complementation of industrial activities and networking as well as the improvement of the overall trade and investment prospects in ASEAN. - Enlargement of the ASEAN market by utilizing complementary and improved intra ASEAN linkages. 3. What is an AICO Arrangement? It is a cooperative arrangement involving a minimum of two participating companies from two different ASEAN countries. An AICO Arrangement involves not only the physical movement of products between the participating companies and countries but also resource sharing, industrial complementation or other industrial cooperation activities. Manufacturing companies that belong to the same group of companies or are administered by the same principal can apply to form intra-firm AICO arrangement among themselves to exchange products that they specialize in. Under an intra-firm AICO arrangement, the exchange of AICO Final Products among participating companies is deemed sufficient to satisfy the resource sharing, industrial complementation or industrial cooperation criterion of AICO. Any proposed intra-firm AICO arrangement must positively affect: Reduction of the cost of production; Increased economies of scale; Promotion of division of labor; or Industrial complementation

4. What are examples of resource sharing, industrial complementation and industrial cooperation activities? The following examples illustrate some of the possible avenues of resource sharing. a.In the manufacturing area: Exchange and sharing of manufacturing process technology, product development and application know-how, R&D facilities and the appropriate training service. Joint manufacturing of a product using the principles of division of labour by utilising disparity of technical capability and process cost between the parties. Complementary manufacturing of a certain product range under economies of scale principles whereby the production is divided into economical lot size between the partners and the output product exchanged to satisfy the individual demand. b. In the non-manufacturing logistics area: Exchange of marketing data and providing local marketing services for the partner company. Combination of material requirement into a bulk sourcing and purchasing arrangement. Provision of local after sales and distribution services for the AICO product of the partner company. Integrated centralised, regional procurement planning including actual sourcing and subsequent distribution to partners in the AICO arrangement. c.In the corporate area : Joint venture, licensing or similar arrangements. Logistic support arrangements in the distribution, product planning and marketing areas. 5.What is the AICO' s product coverage? The Scheme is open to all categories of products except those articles falling under Article 9 (General Exception) of the Agreement on CEPT Scheme, quoted as follows: Article 9 General Exceptions Nothing in this Agreement shall prevent any Member State from taking action and adopting measures, which it considers necessary for the protection of its national security, the protection of public morals, the protection of human, animal and plant life and health, and the protection of articles of artistic, historic and archeological value. AICO products cover the following 3-tier product ranges: i.AICO Final Product shall be the final output which does not undergo any further processing within the specific AICO Arrangement; or ii. AICO Intermediate Products are those used within the AICO arrangement as an input to the AICO Final Product; or iii.AICO Raw Material shall be used as input to an intermediate product or as direct input to the AICO Final Product.

6. What is the duration of the AICO privileges? a.The value of the AICO preferential tariff rate is progressively reduced parallel with the accelerated tariff reduction of the CEPT. b.The national local content accreditation, where applicable, will cease on January 1, 2000 (except for Vietnam) in accordance with the enforcement of the Trade Related Investment Measures (TRIMs) of WTO. c.Other non-tariff incentives offered by national governments subject to compliance by the AICO participating companies with the respective rules and conditions, may transcend into the AFTA/CEPT era, subject to whatever time limits the respective national governments may impose. 7.How is an AICO Arrangement formed? To form an AICO Arrangement, the prospective companies must: -be incorporated and operating in any ASEAN country; -have a minimum 30% national equity; and -undertake resource sharing, industrial complementation or any industrial cooperation activities. For companies that cannot meet the equity condition, a waiver is possible if the proposing company meets other criteria imposed by the participating country in lieu of the 30% national equity. To make the AICO more attractive, the 30% equity requirement is automatically waived during the twoyear period of 1999-2000. 8.What are the application procedures? The prospective companies shall apply to their respective national authorities to form an AICO arrangement by providing the following: i. proof of legal incorporation and equity holding; ii.identification of products and partner company/companies; and iii.documentary proof of resource sharing, industrial complementation or industrial cooperation. All applications are processed and the results known within 45 days from date of submission. The Certificate of Eligibility (COE) is issued by the ASEAN Secretariat to participating companies within 10 days after receipt of approval by the participating countries. The approved AICO products are then granted AICO privileges within 45 days thereafter. 9.What documents does the Bureau of Customs require to accompany an AICO product? i.The normal shipping documents required to accompany an export shipment including any specific documentation required by the importing country. ii. A copy of the Certificate of Eligibility (COE) of the AICO product, issued by the ASEAN Secretariat. iii. The Certificate of Origin Form D of the CEPT Scheme in quadruplicate, which certifies that the ASEAN content is at least 40%. iv. For exports to the Philippines, a Pre-Shipment Assessment Report (PSI) issued by an agency authorized by the importing country confirming the tariff code classification and import value of the goods for import duty assessment.

10.What is the AICO Preferential Treatment to the Small and Medium Enterprises (SMEs)? To encourage participation of ASEAN SMEs, the participation of trading companies will be allowed in the AICO Scheme but limited to the arrangement involving ASEAN SMEs. The trading companies shall facilitate SME in: Providing market information to the SMEs; Identifying and establish network between the participating companies in the participating countries; and Serving as the marketing channel and distribution of the AICO. 11. Philippine Participation in AICO Arrangements Since 1999, the Philippines has entered into twenty-nine (29) AICO Arrangements with Indonesia, Malaysia and Thailand as shown in the matrix below. In the exchange of AICO products, Philippine exports benefit from the grant of the preferential AICO rate of 0-5% by the co-participating countries whose MFN/CEPT rates are higher than those of the Philippine Participating Co-Participating AICO Implementing Company Country/Company Products Executive Order 1999 1. Philippine Auto Thailand/Denso Components Inc. (PAC) Thailand Instrument clusters; dial EO 74 issued on January for motorcycle meters 15,1999 Motorcycle meters; lighting fittings;

12.What are the new developments in the AICO? At the 10th ASEAN Economic Ministers Retreat held on April 21, 2004 in Sentosa, Singapore, the Ministers signed the Protocol to amend the Basic Agreement on the AICO Scheme reducing the preferential tariff rate to 0%. Under the Protocol the preferential tariff rate for participating countries shall be within the band as follows: COUNTRIES Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia and Singapore Myanmar and Vietnam Philippines Thailand RATE OF DUTY 0% 0-5% 0-1% 0-3%

The ASEAN Member countries that are temporarily not ready to implement the preferential tariff rate of 0% shall work towards reducing the preferential tariff rate to 0% for AICO Arrangements by January 1, 2005.

College of Customs Administration Written Report

ASEAN INDUSTRIAL COOPERATION (AICO) SCHEME In Partial Fulfillment of the requirement in Tariff 6

Presented to: Ms.Claudine Fel Lauros

Presented by : Arita,Jorgen P. Etable ,Jayson BSCA-3