ITS GLOBAL ASIA PACIFIC
International Trade Strategies Pty Ltd, trading as ITS Global Asia Pacific
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MELBOURNE VIC 3000
AUSTRALIA
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CENTRE FOR CUSTOMS & EXCISE STUDIES
Centre for Customs & Excise Studies
University of Canberra
University Drive South
BRUCE ACT 2617
AUSTRALIA
Tel: +61 2 6201 5487
Fax: +61 2 6201 5746
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Commercial-in-Confidence. The views expressed in this publication are those of its authors. The consultant takes no liability for commercial decisions taken on the basis of information in this report. The information is accurate to the best of the consultant’s knowledge, however the consultant advises that no decision with commercial implications which depends upon government law or regulation or executive discretion should be taken by any person or entity without that party’s having secured direct advice from the government agency concerned in writing.
Table of ContentsExecutive Summary5
1. Introduction to the Study9
2. De Minimis Regimes in APEC13
3. Determinants of Current De Minimis Requirements31
4. Economic Benefits & Costs of De Minimis Regimes43
5. Conclusions & Recommendations65
References69
Annex A: Methodology & Approach to the Study75
Annex B: Results of Economic Evaluation85
Annex C: Low Value Consignments to APEC-12 Economies95
Annex D: Nature of Low Value Consignments to Indonesia99
1
Executive SummaryA de minimisregime provides streamlined border clearance and exemption from customs duties and other taxes. These features generate economic benefits by refocusing public revenue collection on more economic sources of revenue, reducing the costs borne by importers, and accelerating the delivery of imports.
Most APEC economies have de minimisregimes buttheir thresholds range from less than USD1 to more than USD1,000. Moreover,theproduct eligibility varies as do the taxes from which they are exempted. These design features affect the balance of economic benefits and costs that a regime produces.
This study assessesthe de minimisregimes of Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico, Papua New Guinea, Peru, the Philippines, Thailand and Viet Nam — the APEC-12for ease of reference — by building upon and extending an earlier study.[1] We chose these 12 economiesas being broadly representative of the APEC region in terms of merchandise trade, geography and economic development. In doing so the study has estimated the net economic benefit of four alternatives — representingminimumde minimis thresholds of USD50, USD100, USD150, and USD200 respectively. Tables 1and 2 summarise the key results.
The USD200 threshold generates the largest net economic benefit for the APEC-12 of around USD5.4billion a year, equivalent to about USD11.9billion for all 21 APEC members. In relative terms the latter is 0.086% of APEC-21 GDP.
Resource savings in government administration are the largest of thebenefits. Under all scenarios, these savings accounted for 76% of the benefits, while savings in business compliance were virtually all of the rest. The latter are particularly important for small and medium-sized enterprises (SMEs) as they generally face disproportionate burdens in completing customs formalities.
These savings have, nevertheless, been conservatively estimated based on the level of fees and charges for the relevant services that apply in Australia where they are generally considered to be delivered efficiently. While these have been adjusted to reflect differences in labour costs with Australia, no allowance has been made for differences in processing efficiency.
Saving time in transit has a clear economic benefit. The longer products take to get to market, the more likely they will perish, become out-dated, be displaced by superior alternatives, or lose the interest of potential buyers. Previous research has shown thata 10% cut in delivery time will, other things being equal, expand exports of time-sensitive manufactures by over 4%. By definition, however, the savings in transit timefor low value consignments are generally small compared to the resource savings that depend upon the number of consignments in the category.
Table 1: Economic benefits & costsof alternative de minimisthresholds
Alternative ThresholdUSD / APEC-12 (a) / APEC-21
Net Benefit
USD billion
per year
Net Benefit
USD billion
per year / Ratio of Benefits to Costs / Net Benefit
as Share of
APEC-12 GDP
per cent
50 / 1,954 / 59.8 / 0.012 / 4,342
100 / 3,138 / 41.1 / 0.020 / 6,974
150 / 4,251 / 42.8 / 0.027 / 9,446
200 / 5,357 / 45.3 / 0.034 / 11,903
Notes: (a) Canada, Chile, the People’s Republic of China, Indonesia, Japan, Malaysia, Mexico,
Papua New Guinea, Peru, the Philippines, Thailand and Viet Nam
Source: ITS Global Asia Pacific
Table 2: Net economic benefit of alternative de minimisthresholds,by
APEC-12 economy (a), USD million per year
USD / CAN / CHL / CHN / IDN / JPN / MYS
50 / 1,589 / 24.6 / 286 / 0 / 0 / 0
100 / 2,688 / 33.9 / 310 / 4.3 / 0 / 0
150 / 3,579 / 44.2 / 351 / 9.2 / 118 / 0
200 / 4,371 / 53.4 / 386 / 13.3 / 318 / 22.5
Threshold
USD / MEX / PNG / PER / PHL / THA / VNM
50 / 0 / 0 / 13.6 / 14.8 / 18.6 / 7.03
100 / 34.6 / 0 / 16.4 / 17.0 / 27.0 / 6.90
150 / 67.7 / 0.067 / 18.3 / 18.7 / 35.5 / 8.63
200 / 98.4 / 0.189 / 20.5 / 20.6 / 43.4 / 9.40
Notes: (a) Canada (CAN), Chile (CHL), the People’s Republic of China (CHN), Indonesia (IDN), Japan (JPN), Malaysia (MYS), Mexico (MEX), Papua New Guinea (PNG), Peru (PER), the Philippines (PHL), Thailand (THA) and Viet Nam (VNM)
Source: ITS Global Asia Pacific
A notable characteristic of the results is the relatively small impact that an increase in threshold has on government revenue. The loss of tariff revenue is only between 1.5% and 2.5% of total savings. Although the loss of VAT/GST revenue is more difficult to estimate, at the very worst it represents no more than 8% of the total resource savings generated by the USD200 scenario and less under the rest.
The revenue loss is much lower than many may have expected. Over time the revenue base has been eroded by a combination of highly preferential tariff rates introduced under Free Trade Agreements and the existing de minimis exemptions. This is true even for those economies that have relatively high applied tariff rates.
The composition of the results is broadly the same under each of the scenarios and reflects the basic economics of this category of imports — relatively large numbers but relatively low aggregate value. Hence the volume-based impacts, such as those on customs administration and business processing costs loom larger than the value-based ones, such as those involving transit delays and tax collections.
Overall we judge our results to be robust. Indeed the conservative nature of our approach means that more refined estimates are likely to yield higher net benefits than we have estimated not lower ones.
Most, if not all, APEC economies would benefit by increasing their existing thresholds by a substantial amount. APEC could assist this process by agreeing to recommend a minimum threshold level to its members with the option of a higher level to better suit individual circumstances. This would leverage the benefits from unilateral action.
These conclusions have been strongly reinforced by recent research. For example, the Productivity Commission, the Australian Government’s independent economic advisory body, is currently reviewing Australia’s de mimimis regime. Although Australia has the highest de mimimis threshold in APEC and a substantial GST rate (10%), the Commission has found that any reduction in the threshold would impose a substantial net cost on the economy.
An increase in de minimis thresholds need not jeopardize border security as advance cargo reporting is required by most countries, irrespective of the declared value of the imports. A higher de minimis thresholdcan free up the resources toaddress the more pressing security issues.
The policy implications are straight forward. A commercially attractive de minimis arrangement makes sound economic sense. While the optimal level of the threshold remains an open question, the direction of beneficial policy change in APEC is quite clear. This is strongly underlined by our estimated benefit-costs ratios, which put the total benefits for the great majority of the APEC-12 economies at many multiples of the total costs.
1. Background to the StudyThe facilitation of trade is attracting increasing interest in international and domestic policy circles, including in the Asia Pacific(APEC 2007). Trade facilitation seeks to reduce the transaction costs faced by exporters and importers.[2] Reducing such costs stimulates international trade, investment and business innovation, which are the foundations of sustained improvements in community living standards in real terms.
A key aim of trade facilitation is the simplification of customs procedures and a key way to simplify customs proceduresis to exempt merchandise from indirect taxation — such as customs duties, VAT, GST, and sales taxes —below a specified minimum — or de minimis —value. The World Trade Organization (WTO), the Organization for Economic Cooperation and Development (OECD), the World Customs Organization (WCO), and the International Chamber of Commerce (ICC) have all recommendedthe adoption of such thresholds.
A de minimis threshold reduces the compliance costsimposed on importers and accelerates delivery of the merchandise. It also allows governments to refocus their revenue collection efforts on those parts of the indirect tax base that yield higher net revenue.
Most APEC economies have de minimisregimes but they differ considerably. The thresholds range from less than USD1 to more than USD1,000, the products that are eligible for tax exemption vary, as do the nature of the taxes for which the exemption is granted. The nature of these variations can significantly affect the balance between the economic benefits and costs that such regimes generate for the importing economy.
At their meeting in Yokohama in 2010, APEC Leaders committed their governments to the achievement of a 10% improvement in supply chain performance by 2015, after taking into accountthe circumstances of individual economies (APEC 2010).[3]
At Big Sky, Montana in the United States on 20 May 2011, the APEC Ministers Responsible for Trade (MRT) agreed that reducing the time, cost, and uncertainty of moving goods and services within the APEC region remains a top priority for the achievement of the Leaders’ 10% goal. Accordingly the Ministersinstructed their officials to continue with the development of the APEC Supply-Chain Connectivity Framework (SCCF) Action Plan. The Action Plan includessimplification of customs procedures and implementation of commercially useful de minimisthresholds.
A proposal that was put forward at that time involved settinga baseline de minimisvaluefor APEC, while allowing individual economies to adopt higher thresholds as they saw fit.
As APEC members had agreed to undertake further work on this idea, the Peterson Institute for International Economics in Washington, DC undertook an economic study of the benefits and challenges of de minimis regimeswith support from the Express Association of America (EAA) (Hufbauer & Wong 2011). As that study focussed exclusively on the US,the Conference of Asia Pacific Express Carriers (CAPEC) engaged ITS Global Asia Pacific (ITS) and the Centre for Customs and Excise Studies (CCES) at the University of Canberra toassess thede minimis arrangements in a selection of other APEC economies.
For this purpose, Canada, Indonesia, Japan, Malaysia, the Philippines and Thailand were chosen as being broadly representative of the region as a whole, in terms of geography and economic development. ITS and CCES examined the reasons these economies had adopted their current de minimis arrangements, assessed the net economic benefit of applying higher de minimis thresholds across the APEC region, and made policy recommendationson the appropriate baseline de minimis arrangements for APEC (ITS & CCES 2011). Their report was presented to and discussed by the APEC Committee on Trade and Investment (CTI) at its meeting in San Francisco on 22 and 23 September 2011.
At Honolulu on 11 November 2011, the APEC Ministers Responsible for Trade (MRT) agreed to an APEC Pathfinder Initiative to establisha baseline de minimis value of USD100 by the end of 2012 (APEC 2011b). Ten APEC members have joined the Pathfinder: Brunei Darussalam;Hong Kong, China;Japan; the Republic of Korea;Malaysia;New Zealand; the Russian Federation;Singapore;Chinese Taipei; and the United States.
At that meeting the Trade Ministers also foreshadowed the development of a capacity building program to enhance the understanding of the economic andtrade facilitation benefits of higher de minimis values, with the goal of assisting economies in joiningthe Pathfinder.
With this in mind, in January this year the EAA, CAPEC and the Latin American Association of Express Delivery Companies (CLADEC) engaged ITS and the CCES to extend the methodology and approach, which had been used for their 2011 report,to a further six APEC economies — in this case Chile, the People’s Republic of China, Mexico, Papua New Guinea, Peru and Viet Nam. The objective was to produce a comprehensive and integrated study for all 12economies.
This report is the outcome of that process. In accordance with the terms of reference for the extended study, it mirrors the structure of the 2011report. That said, this report incorporatesa refinement inthe estimation ofthe distribution of the number and aggregate value of import consignments over the range of consignment values and updates a number of the economic assumptions used in the original analysis (e.g. exchange rates).
2. De Minimis Regimes in APEC2.1Introduction
This Chapter identifies the principal aspects of the de minimis regimes that apply in the 12 APEC economies at the present time and, where possible, the underlying policy rationale for the specified threshold and its supporting arrangements.
There is scant public information available in relation to the policy underpinnings for the setting of particular de minimisthresholds which are often a result of “push and pull” between different national constituencies. The Productivity Commission has highlighted this issue in the Australian context by (2011, p.161). As a consequence the discussion is based on the relevant legislation that establishes de minimis in each case; studies recently conducted in New Zealand, the United Kingdom and Australia; and the author’s own conclusions from the economic analysis.
While acknowledging that the trade and border management environment in New Zealand, the United Kingdom and Australia differs from that pertaining in many of the APEC economies selected for this study; it is strongly arguable that the policy considerations surrounding decisions to adopt a particular de minimis threshold are homogeneous. Support for this view can be found in the research conducted by Yang (2008) in relation to the Philippines. This broader analysis on the rationale for de minimis and the implications for specific thresholds is set out in the following Chapter of this report.
The research has also examined the incidence of ‘informal shipment’ de minimis as an intermediate regime between a completely ‘duty-free’ de minimisregime and the general customs regime where a transaction requires full documentation and payment of all duties and taxes.
It is not uncommon for governments, to implement, through their customs legislation, a second de minimis threshold (in addition to the duty-free de minimis below which no duty is payable) as a mechanism for trade facilitation. This second de minimis threshold generally forms part of a regulatory approach that allows importers to utilize a simplified customs declaration or other simplified clearance process where the value of the imported goods is below a specified de minimis and/or the goods fall within a specific tariff classification or description; for example, document shipments.
2.2Nature of ‘informal shipment’ de minimis
‘Informal shipment’ de minimis regimes are generally designed to implement the principles outlined in the World Customs Organization’s (WCO’s) Guidelines for the Immediate Release of Consignments by Customs[4] (“the Guidelines”). These Guidelines divide consignments into four categories for the purposes of providing immediate or facilitated customs clearance ranging from minimum documentation requirements (Category 1) through to full documentation requirements (Category4). Similarly, the required data elements for each category increase from Category 1 to Category 4 (see Appendix 1 to the Guidelines) with a corresponding impact on processing cost. Details of the suggested characterization for each level of facilitation are as follows:
Category 1 – Correspondence and Documents
This category is intended to cover correspondence and documents having no commercial value and which are not subjected to duties and taxes.
Category 2 – Low value consignments for which no duties and taxes are collected
According to the Guidelines this category comprises:
‘…material for mass distribution in commercial quantities, certain types of literature for the blind, printed papers; low value consignments where duties and taxes are remitted or waived as the amount of duties and taxes would be negligible, e.g. unsolicited gifts below a defined value, trade samples; and low value goods which are not dutiable and taxable in their own right.’
The Notes to this Guideline set out an example where “the value of a consignment should be less than SDR50[5] or the duty and tax less than SDR3 or the consignment should be both less than SDR50 in value and the duty less than SDR3”.
Category 3 – Low value dutiable consignments
This category comprises:
‘…consignments that are above the value and/or duty/tax limits of category 2 consignments or do not qualify for duty and tax remission or waiver.....For example the value of the consignment should be SDR50 or above but below SDR1000. These consignments are above any de minimis threshold specified for Category 2 but below the value specified in national legislation for which a full Goods declaration is required.’
Category 4 – High value consignments
This category comprises:
‘…consignments not falling under the other three categories described above and includes consignments containing goods that are subject to restrictions. Normal release and clearance procedures, including payment of duties and taxes apply.’
Table 2.1 sets out the current ‘duty-free’ and ‘informal shipment’ de minimis thresholds in each of the selected APEC economies. They are expressed in the currency nominated by the relevant legal authority —usually but not always their national currency — together with their United States Dollar (USD) equivalents for ease of comparison. Details of the legal and policy framework for the each de minimis regime follow, to the extent to which that information is publicly available.
Table 2.1: Current de minimis thresholds, selected APEC economies