Advantageo­us trade regime for the automotive industry

Dünya Executive - - BUSINESS BY LAW - SERCAN SAHADIR, PARTNER, EY [email protected]

The automotive industry plays a key role in our economy with respect to exports and employment. Increases in production value, and decreases in the cost of production, have a positive effect on both exports and jobs. Looking back over the last couple of months, it’s clear that these two indicators have moved in a favorable direction.

The foreign trade structure of Turkey is quite dependent on imports, similar to the overall foreign structure. Therefore, the costs of customs clearance and duties become a crucial factor for the industry. Additional taxes and costs charged during import processes have a direct impact on our competitiv­eness in exports. In order to improve competitiv­eness, the costs, time and taxes which applied during exports should be as minimal as possible. Companies with a solid advantage in these areas become the prominent actors in the industry.

What advantages does Authorized Economic Operator status provide?

‘Authorized Economic Operator’ (Turkish: Yetkilendi­rilmiş Yükümlü Statüsü) is the most exclusive and privileged document in import operations. Only trustworth­y companies which fulfill the conditions as per legislatio­n can obtain this status. It is a document which minimizes the duration of customs clearance during import or export processes. It also enables its holders to directly bring import goods to their factories or to directly send export goods to the customs borders.

The most significan­t of these advantages for automotive companies is the ‘green line practice’. Companies holding this status can clear cus- toms for their imports or exports without presenting the goods themselves in a customs office, namely, with only electronic declaratio­ns where no customs clearance is performed. Consequent­ly, the cost and the time required for customs clearance are minimized. According to data from October 2018, almost all the import declaratio­ns treated as ‘green line’ were completed within eight hours. In automotive, a JustIn-Time industry, this document creates a considerab­le time advantage. Furthermor­e, customs clearance costs of goods (loading-unloading, handling, opening-closing containers) treated in ‘green line’ are minimal since these goods are not presented at the customs offices. According to the Doing Business Report 2017, the biggest cost incurred during import operations was $702. AEO status can decrease this cost to less than $100.

Advantages of the Internal Process ng Reg me

The automotive industry is a solid exporter in Turkey. According to customs practices, there are no customs duties levied if an input or raw material is imported in order to manufactur­e a product which will be exported. This practice is called the ‘internal processing regime’(IPR). Within the scope of the IPR, inputs which will be used to produce export goods are imported with a customs exemption where trade policy measures are not applicable. The aim of the IPR is to increase the export volume of companies by means of procuring raw materials at global market prices, to raise competitiv­eness of export goods on internatio­nal markets and to develop export markets and diversify export goods.

The IPR is particular­ly beneficial for companies in terms of taxation. Companies operating under IPR have a clear advantage against their competitor­s with regard to costs. Additional­ly, they help grow overall exports. According to the Automotive Industry Report published by the Economic Analysis and Assessment Office of the Directorat­e General of Risk Management and Control, the most commonly used regime for automotive exports was the ‘Internal Processing Regime, Re-Exports of Goods Subject to Conditiona­l Exemption’, with a 76.7 percent share in overall regimes. It was the most popular again from January to June 2017, , with a usage rate of 79 percent. Thus, exports in the automotive industry are mainly carried out via IPR.

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