Summary: What does the Thai legislation say exactly on how completely knock-down (CKD) vehicles need to be imported? What is the background of these legislations and differences? What are expected developments in these legislations ad in the transport of CKD in general? This entry provides some answers to these questions, relevant in particular for the CORE Demo WP11. The detailed document in the CORE electronic library is coded as CORE2000. Source file at: http://www.customs.go.th/wps/wcm/connect/library+cus501th/internetth/9/9_3/558ecfb861e0c1ac34c67ba270730a24

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Legal background: The Ministry of Finance Notification providing further preferential duty reduction schedules under Section 12 of the Customs Tariff Decree B.E. 2530 (Section 12 Notification) dated 6 January 2012 is the legislation determining the duty rates of CKD parts imported for vehicle assembly and the knock down criteria. Instead of paying 80% import duty and excise tax for importing the whole CBU vehicles, importers who imported these CKD vehicles as parts can enjoy import duty of vehicle parts (30%) or at lower rates (or even duty exemption for some parts) depending on the type of vehicles to be manufactured from these parts and the type of parts imported. Please refer to the Section 12 Notification in No. 2 (5), (8), (17), (18), (19), (20) and No. 3 (12), (13), (28), (29), (43) of the Notification for eligible parts and applicable rates of duty as well as the conditions attached to the duty reduction that importers would have to fulfil to be eligible the Section 12 privilege e.g., the requirement that importers shall (1) use only imported parts in the models that they submitted to Customs Department for approval and; (2) not resort to parts imported by others as well as (3) comply with specific customs procedures determined by the Customs Department. For the knock down criteria for different types of vehicles, please refer to and Appendix A, B and C of the Notification.

The Customs Notification No.63/2555 Part 2, No. 12 indicated the customs procedures that importers have to comply (similar to those spelt out in the Section 12 Notification) and conditions that importers have to fulfil for parts import approval (by the Customs Department) such as the submission of assembly manual, part catalogue, technical specification, the list of parts’ models and numbers and the quantity to be imported, etc.

Challenges and financial exposures: Recently, there is more scrutiny from the Thai Customs to importers using the Section 12 privilege, including challenges related to the following:

• Whether an approval letter from Customs to use the Section 12 privilege has been obtained;
• Whether a process chart of assembling has been submitted;
• Whether the manufacturing process are considered as simple assembling process;
• Whether imported goods have been used in every process of manufacturing or assembling of components of the vehicles as illustrated in the submitted process chart;
• Whether imported goods have been subsequently sold as spare parts in after-sale market;
• Whether the manufacturer is the same entity with the importer (some automakers used their trading companies to import parts while the manufacturing entity is another company but remain within the same corporate group);
• Whether the tariff codes of imported goods are correctly classified, and/or listed in the Section 12 Notification; or
• Whether there are some discrepancies such as different part numbers/part names between imported goods and goods that have received an approval for the privilege. For example, some automakers were challenged by the fact that their part suppliers changed parts’ commercial names or that there were some human errors in encoding part models/numbers.

The Customs often challenged that the above failure would result in the loss of duty privilege and incur large amounts of fine and duty shortfall. To my acknowledgement, there is no plan to amend these stringent regulations to make them become more friendly to automakers.

Automakers’ alternatives: Some automakers may also resort to other privileges like the BOI’s investment promotion scheme or Free Zone which provide similar duty reduction/exemption. However, they still expose themselves to other types of customs challenge. For example, for most of BOI privilege, import duty reduction is often available for parts imported for export processing. An accurate inventory management is therefore critical to avoid customs challenge. Discrepancy between the production formula approved by the BOI and the actual input consumed in manufacturing could also result in large amounts of fine and/or duty shortfall (both, if the inventory of imported input receiving privilege for export is missing and smuggling challenge, if the inventory of imported input is in excess). For automakers in Free Zone which provides (1) import duty exemption for input intended for export processing and; (2) import duty exemption for input intended for domestic sales together with import duty exemption/reduction for vehicles manufactured in Free Zone provided that the local content (labour, electricity and other overhead costs, etc.) including the value of imported parts under FTA privileges and the manufacturing profit altogether reach 40% of the ex-factory price, the Customs often scrutiny whether the required content reached 40% of the ex-factory price and delay the approval of duty free/reduction for domestic sales.

Links to relevant legislation: Section 12 Notification of 6 January 2012 ( http://www.customs.go.th/wps/wcm/connect/library+cus501th/internetth/9/9_3/558ecfb861e0c1ac34c67ba270730a24 )

Customs Notification No. 63/2555 ( http://www.customs.go.th/wps/wcm/connect/library+cus501th/internetth/9/9_2/d7e370419af87e118df329260d440eff ) and its amendment that may be related to automotive parts (Customs Notification No. 17/2556 – http://www.customs.go.th/wps/wcm/connect/library+cus501th/internetth/9/9_2/bdd797ca34facf6cdc3cbe4a4164ec34 )

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