1 CHAPTER IV SPECIAL TARIFF TREATMENT PROGRAMS Generalized System of Preferences (GSP) Caribbean...

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CHAPTER IV CHAPTER IV SPECIAL TARIFF SPECIAL TARIFF TREATMENT PROGRAMSTREATMENT PROGRAMS

Generalized System of Preferences (GSP)Generalized System of Preferences (GSP) Caribbean Basin Initiative (CBI) Caribbean Basin Initiative (CBI)

– Caribbean Basin Economic Recovery Act Caribbean Basin Economic Recovery Act (CBERA)(CBERA)

– U.S.-Caribbean Basin Trade Partnership Act U.S.-Caribbean Basin Trade Partnership Act (CBTPA)(CBTPA)

Andean Trade Preference Act (ATPA) Andean Trade Preference Act (ATPA) Freely Associated States (FAS) Freely Associated States (FAS) African Growth & Opportunity Act (AGOA)African Growth & Opportunity Act (AGOA) MaquiladoraMaquiladora

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Grants duty-free entry to specified products from Grants duty-free entry to specified products from designated developing countries designated developing countries

Took effect on 1/1/76 for 10 years by Trade Act of Took effect on 1/1/76 for 10 years by Trade Act of 19741974

Since then, expired and been renewed Since then, expired and been renewed retroactively several timesretroactively several times

Current status: Current status: U.S. Trade Representative Started with approximately 4,400 items eligible Started with approximately 4,400 items eligible

from 140 designated beneficiary countries & from 140 designated beneficiary countries & territories.territories.

4,800 items from 127 countries as of 1/1/ 20114,800 items from 127 countries as of 1/1/ 2011

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Eligibility Requirements:Eligibility Requirements: A beneficiary developing country designated A beneficiary developing country designated

by the President by the President A or A* or A+ in "Special subcolumn of A or A* or A+ in "Special subcolumn of

Column 1 of the Harmonized Tariff Schedule of Column 1 of the Harmonized Tariff Schedule of the United States (HTSUS)the United States (HTSUS)

Directly imported into the USA Directly imported into the USA Produced in a beneficiary country Produced in a beneficiary country

• Wholly (100%) the growth, product or Wholly (100%) the growth, product or manufacture of a beneficiary country manufacture of a beneficiary country

• Substantially transformed into a new and Substantially transformed into a new and different product different product

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Produced in a beneficiary country (continued)Produced in a beneficiary country (continued) The sum of the cost or value of the The sum of the cost or value of the

materials and direct cost of processing materials and direct cost of processing operations in the beneficiary country, not operations in the beneficiary country, not less than 35% of the appraised value at less than 35% of the appraised value at the time of entry into the U.S. the time of entry into the U.S.

General and Administrative (G&A) expenses General and Administrative (G&A) expenses and profit not considered as direct cost of and profit not considered as direct cost of process operations. process operations.

A Certificate of Origin Form A of the UNCTAD A Certificate of Origin Form A of the UNCTAD not required for customs clearance but must be not required for customs clearance but must be submitted if requested by U.S. Customssubmitted if requested by U.S. Customs

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Ineligible ArticlesIneligible Articles

– Textile and apparel articles Textile and apparel articles – WatchesWatches– FootwearFootwear– Handbags, luggage, flat goodsHandbags, luggage, flat goods– Work glovesWork gloves– Leather apparel Leather apparel – Import-sensitive Electronic Articles, Steel, and Import-sensitive Electronic Articles, Steel, and

Glass Glass – Agricultural products of tariff-rate quotaAgricultural products of tariff-rate quota– Articles determined to be import-sensitive by Articles determined to be import-sensitive by

the President the President

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Competitive Need LimitsCompetitive Need Limits:: A country loses its GSP eligibility A country loses its GSP eligibility for a product when the U.S. imports for a product when the U.S. imports from that country from that country either account for 50 % or more of the either account for 50 % or more of the

value of the U.S. total importsvalue of the U.S. total imports or Exceeds a specific annual adjusted Exceeds a specific annual adjusted

value set at $75 million in 1996 with value set at $75 million in 1996 with annual increase of $5 million. The value annual increase of $5 million. The value limit increased to $145 million in 2010.limit increased to $145 million in 2010. Terminates July 1 of the next calendar yearTerminates July 1 of the next calendar year

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Ineligible countriesIneligible countries A Communist country. But eligible if such A Communist country. But eligible if such

country (a) receives Normal Trade country (a) receives Normal Trade Relations (NTR) treatment, (b) is a Relations (NTR) treatment, (b) is a member of WTO and IMF, (c) and is not member of WTO and IMF, (c) and is not dominated or controlled by international dominated or controlled by international communism. communism.

A member or a party to an arrangement A member or a party to an arrangement of foreign countries such OPEC (a) to of foreign countries such OPEC (a) to hold vital commodity resources from hold vital commodity resources from international market or raise price to an international market or raise price to an unreasonable level and (b) cause serious unreasonable level and (b) cause serious disruption of world economy disruption of world economy • But eligible if it is a party to a trade But eligible if it is a party to a trade

agreement with the U.S. and is not in agreement with the U.S. and is not in violation of such agreementviolation of such agreement

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Ineligible countries (continued):Ineligible countries (continued): A country affording preferential A country affording preferential

treatment to a product of a developed treatment to a product of a developed country which has a significant country which has a significant adverse effect on the U.S. commerceadverse effect on the U.S. commerce

A country nationalized or expropriated A country nationalized or expropriated the U.S. property, or violated patents, the U.S. property, or violated patents, trademarks, copyrights of a U.S. trademarks, copyrights of a U.S. citizen citizen

A country which fails to honor arbitral A country which fails to honor arbitral awardsawards

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP) Ineligible countries (continued):Ineligible countries (continued):

A country which aids or grants a A country which aids or grants a sanctuary to international terrorists sanctuary to international terrorists

A country which is not taking steps A country which is not taking steps giving internationally recognized giving internationally recognized worker rights to its workersworker rights to its workers

A country that does not implement any commitments to eliminate the worst forms of child labor

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Graduation & SuspensionGraduation & Suspension Graduation: Hong Kong, Singapore, Taiwan & Graduation: Hong Kong, Singapore, Taiwan &

S. Korea on 1/1/89, Malaysia 1/1/97 S. Korea on 1/1/89, Malaysia 1/1/97 Recently more countries were delisted. Per Recently more countries were delisted. Per

capita income set at $12,196 in 2010capita income set at $12,196 in 2010 Countries of Free Trade Agreement were Countries of Free Trade Agreement were

delisteddelisted Suspension: Suspension:

• Chile: 1988-1991 Chile: 1988-1991 • Thailand: 1989-1994 Thailand: 1989-1994 • Maldives: 1995 Maldives: 1995 • Myanma: Since1997Myanma: Since1997

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

A. Caribbean Basin Economic Recovery Act A. Caribbean Basin Economic Recovery Act of 1983 (CBERA)of 1983 (CBERA)

B. U.S. Caribbean Basin Trade Partnership B. U.S. Caribbean Basin Trade Partnership Act of 2000 (CBTPA)Act of 2000 (CBTPA)

Caribbean and Central American countriesCaribbean and Central American countries

Caribbean Basin Economic Caribbean Basin Economic Recovery Act (CBERA)Recovery Act (CBERA)

Caribbean Basin Economic Expansion Act of Caribbean Basin Economic Expansion Act of 1990 expanded the CBERA and made it 1990 expanded the CBERA and made it permanent.permanent.

18 beneficiary countries as of 1/1/201118 beneficiary countries as of 1/1/2011

Eligibility Requirements:Eligibility Requirements: A beneficiary developing country A beneficiary developing country E or E* in "Special" subcolumn of HTSUSE or E* in "Special" subcolumn of HTSUS Directly imported Directly imported

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Eligibility Requirements (cont.):Eligibility Requirements (cont.): Produced in a beneficiary country Produced in a beneficiary country

• Wholly (100%) the growth, product or Wholly (100%) the growth, product or manufacture manufacture

• Substantially transformed into a new and Substantially transformed into a new and different product different product

• 35% or more value added in one or more 35% or more value added in one or more beneficiary countries. General & beneficiary countries. General & Administrative expenses and profit are Administrative expenses and profit are excluded. excluded.

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Not substantially transformed Not substantially transformed productsproducts Putting batteries in devices Putting batteries in devices Bolting, gluing or soldering Bolting, gluing or soldering Adding water to concentrates Adding water to concentrates Diluting chemicals Diluting chemicals Painting or applying decals or labelsPainting or applying decals or labels

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Caribbean Basin Economic Caribbean Basin Economic Recovery Act (CBERA)Recovery Act (CBERA) Substantially transformed productsSubstantially transformed products

Assembling a large number of components Assembling a large number of components onto a printed circuit board onto a printed circuit board

Mixing two bulk medicinal substances and Mixing two bulk medicinal substances and repackaging into individual doses for retail repackaging into individual doses for retail sale. sale.

Adding water to a chemical compound under Adding water to a chemical compound under pressure resulting in a new chemical pressure resulting in a new chemical compound compound

A simple combining. packaging, or dilution A simple combining. packaging, or dilution operation coupled with another type of operation coupled with another type of processing such as fabricating or testingprocessing such as fabricating or testing

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Items excluded from duty free entry Items excluded from duty free entry Textiles and apparel Textiles and apparel Watch and watch parts Watch and watch parts Luggage, handbags, flat goods (wallet)Luggage, handbags, flat goods (wallet) Work glovesWork gloves Leather wearing apparel Leather wearing apparel Agricultural products subject to a tariff-Agricultural products subject to a tariff-

rate quotarate quota

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Products of 100% U.S. components:Products of 100% U.S. components:

Duty-free entry except water, textile & Duty-free entry except water, textile & apparel, petroleum and petroleum apparel, petroleum and petroleum products products

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U.S.-Caribbean Basin Trade U.S.-Caribbean Basin Trade Partnership Act (CBTPA)Partnership Act (CBTPA)

Took effect on October 1, 2000Took effect on October 1, 2000 Expires on FTA entry dateExpires on FTA entry date Caribbean and Central American countries: 8 Caribbean and Central American countries: 8

countries as of 1/1/2011countries as of 1/1/2011 ““R” in “Special” subcolumn of Column 1 of R” in “Special” subcolumn of Column 1 of

HTSUS HTSUS More eligible articles including those excluded More eligible articles including those excluded

under the CBERAunder the CBERA Certain textile & apparel articles: Duty & quota-Certain textile & apparel articles: Duty & quota-

free , if fabrics of U.S. origin yarn cut in the U.S. & free , if fabrics of U.S. origin yarn cut in the U.S. & assembled in the Caribbean countriesassembled in the Caribbean countries

50% RVC under net cost. 60% under transaction 50% RVC under net cost. 60% under transaction value –NAFTA equivalent treatmentvalue –NAFTA equivalent treatment

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Andean Trade Preference Act Andean Trade Preference Act (ATPA)(ATPA)

Orinally 10 years12/4/1991-12/4/2001. Since then, expired and been renewed

retroactively several times Current status: U.S. Trade Representative Bolivia, Colombia, Ecuador, Peru Bolivia suspended in 2008 FTAs with Colombia and Peru "J "or "J*" in the "Special" subcolumn of

Column 1 Min. 35% Regional Value Content (RVC)

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Articles Excluded from Duty-free Entry Textiles & Apparel articles Footwear Tuna in airtight containers Petroleum and its products Watches and its parts Handbags, luggage, flat goods, work

gloves, leather apparel

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Articles Excluded from Duty-free Entry (continued) Sugars, syrups, molasses Rum & tafia Agricultural products subject to tariff-

rate quotas

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Freely Associated States (FAS)Freely Associated States (FAS)

October 18, 1989. No expiry date Marshal Islands, Micronesia, Palau "Z" on Customs Form 7501, Entry

Summary Min. 35% RVC

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Freely Associated States (FAS)Freely Associated States (FAS)

Articles Excluded from Duty-free Entry Textiles & apparel articles Footwear, handbags, luggage, flat goods, work

gloves, leather wearing apparel Watches, clocks, timing apparatus Buttons Tuna & skipjack in airtight containers in

excess quantity afforded duty-free Agricultural products subject to a tariff-rate

quota

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African Growth & Opportunity Act African Growth & Opportunity Act (AGOA)(AGOA)

October 1, 2000-September 30, 2015October 1, 2000-September 30, 2015 Sub-Saharan African countries Sub-Saharan African countries ““D” in “Special” subcolumn of Column 1 D” in “Special” subcolumn of Column 1

of HTSUS of HTSUS Certain textiles & apparel articles: Duty & Certain textiles & apparel articles: Duty &

quota-free quota-free Min. 35% RVCMin. 35% RVC

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Maquiladora ProgramMaquiladora Program Launched as Border Industrialization Launched as Border Industrialization

Program by the Mexican government in Program by the Mexican government in 1966 after the end of 23-year Bracero 1966 after the end of 23-year Bracero Program in1965Program in1965

Mexican Corporations operating under In-Mexican Corporations operating under In-Bond Program of MexicoBond Program of Mexico

Mexican production facilities processing Mexican production facilities processing or assembling components into finished or assembling components into finished products for exportationproducts for exportation

Partly or entirely owned by non-MexicansPartly or entirely owned by non-Mexicans

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Tariff No. 9802.00.80 of Chapter Tariff No. 9802.00.80 of Chapter 98 of Harmonized Tariff Schedule 98 of Harmonized Tariff Schedule of the U.S. (HTSUS):of the U.S. (HTSUS):– Articles Exported and Returned, Articles Exported and Returned,

Advanced or Improved AbroadAdvanced or Improved Abroad

– Permits only assembly operation Permits only assembly operation abroadabroad

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(1) Procedures of Maquiladora Operation

U.S. parts, components, equipment and machinery were imported into Mexico duty-free

Parts and components assembled into the products

Paid U.S. import duty only on the value added in Mexico, when finished products were imported into the U.S.

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Maquiladoras & the U.S.Maquiladoras & the U.S.(2) Requirements by HTSUS (2) Requirements by HTSUS Components ready for assembly without Components ready for assembly without

further fabrication further fabrication Have not lost physical identity Have not lost physical identity Have not advanced in value except Have not advanced in value except

assembly processassembly process

(3) Products Excluded: (3) Products Excluded: Raw materials such as Chemicals, Food Raw materials such as Chemicals, Food

ingredients, Gases, Liquid & Powderingredients, Gases, Liquid & Powder

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End of Maquiladora with the U.S.– NAFTA, which took effect on 1/1/1994,

required Mexico to abolish duty-free importation of inputs into Mexico, regardless of origin

– Duty-free status is determined by the NAFTA’s rules of origin

– Replaced by the NAFTA on 1/1/2001

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Benefits to MexicoBenefits to Mexico

Provided Mexico with employments Provided Mexico with employments – Higher wages than domestic Mexican factoriesHigher wages than domestic Mexican factories

Provided Mexico with foreign exchangeProvided Mexico with foreign exchange – More than tourismMore than tourism– 22ndnd foreign exchange provider after oil foreign exchange provider after oil

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Benefits to U.S. BusinessesBenefits to U.S. Businesses Mexico's large, low-cost, highly trained Mexico's large, low-cost, highly trained

work force: 8 to 13% of the U.S. wagework force: 8 to 13% of the U.S. wage Relaxed environmental and worker-safety Relaxed environmental and worker-safety

standards standards Quick access to the U.S. consumer market Quick access to the U.S. consumer market

– Lower inventory requirements, lower Lower inventory requirements, lower transportation costs and lower insurance transportation costs and lower insurance costs than Asian factoriescosts than Asian factories

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Most Promising ProductsMost Promising Products

Highly labor-intensive productsHighly labor-intensive productsElectronics, Apparel, Auto parts, Furniture, Toys, Electronics, Apparel, Auto parts, Furniture, Toys, Sporting GoodsSporting Goods

Time-sensitive productsTime-sensitive productsFashionable goods: Apparel, ToysFashionable goods: Apparel, Toys

Bulky productsBulky productsTransportation containers for domestic and Transportation containers for domestic and international transportationinternational transportation

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Maquiladoras & the U.S.Maquiladoras & the U.S.Labor Management & Environment Labor Management & Environment Labor turnover up to 25%: the biggest Labor turnover up to 25%: the biggest

headacheheadache To reduce high labor turnoverTo reduce high labor turnover

– Locate in the interior far from the borderLocate in the interior far from the border– Train supervisorsTrain supervisors– Introduce good work ethicsIntroduce good work ethics– Provide incentive programs to prevent Provide incentive programs to prevent

absenteeismabsenteeism

Environment problemEnvironment problem– Many factories moved to Mexico from the Many factories moved to Mexico from the

U.S. to avoid environmental problemsU.S. to avoid environmental problems

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– Factories using toxic materials including Factories using toxic materials including solvents, heavy metals and dangerous solvents, heavy metals and dangerous chemicals: higher environmental reason than chemicals: higher environmental reason than labor costslabor costs

– Mexico was called a polluter’s heavenMexico was called a polluter’s heaven• Lack of sewage and water treatment plants Lack of sewage and water treatment plants • More relaxed Mexican environmental laws More relaxed Mexican environmental laws • Lack of enforcement by Mexican Lack of enforcement by Mexican

governmentgovernment – Mexico must improve environmentMexico must improve environment

Impact of NAFTA on Maquiladora

Phase 1: 1994-2000– Duty-free importation of inputs into

Mexico regardless of origin– Gradually allowed to sell Mexican

market I/O export. In 2001, 100%– Products sold in domestic market must

pay import duties for inputs– Not many sold their products in

domestic market

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Impact of NAFTA on Maquiladora Phase 2: 2001 and beyond

– In 2001, Mexico abolished duty-free importation of inputs, regardless of country of origin

– Inputs from the U.S. still duty-free under NAFTA

– Non-NAFTA inputs required to pay import duties, but can file drawback claim for the lesser of Mexican import duties on inputs or U.S. or Canada duty on finished products

– Mexico made import duties zero or very low 37

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