Www.export.gov 1-800-USA-TRADE Cashing in With Free Trade Agreements Tony Hill International Trade...

www.export.govwww.export.gov 1-800-USA-TRADE1-800-USA-TRADE

Cashing in With Free Trade Agreements

Cashing in With Free Trade Agreements

Tony Hill

International Trade Specialist

Sacramento Export Assistance Center

11/3/10

Tony Hill

International Trade Specialist

Sacramento Export Assistance Center

11/3/10


AgendaAgenda

1. Background Information about FTAs

2. Researching Opportunities

3. Tariff Rate Benefits

1. Background Information about FTAs

2. Researching Opportunities

3. Tariff Rate Benefits


FTAs in ForceFTAs in Force1. Israel 19852. NAFTA 19943. Jordan 20014. Chile 20045. Singapore 20046. Australia 20057. Morocco 20068. Bahrain 20069. CAFTA-DR 2006-200910.Oman 200911.Peru 2009

1. Israel 19852. NAFTA 19943. Jordan 20014. Chile 20045. Singapore 20046. Australia 20057. Morocco 20068. Bahrain 20069. CAFTA-DR 2006-200910.Oman 200911.Peru 2009


CAFTA-DR Trade Agreement Countries

CAFTA-DR Trade Agreement Countries

• El Salvador 2006• Honduras 2006• Nicaragua 2006 • Guatemala 2006 • Dominican Republic 2007• Costa Rica 2009

• El Salvador 2006• Honduras 2006• Nicaragua 2006 • Guatemala 2006 • Dominican Republic 2007• Costa Rica 2009


FTA’s Pending Approval FTA’s Pending Approval

Pending Congressional Approval• Panama• Columbia• South Korea

Pending Congressional Approval• Panama• Columbia• South Korea


Increase in US Exports after FTA takes effect

Increase in US Exports after FTA takes effect

year-on-year year-on-year

before FTA after FTA

• Singapore 1% 20%

• Chile 4% 32%

• Honduras 5% 13%

• Guatemala 9% 24%

• El Salvador -2% 18%

• Morocco 1% 68%

year-on-year year-on-year

before FTA after FTA

• Singapore 1% 20%

• Chile 4% 32%

• Honduras 5% 13%

• Guatemala 9% 24%

• El Salvador -2% 18%

• Morocco 1% 68%


Free Trade Agreements Include


• Tariff Rate Elimination

• Services

• Government Procurement

• Intellectual Property Right Protection

• Investment

• Tariff Rate Elimination

• Services

• Government Procurement

• Intellectual Property Right Protection

• Investment




• Customs Coordination

• Labor Standards

• Environmental Standards

Trade Compliance Center

E-Mail: [email protected],

Phone: (202) 482-1191

• Customs Coordination

• Labor Standards

• Environmental Standards

Trade Compliance Center

E-Mail: [email protected],

Phone: (202) 482-1191


Cashing in with FTA’s?


• Market Opportunities Available

– Market Research

• Qualifying your product for FTA tariff benefits


– Market Research



Finding Opportunities – Market Research

Finding Opportunities – Market Research

Market Research on WWW.Export.govFree Country Commercial Guides and other Industry Reports

Sources for Trade Data• International Trade Commission

www.dataweb.USITC.gov

• Census Bureau www.USATRADEONLINE.gov

• Trade Stats Express http://tse.export.gov/

Market Research on WWW.Export.govFree Country Commercial Guides and other Industry Reports

Sources for Trade Data• International Trade Commission

www.dataweb.USITC.gov

• Census Bureau www.USATRADEONLINE.gov

• Trade Stats Express http://tse.export.gov/


NAFTANAFTA

Leading Export Sectors

Canada


Canada MexicoMexico• Airport /Ground Support

Equipment

• Auto Parts and Supplies

• Electronic Components

• Energy Sector

• Airport /Ground Support Equipment

• Auto Parts and Supplies

• Electronic Components

• Energy Sector

• Medical devices

• Security equipment

• Industrial machinery

• Electric power systems

• Medical devices


• Industrial machinery

• Electric power systems


CAFTA-DRCAFTA-DR

Dominican Republic

• Medical Equipment

• Hotel/Restaurant Equipment

• Computer & Peripherals

• Telecom Equipment

Dominican Republic

• Medical Equipment

• Hotel/Restaurant Equipment

• Computer & Peripherals



Costa Rica

• Auto parts

• Tourism services

• Construction equipment

• Dental equipment


Costa Rica

• Auto parts

• Tourism services




Guatemala

•Auto Service Equipment

•Food Processing/Packaging Equipment

•Construction

•Hotel/Restaurant Equipment

Guatemala

•Auto Service Equipment

•Food Processing/Packaging Equipment

•Construction

•Hotel/Restaurant Equipment

CAFTA-DRCAFTA-DR


El Salvador

• Agriculture

• Auto parts




El Salvador

• Agriculture

• Auto parts




CAFTA-DRCAFTA-DR


Honduras

• Auto parts,

• Food processing/packing equipment,

• Franchising

• Hotel/restaurant equipment


Honduras

• Auto parts,

• Food processing/packing equipment,

• Franchising

• Hotel/restaurant equipment

Nicaragua

• Autos & Auto Parts

• Construction Equipment & Materials

• Computer equipment


Nicaragua

• Autos & Auto Parts

• Construction Equipment & Materials

• Computer equipment



Middle-East andNorth Africa


Israel • Hi-tech, defense, infrastructure• Does not cover Gaza or West Bank

Jordan• Agricultural equipment, construction,

energy, hotel & restaurant equipment• 1st inclusion of environmental and labor

commitments

Israel • Hi-tech, defense, infrastructure• Does not cover Gaza or West Bank

Jordan• Agricultural equipment, construction,

energy, hotel & restaurant equipment• 1st inclusion of environmental and labor

commitments




Morocco- Wastewater treatment, Medical

Equipment, Telecom Equipment and Services

Oman- Oil and Gas, Transportation, Water and

Environmental Tech, Medical Equipment

Morocco- Wastewater treatment, Medical

Equipment, Telecom Equipment and Services

Oman- Oil and Gas, Transportation, Water and

Environmental Tech, Medical Equipment




Bahrain

• Automobiles• Aircraft• Construction equipment

Bahrain

• Automobiles• Aircraft• Construction equipment


ChileChile


• Computer Hardware/Software/Services

• Construction

• Electric Power Equipment

• Food Processing and Packaging Equipment


• Computer Hardware/Software/Services

• Construction

• Electric Power Equipment

• Food Processing and Packaging Equipment


SingaporeSingapore


• Aircraft & Parts

• Oil & Gas

• Lab & Scientific Instruments

• Telecommunication Equipment


• Aircraft & Parts

• Oil & Gas

• Lab & Scientific Instruments

• Telecommunication Equipment


Australia FTAAustralia FTA

Leading Exports Sectors


• Hi-tech equipment

• Medical instruments

• Pharmaceuticals

Leading Exports Sectors


• Hi-tech equipment

• Medical instruments

• Pharmaceuticals


US-Peru TPA (Trade Promotion Agreement)

US-Peru TPA (Trade Promotion Agreement)


• Mining Industry Equipment

• Telecommunications Equipment

• Plastic Materials and Resins

• Construction Equipment


• Mining Industry Equipment

• Telecommunications Equipment

• Plastic Materials and Resins

• Construction Equipment





– Market Research



– Market Research



Steps to Cashing In on FTA Tariff BenefitsSteps to Cashing In

on FTA Tariff Benefits

1) Determine the harmonized tariff code

2) Determine whether there is a tariff benefit

3) Determine how to qualify

4) Certify that product qualifies






1. What is the Harmonized Tariff Code?

1. What is the Harmonized Tariff Code?

• A number that classifies products for customs purposes, typically 6-10 digits

• AKA: Schedule ‘B’ Number, HTS code, HS Code

• For most countries, first 6 digits are "harmonized;” i.e., identical

• Can be found at www.census.gov under “export codes” or call 1-800-549-0595

• A number that classifies products for customs purposes, typically 6-10 digits

• AKA: Schedule ‘B’ Number, HTS code, HS Code

• For most countries, first 6 digits are "harmonized;” i.e., identical

• Can be found at www.census.gov under “export codes” or call 1-800-549-0595


Break Down of Harmonized Tariff Code

Break Down of Harmonized Tariff Code

Example: HS #9608.10

96 = Chapter 9608 = Heading9608.10 = Subheading

Example: HS #9608.10

96 = Chapter 9608 = Heading9608.10 = Subheading


2. Is There a Tariff Rate Benefit?

2. Is There a Tariff Rate Benefit?

• Normal Tariff Rate vs. FTA Rate

– Normal or MFN (Most Favored Nation) rate = rate applied to products entering from countries with normal trade relations

• If MFN rate = FTA rate, there is no tariff benefit

• If MFN rate > FTA rate, continue

• Normal Tariff Rate vs. FTA Rate

– Normal or MFN (Most Favored Nation) rate = rate applied to products entering from countries with normal trade relations

• If MFN rate = FTA rate, there is no tariff benefit


STOP


Tariff RatesMFN rate vs. FTA rate

Tariff RatesMFN rate vs. FTA rate

• Most FTA tariff rates zero immediately

• Some reduced to zero over time according to Tariff Elimination Schedule

• MFN Tariff rates: Export.gov or by calling 1-800-USA-TRAD(E)

• Elimination schedules: Export.gov/FTA or USTR.gov

• Most FTA tariff rates zero immediately

• Some reduced to zero over time according to Tariff Elimination Schedule

• MFN Tariff rates: Export.gov or by calling 1-800-USA-TRAD(E)

• Elimination schedules: Export.gov/FTA or USTR.gov


FTA Tariff RatesFTA Tariff Rates

Tariff Elimination Schedules:

• Staging Categories – Letter codes that are specific to each agreement

• Reduction from Base Rate – Rate in Effect When FTA Enters Force

Tariff Elimination Schedules:

• Staging Categories – Letter codes that are specific to each agreement

• Reduction from Base Rate – Rate in Effect When FTA Enters Force


Australia Tariff Elimination Schedule


Harmonized Code


Examples: Australia Tariff Elimination Schedule

Agreement in Force Jan. 1, 05

Examples: Australia Tariff Elimination Schedule

Agreement in Force Jan. 1, 05

• Category B:

– 4 equal annual stages

– Beginning on the date the FTA enters into force

– Duty-free effective January 1 of year four (2008)

• Category C:



– Duty-free effective January 1 of year eight (2012)

• Category D:


– Beginning on January 1, 2005, and shall be

– duty-free effective January 1 of year ten (2014)

• Category B:



– Duty-free effective January 1 of year four (2008)

• Category C:



– Duty-free effective January 1 of year eight (2012)

• Category D:


– Beginning on January 1, 2005, and shall be

– duty-free effective January 1 of year ten (2014)


CAFTA-DR Tariff Elimination

CAFTA-DR Tariff Elimination

• Category B: – 5 equal annual stages – Beginning on the date the Agreement enters into force– Duty-free effective January 1 of year five.

• Category C: – 10 equal annual stages– Beginning on the date the Agreement enters into force– Duty-free effective January 1 of year ten.

• Category B: – 5 equal annual stages – Beginning on the date the Agreement enters into force– Duty-free effective January 1 of year five.

• Category C: – 10 equal annual stages– Beginning on the date the Agreement enters into force– Duty-free effective January 1 of year ten.


Example from Costa RicaExample from Costa Rica


FTA Tariff EliminationFTA Tariff Elimination

• Tariff Elimination Schedules: – www.Export.gov/FTA– www.USTR.gov

• Staging Category Definitions:– www.Export.gov/FTA

• Tariff Elimination Schedules: – www.Export.gov/FTA– www.USTR.gov

• Staging Category Definitions:– www.Export.gov/FTA


Remember

Determine the Benefit

Remember

Determine the Benefit

• MFN Rate vs. FTA Rate

– MFN rate or normal rate = rate applied to products entering from countries with normal trade relations

• MFN rate = FTA rate, STOP

– There may be little or no benefit, Two exceptions – Mexico and Mexico


• MFN Rate vs. FTA Rate

– MFN rate or normal rate = rate applied to products entering from countries with normal trade relations

• MFN rate = FTA rate, STOP

– There may be little or no benefit, Two exceptions – Mexico and Mexico



FTA Product Qualification


2 Types of Agreements

1. Generally Applied Rules:

Substantial Transformation + Value Added– Israel, Jordan, Morocco, Bahrain, Oman

2. Product Specific Rules:

Tariff Shift and/or Value Added– NAFTA, Chile, Singapore, Australia, CAFTA-

DR, Peru






DR, Peru


Generally Applied Rules of Origin

Substantial Transformation

+ Value Added

Generally Applied Rules of Origin

Substantial Transformation

+ Value Added


Substantial Transformation + Value Added

Substantial Transformation + Value Added

Product qualifies if: 1. Produced entirely in the U.S using only US

materials, Or

2. Produced in US using some foreign materials that underwent substantial transformation and contain 35% U.S. Value-Added

Product qualifies if: 1. Produced entirely in the U.S using only US

materials, Or

2. Produced in US using some foreign materials that underwent substantial transformation and contain 35% U.S. Value-Added


Requirement 1: Substantial Transformation

Requirement 1: Substantial Transformation

Applies only to Non-Agreement/Foreign Parts and Materials

• Steel Sheet to Steel Door

• Peanuts to Peanut Butter

• Wood to Wood Chair

• Glass Sheet to Car Windshield


• Steel Sheet to Steel Door

• Peanuts to Peanut Butter

• Wood to Wood Chair

• Glass Sheet to Car Windshield


Requirement 2: Value-added

Requirement 2: Value-added


• 35% of the value of the product must be attributed to

U.S. origin materials, and/or

U.S. direct costs of processing

• Based on Customs Value


• 35% of the value of the product must be attributed to

U.S. origin materials, and/or

U.S. direct costs of processing

• Based on Customs Value









DR, Peru






DR, Peru


Product Specific Rules of Origin

Tariff Shift and/or Value Added

Product Specific Rules of Origin

Tariff Shift and/or Value Added


Tariff Shift / Value AddedTariff Shift / Value Added

Preference Criteria (How product qualifies)

A. Wholly obtained or produced entirely in the territory – for ag products & natural resources.

B. Produced in the territory using foreign materials that meet the rule of origin

C. Produced in the territory only with originating materials

Preference Criteria (How product qualifies)

A. Wholly obtained or produced entirely in the territory – for ag products & natural resources.

B. Produced in the territory using foreign materials that meet the rule of origin

C. Produced in the territory only with originating materials


Rules of Origin Rules of Origin

• Only applies to foreign, non-agreement content

• Each rule is Product Specific

• May require:A. Tariff Classification Change (tariff shift)

or

B. Regional Value Content (RVC)

or

A + B. Both (tariff shift and RVC)




or


or



A. Example of Tariff ShiftCupcakes to Australia

A. Example of Tariff ShiftCupcakes to Australia

Assume all inputs (flour, sugar, cocoa, etc.)were imported

1. Find the HS Code (HS #1905.90)

2. Rule of Origin covering HS Code:

Assume all inputs (flour, sugar, cocoa, etc.)were imported

1. Find the HS Code (HS #1905.90)

2. Rule of Origin covering HS Code:

Interpretation: Cupcakes qualify if all imported components are not from chapter 19 of the HS schedule

Interpretation: Cupcakes qualify if all imported components are not from chapter 19 of the HS schedule


Cupcakes to AustraliaInputs

Cupcakes to AustraliaInputs

Material HTS # • Flour 1101• Sugar 2102• Cocoa 1806 • Baking Soda 2836• Eggs 0407

These cupcakes meet the Rule of Origin requirements.

Material HTS # • Flour 1101• Sugar 2102• Cocoa 1806 • Baking Soda 2836• Eggs 0407

These cupcakes meet the Rule of Origin requirements.

Chapter 19: Preparations of Cereals, Flour, Starch or Milk; Bakers' Wares


Tariff Shift RequirementTariff Shift

Requirement

• De Minimus Rule allows up to 10% of the selling price to be non-qualifying material, 7% for NAFTA

• If a foreign input does not meet the Rule of Origin and does not qualify under the de minimus rule, then the good does not qualify under the FTA.

• De Minimus Rule allows up to 10% of the selling price to be non-qualifying material, 7% for NAFTA

• If a foreign input does not meet the Rule of Origin and does not qualify under the de minimus rule, then the good does not qualify under the FTA.


Rules of Origin Rules of Origin




or


or





or


or



B. Regional Value Content(2 types)


NAFTA

Options:

1. 50% of Net Cost

or

2. 60% of Transaction Value

NAFTA

Options:

1. 50% of Net Cost

or

2. 60% of Transaction Value




Non-NAFTA (Chile, Singapore, Australia, CAFTA-DR, Peru)

Options:

1.Build-Up Method– Add up value of originating materials must be

greater than 35%

2.Build-Down Method– Subtract value of non-originating materials

must be greater than 45%

Non-NAFTA (Chile, Singapore, Australia, CAFTA-DR, Peru)

Options:

1.Build-Up Method– Add up value of originating materials must be

greater than 35%

2.Build-Down Method– Subtract value of non-originating materials

must be greater than 45%









DR, Peru






DR, Peru





2) Determine tariff rate benefit – including Tariff Elimination Schedule

3) Determine how to qualify– Review Rule of Origin (agreement specific)

4) Certify that product qualifies (agreement specific requirements)



3) Determine how to qualify– Review Rule of Origin (agreement specific)



Declaring and Certifying Origin

Declaring and Certifying Origin

NAFTA, Jordan, Israel 1.Exporter declares 2.Official certificate of origin

All others1. Importer declares2.No formal certificate of origin3.Find information requirements at

Export.gov/FTA

NAFTA, Jordan, Israel 1.Exporter declares 2.Official certificate of origin

All others1. Importer declares2.No formal certificate of origin3.Find information requirements at

Export.gov/FTA


NAFTA Certificate of OriginFree at Export.gov/FTA/NAFTA

•Self-certification•Send to buyer


Form must be obtained from authorized authority, either

•American-Israel Chamber of Commerce

Or

•UNZ and Company•Rapid Forms

Information at Export.gov/FTA/Israel

Israel FTA Certificate


Back to the StepsBack to the Steps



3) Determine whether product qualifies– Review Rule of Origin (agreement specific)




3) Determine whether product qualifies– Review Rule of Origin (agreement specific)



Direct Transport Requirement

Direct Transport Requirement

• Shipped directly from U.S. to Country

• Shipped via a third country:

– Remains under customs control in 3rd country.

– Or, placed in a customs warehouse or customs-controlled FTZ prior to shipment to FTA partner country.

• Shipped directly from U.S. to Country

• Shipped via a third country:

– Remains under customs control in 3rd country.

– Or, placed in a customs warehouse or customs-controlled FTZ prior to shipment to FTA partner country.


Record KeepingRecord Keeping

• Importers and exporters should maintain documents to support FTA claim for up to seven years after importation

• Customs officials can seek information from either party

• Importers and exporters should maintain documents to support FTA claim for up to seven years after importation

• Customs officials can seek information from either party





– Market Research



– Market Research



Contact Contact

Tony Hille-mail: [email protected]: 916-566-7011

Find Local Export Assistance Center at: www.BuyUSA.gov

Call 1-800-USA-TRAD(E)

Visit www.export.gov/FTA

Tony Hille-mail: [email protected]: 916-566-7011

Find Local Export Assistance Center at: www.BuyUSA.gov

Call 1-800-USA-TRAD(E)

Visit www.export.gov/FTA

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