Thursday, April 16, 2015

Utilizing Free Trade Agreements

Posted by Brooks Whiting, Intern

In a seminar held by the WTC, attendees learned about Free Trade Agreements (FTA) and how to take advantage of them. These included NAFTA, S. Korea, Colombia, and Panama. 

The most notable benefit of a FTA is the reduction or elimination of tariffs on imported goods.  Another benefit directly associated with FTA's is that exported goods originating from the United States receive a lower duty from the agreement than imports sourced from countries without free trade agreements.  Currently, the United States has joined with 20 countries and negotiated 14 active FTA's.  A listing of these active FTA's is available from the Office of the United States Trade Representative (USTR) websiteThe United States is also in negotiations for regional FTA's, such as the Asia-Pacific trade agreement called the Trans-Pacific Partnership (TPP) Agreement and the European Union trade agreement called the Transatlantic Trade and Investment Partnership (T-TIP).

Taking Advantage of a Free Trade Agreement

The first step to take advantage of a FTA is to classify your products by their Harmonized Tariff System (HTS) code, using the GRI-General Rules of Interpretation and chapter/section notes.  The Customs Ruling Online System Search (CROSS) is a great tool to verify and double-check your HTS code. 

The second step is to find out if a tariff is being imposed on your product.  You are not required to participate in Free Trade Agreements.  If the tariff being imposed on your product is zero there is no need to involve yourself.  The "tariff tool" found on the US Dept of Commerce's website is an invaluable resource.  This tool will tell you not only how large the tariff being imposed on your good is, but any other taxes as well.  If the tariff is small, you may benefit from doing a cost analysis.  This will help determine if the benefits realized from taking part in the FTA will outweigh the costs.

Rules of Origin

The third step in taking advantage of a FTA is to determine the applicable rules of origin for your product.  In other words, you need to find out if your products qualify as being made of originating or non-originating materials.  If you are not the primary manufacturer, it may be necessary to have documentation from the primary manufacturer supporting the claim of originating material.  The rules of origin and forms that must be used vary depending on the trade agreement.

The North American Free Trade Agreement (NAFTA) is between the US, Canada, and Mexico.  This agreement uses Annex 401- Specific Rules of Origin.  The KORUS FTA is between South Korea and the US, and it has deliberate in-text guidelines to certify origin.  The Colombia Trade Promotion Agreement with the US has an entire chapter dedicated to determining origin.  Panama's Trade Promotion Agreement with the US uses Annex 4.1 for rules of origin.

Filing Certificates of Origin

After determining if your products qualify under the corresponding rules of origin, the next step is to ensure you have the proper forms and information to complete the FTA's Certificate of Origin.  Each FTA requires the completion of a form detailing aspects necessary to comply with the guidelines of the FTA. Carefully compare the differences between NAFTAKORUS,  Colombia-US TPA, and Panama-US TPA.  Be sure to stay current on rules of origin, tariff requirements, and other eligibility constraints that may change periodically.  The law requires your business to keep all FTA documents for 5 years after filing. 

This full day seminar was presented by Mike Allocca, President, Allocca Enterprises, Inc.  His website has informational videos that cover a variety of Export and Import Compliance Training topics.  Should you wish to learn more about documentation, HTS-Schedule B or even NAFTA, his videos are available to rent or buy.  As always, our team at the World Trade Center Harrisburg is standing by to help you achieve your international business goals.  Feel free to give us a call at (717) 842-1090, we will be glad to answer any questions you may have.