Free Trade Agreement Series: Part 5- Peru and Colombia FTAs

As the US seeks to reap the benefits of free trade throughout the world, it is imperative that agreements are reached with our regional trading partners. The past two administrations have secured Free Trade Agreements with multiple Central and South American countries. Agreements with both Peru and Colombia were signed in 2006; however, the ratification process was not the same for both agreements. The US-Peru Trade Promotion Act (US-Peru TPA) was ratified on December 14, 2007 and entered into force on February 1, 2009[1]. On the other hand, the US-Colombia Trade Promotion Agreement (US-Colombia TPA) was ratified by Congress on October 12, 2011 and has not yet entered into force.[2]

Both nations previously benefited from the Andean Trade Promotion and Drug Eradication Act (ATPDEA), but in a very unusual twist, even after the US-Peru TPA entered into force, ATPDEA benefits for Peru continued to apply for some time (see our earlier Free Trade Agreement Series Part 3 for details).

As of this writing, Colombia still enjoys preferential treatment from ATPDEA, pending implementation of the US-Colombia agreement.  Like all other Free Trade Agreements other than that with Peru, once the Colombian agreement enters into force, ATPDEA benefits for Colombia will immediately end.  As an example of the effect of this, imagine an importer of suits and garments from Colombia now using Peruvian woolen cloth.   Prior to these FTAs being implemented, cumulation rules allowed them to claim ATPDEA benefits and full duty free treatment when importing to the US, since all of the labor and material was ATPDEA regional. However, a year after the Peruvian FTA entered into force, this importer could no longer use Peruvian wools and still claim ATPDEA preferential treatment since Peruvian fabrics were stripped from all their ATPDEA benefits.  The garments would now have to be duty-paid, even though all of the labor and components come from duty-free origins.

While it is true that the US-Colombia TPA has not yet entered into force, the agreement is expected to do so once the Colombian government meets certain requirements later in 2012.  This could happen very quickly, so those who import from Colombia, especially textiles that will all become duty-free once the agreement is implemented, be forewarned that ATPDEA benefits will end for Colombia when the US-Colombia TPA enters into force.  This means that any other ATPDEA content (Ecuadorian) would be excluded from duty free treatment if imported via Colombia.  Be prepared to claim for preferential treatment under the US-Colombia TPA, which will require different filing procedures than you are now accustomed to.

Here is a link for claiming preferential treatment under US-Peru TPA: http://export.gov/FTA/peru/eg_main_017979.asp

There is currently no similar link to the US-Colombian TPA since the agreement is not yet in force.

Finally, for those of you currently seeking a “short supply” finding for fibers, yarns, and fabrics not available in commercial quantities in a timely manner, note that the review and approval process of Committee for the Implementation of Textile Agreements (CITA) takes several months to complete. The US-Colombia TPA may already be implemented by the time CITA determines whether or not any newly requested fabrics could be added to the ATPDEA short supply list.  If this becomes the case, these fabrics would not qualify for preferential treatment anymore.  A new and different Commercial Availability request process will be required. Since there are yet to be published any CITA procedures for the US-Colombia TPA here is a link to the US-Peru TPA CITA procedures:

http://otexa.ita.doc.gov/fr2008/comavperuip(08-09).htm

We are assuming that the Colombian FTA procedures will be similar to those immediately above applicable to Peru.  We are already prepared to immediately file short supply requests for some clients upon implementation of the agreement.

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Free Trade Agreement Series: Part 3- Andean Free Trade on a Roller Coaster

The Andean Trade Promotion and Drug Eradication Act (ATPDEA) was enacted in 2002 by the second Bush administration. This trade preference agreement sought to grant four South American nations preferential treatment when exporting goods into the United States. With the purpose to promote economic development and eradicate drug trafficking, the agreement targeted four Andean countries, Bolivia, Colombia, Ecuador, and Peru. However, by the beginning of this year only two of these nations remained eligible for duty free exemptions. ATPDEA has been revised, eradicated, and reinstated continually since creation, today leaving Colombia and Ecuador as the only two beneficiaries. The several revisions made to ATPDEA have become a source of problems, creating confusion and uncertainty for importers and exporters, and even as we try to explain it Colombia is set to exit once its own separate FTA (Free Trade Agreement) is in place, most likely Dec. 1 2013 if there are no other changes.

ATPDEA expired for all beneficiary on December 21, 2009. The only country that maintained duty-free benefits was Peru, which was covered by the Free Trade Agreement it signed with the United States. One week later, on Dec. 28, 2009, an amendment to 123 Stat. 3484; Pub. L.  111-344, title II, Sec. 201(a), was enacted restoring Colombia until February 2011 and Peru through the end of 2010. Then it changed again!  On January 7, 2011 the termination section of ATPDEA was amended to remove all benefits of ATPDEA from Colombia and Peru. Finally, a retroactive provision allowing Colombia, but not Peru, duty free access was enacted by H.R. 3078, 112th Cong. (2011) which further extended the expiration of the ATPDEA to July 31, 2013, and especially for preferential tariff treatment under the regional fabric provision for imports of qualifying apparel articles from Colombia and Ecuador only through September 30, 2012.

All of this back-and-forth has created reams of unnecessary work for Customs at the ports of entry, for customhouse brokers, and for importers.  It has also created a bonanza for U.S. Customs and Border Protection’s (CBP) CBP’s penalty workers, as brokers and importers struggle to pay the correct duties on time and avoid tripping penalty wires.   Manufacturers are caught both in the penalty world and an uncertain universe of where to produce.  Long-term planning is impaired, if not impossible.   Thanks again, Congress!

With the latest renewal of the ATPDEA, which took place on October 21, 2011, CBP issued a memorandum stating that it will refund duties paid on ATDEAP-eligible merchandise imported or exported between February 14, 2011 and November 4, 2011, the period in which the program last lapsed. The memo also stated that ATPDEA benefits would commence again on November 5, 2011, but only for two countries. Those who are seeking refunds have 180 days to send the required documentation to CBP.   Again, the confusion created by the constant change in the ATPDEA ‘s status has effected exporters and importers tremendously. For example, those companies that enjoyed ATPDEA benefits and used raw materials from Peru will no longer receive these benefits although it was a regular ATPDEA member and has an FTA.

The problem with altering these agreements is that many manufacturers are not aware of the changes made to these programs, causing the manufacturers costs to increase due to the extra duties, causing some companies major losses.  In addition, the tariff itself has an error whereby it tells users, primarily customhouse brokers, to continue entering Peruvian goods duty free when in fact they are dutiable.  We have pointed this out to their association (the NCBFAA) so that the defense is available to any penalized importers or brokers.

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