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 4- The New Korean Market and Rules of Origin

A free trade agreement approximately six years in the making is now a reality for Korea and the United States.  Just as with other FTAs, this new market access allows for reduced and sometimes eliminated tariff rates and quotas as well as duty-free treatment of goods and services with an emphasis on leveling the playing field for U.S. auto manufacturers and workers.  The agreement entered into force on March 15, 2012 making approximately 80% of U.S. exports to Korea duty-free.  For decades most Korean exports to the United States have already enjoyed duty free treatment here under the Generalized System of Preferences. In the next five years, approximately 95% of bilateral trade in consumer goods will become duty free and remaining tariffs eliminated with ten years.  Also in line with other FTAs, UKFTA has certain exclusions to the general duty-free rules including safeguards on motor vehicles and textiles.

 

Similar to NAFTA, there are certificate of origin and record-keeping requirements (see FTA series parts 1 and 2 and 19 U.S.C. §3805 note Publ. Law 112-41 Secs. 206, 508 http://www.gpo.gov/fdsys/pkg/PLAW-112publ41/pdf/PLAW-112publ41.pdf).  And like all other FTAs, UKFTA has stringent rules of origin (“ROOs”) importers and exporters must follow in order to claim duty-free treatment.  As with any other ROOs, the ones found in Section 202 of the UKFTA implementation act, can be very confusing and require a certain amount of saavy when it comes to deciphering what goods may be included and what goods may not.

 

There are three situations in which a good may be eligible for duty-free treatment under UKFTA.  First, and most logically, a good is originating if it is “wholly obtained or produced entirely in the territory of Korea, the United States, or both…” 19 U.S.C. §3805 note, Publ. Law 112-41 Sec. 202. However, if a good is produced in one of these countries but also contains materials from a different country, “nonoriginating materials”, then the nonoriginating materials must undergo a change applicable to the requirements of Annex 4-A or 6-A of the UKFTA before the finished product may be duty-free.  Finally, a good may also be originating even with nonoriginating materials if it satisfies the requirements for “regional value-content” or “RVC”.  The deminimis requirement for nonoriginating material in most goods is 10%.

 

While it is certainly easy to determine whether a good is wholly obtained or produced in the U.S., Korea, or both, it is not always easy to ensure duty-free treatment on goods falling in the second two categories of potentially duty-free treatment.  For example, in order to determine the RVC, an importer, exporter, or producer must use either the “build-up method” (RVC = Value of Originating Material/Adjusted Value of good x 100) or the “build-down method” (RVC = AV- Value of Nonoriginating Material/AV x 100).  Even these methods are not general for every product covered by the FTA; rather, there are special rules for particular goods, such as automotives.

 

Furthermore, in determining the value of the nonoriginating material for purposes of calculating the RVC, the importer, exporter, or producer may deduct some costs such as freight, insurance, packing, cost of waste and spoilage, originating materials, etc.  Understanding the rules of origin takes time and patience, but by doing so or consulting with a Customs Broker or Attorney well versed in these areas, you can save a lot of money and possible setbacks with U.S. or Korean Customs.

 

For more information on Rules of Origin please contact us at nmooney@customscourt.com or smorrison@customscourt.com.  You can also find information on Rules of Origin and other issues surrounding the new KORUS FTA by visiting the following websites:

 

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