Understanding Free Trade Agreements & Effect

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Understanding Free Trade Agreements & Effect

  1. 1. Understanding Free Trade Agreements & Effect of the 2007 HTS Changes Smartmap Expo October 4, 2007 J.L. Haggin & Associates Co.
  2. 2. Customs Modernization Act “Mod Act” <ul><li>Reasonable Care Standard </li></ul><ul><li>Recordkeeping requirements </li></ul><ul><li>Fines & Penalties </li></ul><ul><li>Applies to both Importers </li></ul><ul><li>and FTA Exporters </li></ul>
  3. 3. Free Trade Agreements <ul><li>North American Free </li></ul><ul><li>Trade Agreement (NAFTA) </li></ul><ul><li>U.S. – Israel Free Trade Area </li></ul><ul><li>U.S. – Jordan Free Trade Area </li></ul><ul><li>U.S. – Chile Free Trade Agreement </li></ul><ul><li>U.S. – Singapore Free Trade Agreement </li></ul>
  4. 4. Free Trade Agreements – cont’d <ul><li>U.S. – Australia Free Trade Agreement </li></ul><ul><li>U.S. – Morocco Free Trade Agreement </li></ul><ul><li>U.S. – Dominican Republic - Central America Free Trade Agreement (DR-CAFTA) </li></ul><ul><li>U.S. – Bahrain Free Trade Agreement </li></ul>
  5. 5. Free Trade Agreements: Areas of Concern <ul><li>Complex rules for qualification </li></ul><ul><li>Accurate classification of products and materials </li></ul><ul><li>Certificates of Origin </li></ul><ul><li>Recordkeeping requirements: BOM, production records </li></ul><ul><li>Producer or exporter must have internal controls in place to validate claim (verifications) and be able to demonstrate that internal control has been tested on periodic basis </li></ul>
  6. 6. U.S.-Israel Free Trade Area (IFTA) J.L. Haggin & Associates Co.
  7. 7. US-ISRAEL FREE TRADE AREA (“IFTA”) <ul><li>To qualify for duty-free entry under the USIFTA, goods </li></ul><ul><li>must be: </li></ul><ul><li>1. “Products of” ( i.e., “originates” in) Israel; </li></ul><ul><li>2. Imported directly from the IFTA region*; and </li></ul><ul><li>Able to satisfy the 35% minimum value requirement. </li></ul><ul><li>* IFTA region = Israel, West Bank, Gaza Strip or </li></ul><ul><li> Qualifying Industrial Zones (“QIZs”) </li></ul>
  8. 8. IFTA - “ORIGINATING” GOOD <ul><li>For a good to “originate” in Israel, it must be: </li></ul><ul><li>Made entirely of materials of Israeli origin; or </li></ul><ul><li>If made from imported materials, it must be substantially transformed into a new and different article of commerce in Israel </li></ul>
  9. 9. <ul><li>General Requirements for IFTA Eligibility: </li></ul><ul><li>Direct Shipment </li></ul><ul><li>35 Percent Criterion - cost or value of materials (actual costs of materials); freight, insurance, packing and related transportation costs to manufacturer; waste/spoilage less scrap) plus direct costs of processing (actual labor and other production-related costs; dyes, molds and tools; R&D; and inspecting/testing costs) must equal more than 35% of the entered value of the merchandise. No profit/general expenses are allowed. </li></ul>US-ISRAEL FREE TRADE AREA
  10. 10. <ul><li>Domestic (IFTA) </li></ul><ul><li>Components </li></ul><ul><li>Labor </li></ul><ul><li>Equipment (molds, tools, dies) </li></ul><ul><li>Processing </li></ul><ul><li>General Overhead </li></ul><ul><li>General Expenses directly related to product </li></ul><ul><li>Foreign </li></ul><ul><li>Components </li></ul>Allocation of Costs
  11. 11. North American Free Trade Agreement (NAFTA) J.L. Haggin & Associates Co.
  12. 12. Preferential Rules of Origin <ul><li>Determine whether good originates in the territory of a party </li></ul><ul><li>Whether entitled to preferential treatment </li></ul>
  13. 13. “ Territory” <ul><li>Customs’ territory of Canada, Mexico or the United States </li></ul>
  14. 14. “ Material” <ul><li>A good that is used in the production of another good, and includes a part or an ingredient (component). </li></ul>
  15. 15. “ Goods” <ul><li>Domestic products as these are understood in the General Agreement on Tariffs and Trade or a finished item that is being shipped. </li></ul>
  16. 16. “ Originating” <ul><li>Qualifies for NAFTA </li></ul><ul><li>Applies to both components and finished goods </li></ul>
  17. 17. “ Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced </li></ul><ul><li>Non-originating materials undergo tariff shift </li></ul><ul><li>Produced entirely in the territory from originating materials </li></ul>
  18. 18. “ Rule A” <ul><li>The good is wholly obtained or produced entirely in the territory of one or more of the Parties. </li></ul>
  19. 19. Goods Wholly Obtained <ul><li>Mineral goods extracted in the territory of one or more of the Parties; </li></ul><ul><li>Vegetable good, as such goods are defined in the Harmonized System, harvested in the territory of one or more of the Parties; </li></ul><ul><li>Live animals born and raised in the territory of one or more of the Parties; </li></ul>
  20. 20. Goods Wholly Obtained <ul><li>d) Goods obtained from hunting, trapping, or fishing in the territory of one or more of the Parties; </li></ul><ul><li>e) Goods (fish, shellfish and other marine life) taken from the sea by vessels registered or recorded with a Party and flying its flag; </li></ul><ul><li>Goods produced on board factory ships from the goods referred to in subparagraph (e) provided such factory ships are registered or recorded with that Party and fly its flag; </li></ul>
  21. 21. Goods Wholly Obtained <ul><li>Goods taken by a Party or a person of a Party from the seabed or beneath the seabed outside the territorial waters, provided that a Party has rights to exploit such seabed; </li></ul><ul><li>Goods taken from outer space, provided they are obtained by a Party or a person of a Party and not processed in a non-Party; </li></ul>
  22. 22. Goods Wholly Obtained <ul><li>i) Waste and scrap derived from </li></ul><ul><ul><li>-production in the territory of one or more of the Parties, or </li></ul></ul><ul><ul><li>-used goods collected in the territory of one or more of the Parties, provided such goods are fit only for the recovery of raw materials; and </li></ul></ul>
  23. 23. Goods Wholly Obtained <ul><li>j) Goods produced in the territory of one or more of the Parties exclusively from goods referred to in subparagraphs (a) through (i), or from their derivatives, at any stage of production. </li></ul>
  24. 24. Goods Wholly Obtained Or Produced (Wheat/Grains)
  25. 25. “ Rule B” Each non-originating material used in producing the good undergoes either: <ul><li>A change in tariff classification; </li></ul><ul><li>A change in tariff classification plus satisfies regional value content requirements; or </li></ul><ul><li>Satisfies regional value content requirements. </li></ul><ul><li>As the rules require of that particular good. </li></ul>
  26. 28. Regional Value Content (RVC) Requirement <ul><ul><li>Regional Value Content is the calculated percentage of the value of the product that represents its North American content. </li></ul></ul><ul><ul><li>North American (regional) Content must be calculated using one of two methods: </li></ul></ul><ul><ul><li>Transaction Value – 60% </li></ul></ul><ul><ul><li> or </li></ul></ul><ul><ul><li> Net Cost – 50% </li></ul></ul>
  27. 29. <ul><li>NAFTA Originating </li></ul><ul><li>Components </li></ul><ul><li>Labor </li></ul><ul><li>Equipment (molds, tools, dies) </li></ul><ul><li>Processing </li></ul><ul><li>General Overhead </li></ul><ul><li>General Expenses directly related to product </li></ul><ul><li>Non-Originating </li></ul><ul><li>Components </li></ul>Allocation of Costs
  28. 30. “ Rule C” <ul><li>The good is produced entirely in the territory of one or more of the Parties exclusively from originating materials. </li></ul>
  29. 31. Wooden Desks - (9403.30) <ul><li>Made in Canada from wood (4407.10) grown in Canada </li></ul><ul><li>And from metal legs (9403.90) made from imported steel (7212.50) </li></ul><ul><li>And from metal drawer hardware (9403.90) made from imported steel (7212.50) </li></ul>
  30. 32. Core Rules Of Origin Wholly obtained or produced NAFTA QUALIFIED Tariff change Originating material
  31. 33. De Minimis - for tariff-shifts <ul><li>7% </li></ul><ul><li>By Value for most Products </li></ul><ul><li>By Weight for Textiles </li></ul>Exceptions: certain products of Ch. 1-27 certain Ch. 73, 84, 85 items
  32. 34. Customs Procedures under NAFTA
  33. 36. Basis for Completing the Certificate of Origin <ul><li>Knowledge of whether the good qualifies as an “originating good”; OR </li></ul><ul><li>Reasonable reliance on the producer’s written representation that the good qualifies as an “originating good”; OR </li></ul><ul><li>Completed and signed certificate provided by the producer </li></ul>
  34. 37. Recordkeeping - Exporter <ul><li>This Requirement Includes Records Associated With: </li></ul><ul><li>the purchase of, cost of, value of, and payment for, the good that was exported; </li></ul><ul><li>the purchase of, cost of, value of, and payment for, all materials, including indirect materials, used in the production of the good that was exported; and </li></ul><ul><li>the production of the good in the form in which the good was exported from its territory. </li></ul>
  35. 38. Record Keeping Penalties <ul><li>Negligence: </li></ul><ul><li>$10,000 or </li></ul><ul><li>40% value (whichever is less) </li></ul><ul><li>Willful: </li></ul><ul><li>$100,000 or </li></ul><ul><li>75% value (whichever is less) </li></ul>Failure to maintain, store or retrieve demanded information:
  36. 39. Origin Verification <ul><li>Origin verifications are: </li></ul><ul><ul><li>The act of verifying the exporter’s claim that the imported good is an “originating” good under NAFTA </li></ul></ul><ul><li>Origin verifications are not: </li></ul><ul><ul><li>Asking the importer of record routine questions about the imported goods </li></ul></ul><ul><ul><li>Asking the importer of record questions about the NAFTA claim </li></ul></ul>
  37. 40. Initiating an Origin Verification <ul><li>CO requested from the importer of record </li></ul><ul><li>Informal inquiries directed to the exporter or producer: </li></ul><ul><ul><li>conferences with the exporter </li></ul></ul><ul><ul><li>correspondence </li></ul></ul><ul><ul><li>telephone calls </li></ul></ul><ul><li>Formal inquiries directed to the exporter or producer: </li></ul><ul><ul><li>written questionnaire </li></ul></ul><ul><ul><li>visit to the exporter’s premises </li></ul></ul>
  38. 41. Origin Determination Contents <ul><li>Reference to the Certificate of Origin. </li></ul><ul><li>Description of the goods verified. </li></ul><ul><li>Statement of the facts established. </li></ul><ul><li>Statement as to the legal basis of the determination. </li></ul><ul><li>Notification to the exporter or producer of review and appeal rights. </li></ul>
  39. 42. U.S.-Jordan Free Trade Area (JFTA) J.L. Haggin & Associates Co.
  40. 43. US - JORDAN FREE TRDE AREA (“JFTA”) <ul><li>To qualify for duty-free treatment upon entry under the JFTA, goods must be: </li></ul><ul><li>1. “Products of” ( i.e., “originates” in) Jordan; </li></ul><ul><li>2. Imported directly from Jordan; and </li></ul><ul><li>Able to satisfy the 35% minimum value requirement. </li></ul>
  41. 44. U.S.-Singapore Free Trade Agreement (SFTA) J.L. Haggin & Associates Co.
  42. 45. US-Singapore Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced </li></ul><ul><li>Good is listed in GN 25(m) – Integrated Sourcing Initiative and goods are imported direct from Singapore </li></ul><ul><li>Non-originating materials undergo tariff shift or goods meet Regional Value Content (RVC) – same as NAFTA Rule B – Rules found in GN25(o) </li></ul>
  43. 46. US-Singapore Free Trade Agreement Integrated Sourcing Initiative <ul><li>Provides for limited amount of technology, equipment and medical devices that already face zero duties into the U.S. and Singapore. </li></ul><ul><li>Good are listed in GN 25(m) </li></ul><ul><li>Goods can be of any country of origin, but must be imported direct from Singapore </li></ul><ul><li>All ISI qualifying products are exempt from MPF </li></ul><ul><li>Goods must be marked with actual country of origin </li></ul>
  44. 47. SFTA - Regional Value Content <ul><ul><li>RVC is the calculated percentage of the value of the product that represents its SFTA (Singapore & US) content. </li></ul></ul><ul><ul><li>SFTA content must be calculated using one of two methods: </li></ul></ul><ul><ul><li>Build-up Method: 35% </li></ul></ul><ul><ul><li>OR </li></ul></ul><ul><ul><li>Build-down Method: 45% </li></ul></ul>
  45. 48. SFTA Certificate of Origin <ul><li>No specified format of certificate </li></ul><ul><li>Required data elements </li></ul><ul><li>Can be produced by importer, exporter or producer </li></ul><ul><li>Must be provided to CBP upon request </li></ul><ul><li>Importer is 100% responsible for claim! </li></ul>
  46. 49. <ul><li>Name and address of the importer </li></ul><ul><li>Name and address of the exporter </li></ul><ul><li>Name and address of the producer </li></ul><ul><li>Description of good </li></ul><ul><li>HTS classification number </li></ul><ul><li>Preference criterion or Preference Rule </li></ul>C/O Data Elements
  47. 50. <ul><li>Single shipment: provide commercial invoice number </li></ul><ul><li>Multiple shipments of identical goods: provide blanket period </li></ul><ul><li>Authorized signature, company, title, telephone, fax, e-mail and certification date </li></ul><ul><li>Certification of: accuracy of information, agreement to maintain records and definitive statement of eligibility of product </li></ul>C/O Data Elements – cont’d
  48. 51. Recordkeeping - Importer <ul><li>The exporter is required to support the SFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in a US-SFTA country; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  49. 52. U.S.-Chile Free Trade Agreement (UCFTA) J.L. Haggin & Associates Co.
  50. 53. US-Chile Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced </li></ul><ul><li>Non-originating materials undergo tariff shift or goods meet Regional Value Content (RVC) – same as NAFTA Rule B – Rules found in GN26(n) </li></ul><ul><li>Good are produced entirely from originating materials </li></ul>
  51. 54. UCFTA - Regional Value Content <ul><ul><li>RVC is the calculated percentage of the value of the product that represents its UCFTA (Chile & U.S.) content. </li></ul></ul><ul><ul><li>UCFTA content must be calculated using one of two methods: </li></ul></ul><ul><ul><li>Build-up Method: 35% </li></ul></ul><ul><ul><li>OR </li></ul></ul><ul><ul><li>Build-down Method: 45% </li></ul></ul>
  52. 55. UCFTA Certificate of Origin <ul><li>No specified format of certificate </li></ul><ul><li>Required data elements </li></ul><ul><li>May be in English or Spanish </li></ul><ul><li>Can be produced by importer, exporter or producer </li></ul><ul><li>Must be provided to CBP upon request </li></ul><ul><li>Importer is 100% responsible for claim! </li></ul>
  53. 56. Recordkeeping - Importer <ul><li>The exporter is required to support the UCFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in a UCFTA country; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  54. 57. U.S. – Australia Free Trade Agreement (AFTA) J.L. Haggin & Associates Co.
  55. 58. US-Australia Free Trade Agreement (“AFTA”) <ul><li>Effective 1/1/2005 </li></ul><ul><li>Rules found in HTS General Note 28 </li></ul><ul><li>“ AU” as prefix to HTS classification </li></ul><ul><li>Regulations in 19 CFR written, not published yet </li></ul>
  56. 59. US-Australia Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced </li></ul><ul><li>Non-originating materials undergo tariff shift or goods meet Regional Value Content (RVC) – same as NAFTA Rule B – Rules found in GN28(n) </li></ul><ul><li>Good are produced entirely from originating materials </li></ul><ul><li>Good otherwise qualifies as an originating good pursuant to Agreement (textile provisions) </li></ul>
  57. 60. AFTA – RVC Requirement <ul><ul><li>RVC is the calculated percentage of the value of the product that represents its AFTA (Australia & U.S.) content. </li></ul></ul><ul><ul><li>AFTA content must be calculated using one of two methods: </li></ul></ul><ul><ul><li>Build-up Method: 35% </li></ul></ul><ul><ul><li>OR </li></ul></ul><ul><ul><li>Build-down Method: 45% </li></ul></ul><ul><ul><li>Certain automotive goods must use net cost and satisfy 50% RVC </li></ul></ul>
  58. 61. AFTA Certificate of Origin <ul><li>No specified format of certificate </li></ul><ul><li>Required data elements </li></ul><ul><li>Must be in English </li></ul><ul><li>Can be produced by importer, exporter or producer </li></ul><ul><li>Must be provided to CBP upon request </li></ul><ul><li>Importer is 100% responsible for claim! </li></ul>
  59. 62. Recordkeeping - Importer <ul><li>The exporter is required to support the AFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in the U.S. or Australia; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  60. 63. U.S. – Morocco Free Trade Agreement (MFTA) J.L. Haggin & Associates Co.
  61. 64. US-Morocco Free Trade Agreement (“MFTA”) <ul><li>Effective 1/1/2006 </li></ul><ul><li>Rules found in HTS General Note 27 </li></ul><ul><li>“ MA” as prefix to HTS classification </li></ul><ul><li>Regulations in 19 CFR written, not published yet </li></ul>
  62. 65. US-Morocco Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced in Morocco or U.S </li></ul><ul><li>Unless specified in GN27(h), must be substantially transformed into a new and different article of commerce in Morocco and must meet the 35% RVC requirement </li></ul><ul><li>For goods specified in GN27(h), non-originating materials must undergo a tariff shift </li></ul>
  63. 66. Recordkeeping - Importer <ul><li>The exporter is required to support the MFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in the U.S. or Morocco; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  64. 67. Dominican Republic - Central America – U.S. Free Trade Agreement (DR-CAFTA) J.L. Haggin & Associates Co.
  65. 68. U.S. – Dominican Republic - Central America Free Trade Agreement <ul><li>Effective 3/1/2006 </li></ul><ul><li>Implemented by country – Costa Rica last remaining non-signatory country </li></ul><ul><li>Rules found in HTS General Note 29 </li></ul><ul><li>“ P” or “P+” as prefix to HTS classification </li></ul><ul><li>Regulations (19 CFR 10.699) written; not published yet </li></ul><ul><li>Retroactive to 1/1/04 for textile and apparel goods </li></ul>
  66. 69. <ul><li> United States *Costa Rica </li></ul><ul><li>El Salvador Guatemala </li></ul><ul><li>Honduras Nicaragua </li></ul><ul><li>Dominican Republic </li></ul><ul><li>* Costa Rica is the only country not yet eligible to receive benefits at this time. </li></ul>DR-CAFTA Countries
  67. 70. DR-CAFTA Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced </li></ul><ul><li>Non-originating materials undergo tariff shift or goods meet Regional Value Content (RVC) – same as NAFTA Rule B </li></ul><ul><li>Good are produced entirely from originating materials </li></ul>
  68. 71. CAFTA – RVC Requirement <ul><ul><li>RVC is the calculated percentage of the value of the product that represents its CAFTA content. </li></ul></ul><ul><ul><li>CAFTA content must be calculated using one of two methods: </li></ul></ul><ul><ul><li>Build-up Method: 35% </li></ul></ul><ul><ul><li>OR </li></ul></ul><ul><ul><li>Build-down Method: 45% </li></ul></ul><ul><ul><li>Certain automotive goods must use net cost and satisfy 50% RVC </li></ul></ul>
  69. 72. DR-CAFTA Certificate of Origin <ul><li>No specified format of certificate </li></ul><ul><li>Required data elements </li></ul><ul><li>May be in any language of a CAFTA party </li></ul><ul><li>Can be produced by importer, exporter or producer </li></ul><ul><li>Must be provided to CBP upon request </li></ul><ul><li>Importer is 100% responsible for claim! </li></ul>
  70. 73. Recordkeeping - Importer <ul><li>The exporter is required to support the CAFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in a CAFTA country; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  71. 74. U.S. – Bahrain Free Trade Agreement (BFTA) J.L. Haggin & Associates Co.
  72. 75. US-Bahrain Free Trade Agreement (“BFTA”) <ul><li>Effective Date: August 1, 2006 </li></ul><ul><li>Rules found in HTS General Note 30 </li></ul><ul><li>“ BH” as prefix to HTS classification </li></ul><ul><li>Regulations in 19 CFR written, not published yet </li></ul>
  73. 76. US-Bahrain Free Trade Agreement “Road Map” to Preferential Treatment <ul><li>Wholly obtained or produced in Bahrain or U.S </li></ul><ul><li>Unless specified in Annex 3-A or 4-A, must be substantially transformed into a new and different article of commerce in Bahrain and must meet the 35% RVC requirement </li></ul><ul><li>For goods specified in Annex 3-A (textile) or 4-A (agriculture), non-originating materials must undergo a tariff shift (no RVC – strict tariff shift rules) </li></ul>
  74. 77. BFTA Certificate of Origin <ul><li>No specified format of certificate </li></ul><ul><li>Required data elements </li></ul><ul><li>Must be in English </li></ul><ul><li>Can be produced by importer, exporter or producer </li></ul><ul><li>Must be provided to CBP upon request </li></ul><ul><li>Importer is 100% responsible for claim! </li></ul>
  75. 78. Recordkeeping - Importer <ul><li>The exporter is required to support the BFTA Certificate of Origin or Statement of Eligibility with records associated with: </li></ul><ul><li>The manufacturing in the U.S. or Bahrain; </li></ul><ul><li>The purchase of, cost of, and payment for all materials, including indirect materials, used in the production of the good; </li></ul><ul><li>The purchase of, cost of, and payment for the good that was exported. </li></ul><ul><li>However, the importer is responsible for providing the supporting documentation required to substantiate claim. </li></ul>
  76. 79. Importer’s Obligations & Liabilities J.L. Haggin & Associates Co.
  77. 80. Importer’s Obligations <ul><li>Must have required certificates and/or declarations at the time of entry </li></ul><ul><li>Do not have to submit with entry; must submit upon request by CBP </li></ul><ul><li>Must have internal controls in place to validate claim with producer or exporter (factory verifications) </li></ul><ul><li>Must be able to demonstrate that internal control has been tested on periodic basis </li></ul><ul><li>Importer must be able to submit source records and documentation from producer to support eligibility and claim, upon request from CBP </li></ul>
  78. 81. Validation of Claim <ul><li>Importer must be able to submit source records and documentation from producer to support eligibility and claim, upon request from CBP </li></ul><ul><li>GSP/ATPA/CBERA/IFTA/JFTA/BFTA/MFTA : Records include producer’s Bill of Materials, invoices for all materials, affidavits of origin for domestic materials, production records of finished goods, cost breakdown of all expenses related to the production of the good – must substantiate that good meets 35% content </li></ul>
  79. 82. Validation of Claim (cont’d) <ul><li>NAFTA/SFTA/UCFTA/CBTPA/AFTA/CAFTA: </li></ul><ul><li>Tariff shift qualification – records include producer’s Bill of Materials, affidavits of origin for originating materials, production records of finished goods, classification of all non-originating materials; demonstration of tariff shift. </li></ul><ul><li>RVC qualification - records include producer’s Bill of Materials, invoices for all materials, affidavits of origin for originating materials, production records of finished goods, cost breakdown of all expenses related to the production of the good, sales invoice – must substantiate that good meets RVC of agreement. </li></ul><ul><li>Both tariff shift & RVC – all of the above records. </li></ul>
  80. 83. Validation of Claim - Textile <ul><li>Records include yarn mill affidavits; fabric mill affidavits; thread producer affidavits (where applicable); affidavits for findings, trim and interlinings (where applicable); producer’s Bill of Materials; inventory receipts; cutting tickets; sewing records; employee records; other production records of finished goods. </li></ul>
  81. 84. Importer’s Liabilities <ul><li>Denial of claim – duty consequences </li></ul><ul><li>Lack of internal control – high risk designation during Focused Assessment </li></ul><ul><li>CBP may disqualify all entry claims for five (5) years </li></ul><ul><li>Importer 1592 penalties may apply </li></ul><ul><li>Recordkeeping penalties for failure to have required certificates or declarations [a(1)(A) records] at the time of entry: </li></ul><ul><ul><li>Negligence: up to $10,000.00 per shipment </li></ul></ul><ul><ul><li>Willful: up to $100,000.00 per shipment </li></ul></ul>
  82. 85. Current FTA Negotiations J.L. Haggin & Associates Co.
  83. 86. <ul><ul><li>Peru </li></ul></ul><ul><ul><li>Panama </li></ul></ul><ul><ul><li>South Korea </li></ul></ul><ul><ul><li>Columbia </li></ul></ul>Pending Free Trade Agreements
  84. 87. Peru Trade Promotion Agreement <ul><li>Signed on April 12, 2006 </li></ul><ul><li>Protocol of Amendment – June 25, 2007 </li></ul><ul><li>Senate Finance Committee approved draft legislation – Sept. 21, 2007 </li></ul><ul><li>House Ways & Means Committee approved draft legislation – Sept. 25, 2007 </li></ul><ul><li>Awaiting Congressional approval </li></ul>
  85. 88. Panama Trade Promotion Agreement <ul><li>Concluded negotiations December 19, 2006 </li></ul><ul><li>Signed on June 28, 2007 </li></ul><ul><li>Awaiting Congressional approval </li></ul>
  86. 89. Columbia Trade Promotion Agreement <ul><li>Signed on November 22, 2006 </li></ul><ul><li>Protocol of Amendment – May 10, 2007 </li></ul><ul><li>Colombia must address violence against unions issue before Congress will consider </li></ul>
  87. 90. Korea- U.S. Free Trade Agreement <ul><li>Signed on June 30, 2007 </li></ul><ul><li>U.S. still has issues with beef, rice and auto tariff issues – must be resolved prior to consideration by Congress </li></ul><ul><li>Last FTA to be signed under the Trade Promotion Authority </li></ul>
  88. 91. Agreement Highlights <ul><li>Based on tariff shift & RVC rules of origin </li></ul><ul><li>Build up – build down method (35/45%) </li></ul><ul><li>Importer responsible programs </li></ul><ul><li>Penalties for exporter same as importer – accuracy and recordkeeping </li></ul>
  89. 92. Trade Policy Provisions <ul><li>Must apply to all future FTAs </li></ul><ul><li>Labor – adopted five 1998 ILO principles </li></ul><ul><ul><li>Freedom of association </li></ul></ul><ul><ul><li>Right to collective bargaining </li></ul></ul><ul><ul><li>Elimination of forced or compulsory labor </li></ul></ul><ul><ul><li>Abolition of child labor </li></ul></ul><ul><ul><li>Elimination of discrimination in employment </li></ul></ul><ul><li>IPR – allows generic drugs to enter markets more quickly </li></ul>
  90. 93. Trade Policy Provisions – cont’d <ul><li>Environment – must adopt following agreements: </li></ul><ul><ul><li>Convention on Int’l Trade in Endangered Species </li></ul></ul><ul><ul><li>Montreal Protocol on Ozone-Depleting Substances </li></ul></ul><ul><ul><li>Convention on Marine Pollution </li></ul></ul><ul><ul><li>Inter-American Tropical Tuna Convention </li></ul></ul><ul><ul><li>Rasmar Convention on Wetlands </li></ul></ul><ul><ul><li>Int’l Convention for Regulation of Whaling </li></ul></ul><ul><ul><li>Conservation of Antarctic Marine Living Resources </li></ul></ul>
  91. 94. Trade Policy Provisions – cont’d <ul><li>Port Security – U.S. retains right to prevent foreign companies from operating domestic ports </li></ul><ul><li>Strategic Worker Assistance & Training Initiative – no longer optional </li></ul><ul><li>Foreign Investment - foreign investors in the U.S. will not be accorded greater substantive rights regarding investment protections than U.S. investors in the U.S. </li></ul>
  92. 95. Harmonized Tariff Schedule: Classification of Merchandise J.L. Haggin & Associates Co.
  93. 96. Harmonized Tariff Schedule (HTS) <ul><li>World Trade Organization (WTO) </li></ul><ul><li>World Customs Organization (WCO) aka Customs Cooperation Council </li></ul><ul><ul><li>Harmonized System Committee (HSC) comprised of WTO country representatives </li></ul></ul><ul><ul><ul><li>Review Subcommittee (RSC) – reviews the HTS on regular basis to keep current with changes in technology and trade patterns. </li></ul></ul></ul>
  94. 97. Harmonized Tariff Schedule (HTS) <ul><li>Result of Customs Cooperation Council (WCO)- 1988 </li></ul><ul><li>U.S. International Trade Commission (USITC): </li></ul><ul><ul><ul><li>Tasked with continuous review of HTS for U.S. </li></ul></ul></ul><ul><ul><ul><li>Solicits, collects and considers comments from CBP and public regarding modifications </li></ul></ul></ul><ul><ul><ul><li>Recommends WCO modifications to HTS to President </li></ul></ul></ul><ul><ul><ul><li>Preliminary report submitted to USTR and posted on USITC’s website </li></ul></ul></ul><ul><li>House Ways & Means and Senate </li></ul><ul><li>Finance Committee must approve before </li></ul><ul><li>President issues proclamation </li></ul><ul><li>Proclamation is published in Federal Register </li></ul>
  95. 98. Changes in the 2007 HTSUS J.L. Haggin & Associates Co.
  96. 99. 2007 HTS Updates <ul><li>HTS in effect on February 3, 2007 </li></ul><ul><li>Most changes are based upon HSC decisions and comments received from trade and Customs to clarify products subject to interpretation </li></ul><ul><li>Several hundred amendments </li></ul><ul><li>83 chapters affected </li></ul><ul><li>240 headings affected </li></ul><ul><li>Chapter Notes affected </li></ul><ul><li>Consolidations and expansions of subheadings </li></ul><ul><li>“ Substantially rate neutral” </li></ul>
  97. 100. Primary Industries Affected <ul><li>High-technology </li></ul><ul><li>Chemicals and pharmaceuticals </li></ul><ul><li>Lumber and wood products (e.g. flooring) </li></ul><ul><li>Jewelry </li></ul><ul><li>Metal products </li></ul><ul><li>Machinery and mechanical apparatus </li></ul><ul><li>Toys and festive articles </li></ul>
  98. 101. Effects on Free Trade Agreements J.L. Haggin & Associates Co.
  99. 102. 2007 HTS Changes <ul><li>FTA product specific rules are being amended to reflect the 2007 HTS </li></ul><ul><li>Not ready to be implemented on February 3, 2007 with 2007 HTS </li></ul><ul><li>Certificates of Origin completed using the 2006 rules of origin will be valid for 2007- only pertains to importations into the U.S </li></ul><ul><li>COs completed prior to implementation will need to continue to reference the 2006 HTS numbers because the product specific rules are directly related to those HTS numbers </li></ul><ul><li>Caution should be taken where product HTS number has changed substantially (i.e. chapters or headings) – rule may be different! </li></ul>
  100. 103. Tariff Specific Rules of Origin for FTAs Each non-originating material used in producing the good undergoes either: <ul><li>A change in tariff classification; </li></ul><ul><li>A change in tariff classification plus satisfies regional value content requirements; or </li></ul><ul><li>Satisfies regional value content requirements. </li></ul><ul><li>As the rules require of that particular good. </li></ul>

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