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Long Island Import Export Association. FTA Rules of Origin Common Problem Areas for Importers and Exporters Domenick Gambardella Partner and National Leader of PwC WMS-Customs & International Trade Practice November 13, 2008. PwC. Free Trade Agreements: An Overview.

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Long Island Import Export Association

FTA Rules of Origin

Common Problem Areas for

Importers and Exporters

Domenick Gambardella

Partner and National Leader of PwC WMS-Customs & International Trade Practice

November 13, 2008

PwC


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Free Trade Agreements: An Overview

Free Trade Agreements Currently in Force

  • US-Australia FTA (January 1, 2005)

  • US-Bahrain FTA (August 1, 2006)

  • US-Chile FTA (January 1, 2004)

  • Dominican Republic-Central America-FTA (DR-CAFTA) (US/Honduras/ Nicaragua/El Salvador/Guatemala/Dominican Republic/Costa Rica)

  • US-Israel FTA (September 1, 1985)

  • US-Jordan FTA (December 17, 2001)

  • US-Morocco FTA (January 1, 2006)

  • North American FTA (NAFTA) (US/Mexico/Canada) (January 1, 1994)

  • US-Singapore FTA (January 1, 2004)

  • Other Preferential Duty Programs:

    • Generalized System of Preferences (GSP)

    • Caribbean Basin Economic Recovery Act (CBERA)

    • Andean Trade Preference Act (ATPA)

    • African Growth and Opportunity Act (AGOA)


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Free Trade Agreements: An Overview

FTAs Pending or Currently in Negotiations

  • FTAs Pending (drafted and signed, but not implemented):

    • US-Columbia FTA (signed November 22, 2006)

    • US-Panama FTA (signed June 28, 2007)

    • US-Peru FTA (signed December 14, 2007)

    • US-Korea FTA (signed June 30, 2007)

  • FTAs Currently in Negotiations:

    • US-Andean FTA (US/Columbia/Peru/Ecuador)

    • Free Trade Area of the Americas

    • US-Thailand FTA (on hold)

    • South African Customs Union

    • US-United Arab Emirates

    • US-Oman FTA (negotiations concluded) – part of Bush’s initiative to establish Middle East Free Trade Agreement (MEFTA) by 2013


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Rules of Origin

Overview of FTA Rules of Origin

  • Rules of origin are one of the primary building blocks of any FTA

  • FTA’s are designed to provide a benefit to goods which originate in the member countries. The rules of origin govern how that origin determination is made and therefore what products can benefit from the FTA

  • Each FTA is different due to various issues that arise between the parties during negotiation. However, there are some common themes and the USTR is consciously working to be more uniform.

  • The main categories of rules of origin are:

    • GSP Style: Direct Cost plus “substantial transformation” (applicable to Bahrain, Israel, Jordan, Morocco)

    • Regional Value Content (“RVC”) (NAFTA, Singapore, Australia, Chile, DR-CAFTA)

    • Tariff Shift (NAFTA, Singapore, Australia, Chile, CAFTA, Bahrain)

    • GSP Style with Tariff Shift (Bahrain, Morocco)


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Common Problems for the Trading Community

Common Problems for Importers

  • Determining appropriate classification of the finished product – consistency with certificate

  • Obtaining valid supporting documentation and/or Certificates of Origin for making a claim under a FTA

  • Reviewing Certificates/documentation provided by exporter by conducting “due diligence review” (reasonable care) that Certificates/documentation are reliable and prepared correctly

  • Verifying that an audit trail is maintained by exporter/seller

  • “Contingent liability” if exporter cannot support claims under audit


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Common Problems for the Trading Community

Common Problems for Importers

  • Communication/interacting with customs broker on FTA issues and which products are eligible

  • Meeting the time requirements for claiming preferential duty treatment on goods entered under a FTA (usually 1 year)

  • Promptly make corrected declarations and pay duties if have reason to believe information is incorrect

  • Meeting FTA record-keeping requirements


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Common Problems for the Trading Community

Common Problems for Exporters

  • Preparation and completion of Certificates of Origin

  • Classifying the components used to produce the finished good

  • Obtaining/maintaining the origin of the components

  • Applying FTA rules of origin correctly

  • Meeting FTA record-keeping requirements

  • Taking corrective action relative to Certificates of Origin containing errors

  • Potential liability to customers for incorrect/unsupportable claims

  • Coordination with Purchasing on “resourcing” of components


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