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Taking Advantage of NAFTA

Taking Advantage of NAFTA. Anthony Hill Sacramento Export Assistance Center & Trade Information Center. Agenda. General Information FTAs and NAFTA Researching Opportunities Tariff Rate Benefits. FTAs in Force. Israel 1985 NAFTA 1994 Jordan 2001 Chile 2004

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Taking Advantage of NAFTA

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  1. Taking Advantage of NAFTA Anthony Hill Sacramento Export Assistance Center & Trade Information Center

  2. Agenda • General Information FTAs and NAFTA • Researching Opportunities • Tariff Rate Benefits

  3. FTAs in Force • Israel 1985 • NAFTA 1994 • Jordan 2001 • Chile 2004 • Singapore 2004 • Australia 2005 • Morocco 2006 • Bahrain 2006 • CAFTA-DR 2006-2009 • Oman 2009 • Peru 2009

  4. FTA’s Pending Approval Pending Congressional Approval • Panama • Colombia • South Korea

  5. Exports to FTA CountriesContinue to Increase US Exports to Certain FTA Countries US Billions, from Jan – Sept

  6. NAFTA Opportunities • Canada and Mexico are the first and second largest export markets for US products. • Total merchandise trade between all NAFTA countries (U.S-Canada, U.S-Mexico, Canada-Mexico) has grown from $297 billion in 1993 to $754.0 billion in 2009, an increase of 154 percent. • Total merchandise trade between the United States and its NAFTA partners has grown from $293 billion in 1993 to $735.1 billion in 2009, an increase of 151 percent.

  7. What is NAFTA? NAFTA Provides • Tariff Rate Elimination AND

  8. Much More… Special Agreements on: • Trade and Investment in Autos • Textiles and Apparel • Energy and Petrochemicals • Trade in Agricultural Products

  9. Plus… Additional Agreements on: • Protecting Investments • Telecommunication Services • Financial Services

  10. As well as… Treaties dealing with: • Intellectual Property Rights Protection • Sanitary Measures • Customs Procedures • Government Procurement • Labor Protections • Environmental Protection Trade Compliance Center E-Mail: tcc@mail.doc.gov, Phone: (202) 482-1191

  11. NAFTA Common Misconceptions: • U.S., Canadian & Mexican Tariffs are the same • Originating means purchased in a NAFTA Country • NAFTA Certification is Mandatory • NAFTA Certificates are required to clear Canadian customs • A producer is required to supply a buyer with a NAFTA Certificate of Origin

  12. Taking Advantage of NAFTA • Starts with Market Research and Finding Customers • CommercialService is here to help • Next, Qualifying your product for NAFTA benefits • Finally, Providing documentation to your customer

  13. Trade specialists in over 100 U.S. cities 160+ offices in US Embassies and Consulates in 80+ countries worldwide Sector-specific teams Regional teams Local advising councils, District Export Councils—DECs Our Global Network

  14. How can Commercial Service Assist U.S. Companies? • Export Counseling • Gold Key Service • International Partner Search • International Company Profile • Customized Market Research • Catalogue Exhibitions • International Buyer Program • Certified Trade Shows • Trade Missions • Training

  15. Finding Opportunities

  16. Market Research PA-2011

  17. Market Research PA-2011

  18. Market Research PA-2011

  19. Market Research PA-2011

  20. Market Research – Other Resources • World Bank: www.worldbank.org • - Doing Business: www.doingbusiness.org • International Monetary Fund: www.imf.org • World Trade Organization: www.WTO.org • US Department of Agriculture: www.FAS.USDA.gov • CIA World Factbook: www.cia.gov/library • Economist Intelligence Unit: www.eiu.com • University websites • International Magazines and Newspapers TH-2011

  21. Finding OpportunitiesSources for Trade Data Free Sources • www.USITC.gov – US International Trade Commission • http://tse.export.gov/TSE/ - Trade Stats Express • www.WTO.org – World Trade Organization Fee-based Sources • http://www.usatradeonline.gov/ - US Trade Data from Census Bureau • www.Piers.com – Piers collects document information from US ports. • www.gtis.com – Global Trade Information Services has trade data for most countries of the world.

  22. Basic Steps for NAFTATariff Benefits • Determine the HS code • Determine whether there is a tariff benefit • Determine whether product qualifies • Certify that product qualifies If a product is entirely US content, it automatically qualifies for NAFTA

  23. Step 1: What is the HS Code? • Number that classifies products for customs purposes, typically 6-10 digits • Other similar terms: Schedule ‘B’ Number, HTS code, Harmonized Tariff Code • First 6 digits "harmonized” internationally • Can be found at www.census.gov under “export codes” or call 1-800-549-0595

  24. Breakdown of HS Code Example: HS #9608.10 – ballpoint pens • First 2 digits = Chapter, i.e. Chapter 96 (described as miscellaneous manufactured articles) • First 4 digits = Heading, i.e. Heading 9608 (described as pens, markers, etc.) • First 6 digits = Subheading, i.e. Subheading 9608.10 (described as ballpoint pens)

  25. Basic Steps for NAFTATariff Benefits • Determine the HS code • Determine whether there is a tariff benefit • Determine whether product qualifies • Certify that product qualifies

  26. Step 2: Is there a benefit? • In FTAs, tariffs for some items decrease over time • All rates for NAFTA qualified products are zero • Exceptions: • Mexican retaliatory rates see www.export.gov/FTA/NAFTA • Mexican Customs Fee of 0.8%

  27. Step 2: Is There a Benefit?NAFTA rate vs. MFN rate • NAFTA Rate vs. Normal Rate (MFN rate) • Normal or MFN (Most Favored Nation) rate = rate applied to products entering from countries with normal trade relations • If MFN rate = 0%, STOP, there is no tariff benefit • Exception Mexican Customs Fee • If MFN rate > 0% (NAFTA rate), continue

  28. Back to the Steps • Determine the HS code • Determine whether there is a tariff benefit • Determine whether product qualifies • Certify that product qualifies

  29. NAFTA Qualification A. Wholly obtained or produced entirely in the territory – for agricultural products & natural resources. B. Produced in the territory using foreign materials that meet the rule of origin C. Produced in the territory only with originating materials Preference Criteria (Criteria to qualify for NAFTA preferences) Qualify Automatically

  30. US Product with non-NAFTA Foreign Inputs(Preference Criterion B) Product Specific Rules of Origin, May require: • Tariff Classification Change (Change HS code of foreign input (tariff shift) or • Minimum Regional Value Content (RVC) (Percent of value added in region: US, Canada, Mexico) or A + B. Both (tariff shift and RVC)

  31. NAFTA Rules of Origin • In Annex 401 of the original agreement • Most current version in: Harmonized Tariff Schedule of the US, General Note 12(t), www.USITC.gov • Or through www.Export.gov/FTA/NAFTA • Look for heading or subheading which encompasses the heading or subheading of your product’s HS code

  32. A. Example of Tariff ShiftCupcakes Assume all inputs (flour, sugar, cocoa, etc.) were imported • Find the HS Code: 1905.90 • NAFTA Rule of Origin covering 1905.90 “A change to 1905 from any other chapter.” • Interpretation: Cupcakes qualify if all imported components are not from chapter 19 of the HS schedule

  33. Cupcake Inputs Material HTS # • Flour 1101 • Sugar 2102 • Cocoa 1806 • Baking Soda 2836 • Eggs 0407 These cupcakes meet the Rule of Origin requirements. Chapter 19: Preparations of Cereals, Flour, Starch or Milk; Bakers' Wares

  34. More Difficult Tariff Shift ExampleGarden Umbrellas HS Code = 6601.10 • A change to heading 6601 from any other heading, except from a combination of both: (A) subheading 6603.20; and (B) headings 3920 through 3921, 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 5801 through 5811, 5901 through 5911 or 6001 through 6006. • 6603.20 is an umbrella frame, the other headings after (B) are umbrella parts Interpretation: An umbrella can qualify if either the frame or the parts are originating, it does not qualify if the frame and parts are imported.

  35. Regional Value Content ExampleBallpoint Pens Ballpoint Pens = 9608.10 • A change to subheadings 9608.10 through 9608.50 from any other chapter; or (B) A change to subheadings 9608.10 through 9608.50 from subheadings 9608.60 through 9608.99, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used.

  36. Ballpoint PensRegional Value Content Example Chapter 96 = Misc. manufactured articles Subheading 9608.60 = refills for pens Through Subheading 9608.99 = other pen parts Interpretation: • If the imported materials are not manufactured articles under Chpt. 96, i.e. pen parts, the pen qualifies • If the imported materials are pen parts, the pen can qualify if there is enough value-added in NAFTA countries (it meets the RVC criteria)

  37. NAFTA Qualification Option of Using: • 60% of Transaction Value or 2. 50% of Net Cost

  38. NAFTA Qualification Formulas for Calculating NAFTA Regional Value Content (RVC) Transaction Value: RVC = TV – VNM x 100 (60%) TV Net Cost: RVC = NC – VNM x 100 (50%) NC TV = Transaction Value VNM = Value of Non-Originating Materials NC = Net Cost

  39. NAFTA Qualification Transaction Value: RVC = TV – VNM x 100 TV • TV adjusted to F.O.B. basis • VNM should include (if not already included in purchase price) • freight, insurance, packing and all other costs incurred in transporting the material to the location of the producer; • duties, taxes and customs brokerage fees on the material that were paid in the territory of Canada, Mexico, and/or the United States; and • the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product.

  40. NAFTA Qualification Net Cost = NC – VNM x 100 NC Net Cost • Subtract any sales, promotion, marketing, after-sales service costs and royalties • Subtract shipping and packing costs and non-allowable interest costs

  41. NAFTA Qualification • De MinimusRule allows up to 7% of the value to be non-qualifying material • If a foreign input does not meet the Rule of Origin and does not qualify under the de minimus rule, then the good does not qualify as duty-free under NAFTA.

  42. Back to the Steps • Determine the HS code • Determine tariff rate benefit • Determine whether product qualifies • Review Rule of Origin • Certify that product qualifies

  43. Certification • NAFTA Certificate • Download at Export.gov/FTA/NAFTA • Self-certification • Send to buyer • Keep copy

  44. Filling out the certificate See page 2 instructions Box 2 – Blanket period: One document for multiple identical shipments can be used for up to 1 year Box 7 – Preference Criteria: Usually A, B, or C Box 8 – Producer: Yes or No 1, No 2, No 3 Box 9 – Net Cost: No or NC

  45. Back to the Steps • Determine the HS code • Determine tariff rate benefit • Determine whether product qualifies • Review Rule of Origin • Certify that product qualifies

  46. Direct Transport Requirement • Shipped directly from U.S. to Country • Shipped via a third country: • Remains under customs control in 3rd country. • Or, placed in a customs warehouse or customs-controlled FTZ prior to shipment to FTA partner country.

  47. Record Keeping • Importers and exporters should maintain documents to support FTA claim for five years after importation • Customs officials can seek information from either party

  48. Taking Advantage of NAFTA • Starts with Market Research and Finding Customers • Commercial Service is here to help • Qualifying your product for NAFTA benefits • Providing documentation to your customer

  49. Contact Anthony Hill E-mail: Anthony.Hill@trade.gov Visit www.export.gov/FTA/NAFTA

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