ABC’s of Customs Brokerage – Week 2, Lesson 2

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2.2 Geography

It’s a big wide world out there – and we do business with all of it.

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Many of our Free Trade Agreements, Preferential Trade Agreements, and Special Trade Programs are geographically set. Some, however, have to do with the economic level of a county or group of countries. These agreements are outlined in the Harmonized Tariff Schedule of the United States (HTS) in General Notes 4 through 35. Each agreement has a Special Program Indicator (SPI) that identifies the agreement and indicates in Column 1 Special subcolum of the HTS the preferential duty treatment the article will receive. Some items receive free duty rates and others receive a reduced duty rate from that duty rate in Column 1 General.

Every trade agreement is different and has certain nuances that distinguish it from another. We must read each agreement to determine where those differences may be as that will affect our duty treatment. Let’s look at them.

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General Note 4 Products of Countries Designated Beneficiary Developing Countries for Purposes of the Generalized System of Preferences (GSP). Special Program Indicator (SPI Code) is A, A+ and A* These are countries that are considered developing and least-developed beneficiary countries. Under the GSP GN 4(a) we have groups of countries categorized as Independent Countries; Non-Independent Countries and Territories; Associations of Countries (treated as one country): Member Countries of the Cartagena Agreement (Andean Group), Member Countries of the West African Economic and Monetary Union (WAEMU), Member Countries of the Association of South East Asian Nations (ASEAN), Member Countries of the Southern Africa Development Community (SADC), Member Countries of the South Asian Association for Regional Cooperation (SAARC), and Member Countries of the Caribbean Common Market (CARICOM). These countries are identified, for entry purposes, using the SPI Code “A”. GN 4(b) list countries that belong to beneficiary countries are designated as least-developed beneficiary developing countries pursuant to section 502(a)(2) of the Trade Act of 1974, as amended. These countries are identified, for entry purposes, using the SPI Code “A+”. GN 4€ advises us that certain products from certain countries in the GSP will be excluded from preferential duty treatment. GN 4(d) notates the following articles may not be designated as an eligible article for purposes of the GSP and provides a list of HTS numbers and the associated country: (i) textile and apparel articles which were not eligible articles for purposes of this note on January 1, 1994; (ii) watches, except as determined by the President pursuant to section 503€(1)(B) of the Trade Act of 1974, as amended; (iii) import-sensitive electronic articles; (iv) import-sensitive steel articles; (v) footwear, handbags, luggage, flat goods, work gloves and leather wearing apparel, the foregoing which were not eligible articles for purposes of the GSP on April 1, 1984; (vi) import-sensitive semi-manufactured and manufactured glass products;

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(vii) any agricultural product of chapters 2 through 52, inclusive, that is subject to a tariff-rate quota, if entered in a quantity in excess of the in-quota quantity for such product; and (viii) any other articles which the President determines to be import-sensitive in the context of the GSP. These excluded items are identified with the SPI Code “A*”. GN 4€ states, Notwithstanding the provisions of subdivision € of this note, articles provided for in a provision for which a rate of duty of “Free” appears in the “Special” subcolumn followed by the symbol “NP” in parentheses are those designated by the President to be eligible articles for purposes of section 915 of the Trade Facilitation and Trade Enforcement Act of 2015. An article described in this subdivision is eligible for this treatment if— (i) (1) the article is the growth, product or manufacture of Nepal; and Harmonized Tariff Schedule of the United States (2019) Revision 14 Annotated for Statistical Reporting Purposes GN p.17 GSP (2) in the case of a textile or apparel article, Nepal is the country of origin of the article, as determined under section 102.21 of the Code of Federal Regulations (as in effect on February 24, 2016), (ii) the article is imported directly from Nepal into the customs territory of the United States; and (iii) the sum of the cost or value of the materials produced in, and the direct costs of processing operations performed in, Nepal or the customs territory of the United States is not less than 35 percent of the appraised value of the article at the time it is entered. General Note 5 Automotive Products and Motor Vehicles Eligible for Special Tariff Treatment. This agreement is restricted to articles of Canadian origin. The SPI Code is “B”.

General Note 6 Articles Eligible for Duty-Free Treatment Pursuant to the Agreement on Trade in Civil Aircraft. Products under this trade agreement must be used in the civil aviation industry. The SPI Code is “C”.

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General Note 7 Products of Countries Designated as Beneficiary Developing Countries for Purposes of the Caribbean Basin Economic Recovery Act (CBERA). SPI Code is E or E*. This is a different agreement than that found in GN 17.

There are currently 17 CBERA beneficiary countries:

Antigua and Barbuda Aruba The Bahamas Barbados Belize British Virgin Islands Curacao Dominica Grenada Guyana Haiti Jamaica Montserrat St. Kitts and Nevis St. Lucia St. Vincent and the Grenadines Trinidad and Tobago Special Trade Legislation Agreement: Caribbean Basin Initiative (CBI), which comprises both the Caribbean Basin Economic Recovery Act (CBERA) and the Caribbean Basin Trade Partnership Act (CBTPA).

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General Note 8 United States-Israel Free Trade Area Implementation Act of 1985. The United States-Israel Free Trade Agreement (FTA) entered into force in 1985 and represents the United States’ first FTA. The IL FTA is a bilateral trade agreement. SPI Code is “IL”. Israel Free Trade Agreement (ILFTA)

General Note 9 United States-Canada Free-Trade Agreement (suspended – see GN 12.)

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General Note 10 Products of the Freely Associated States. Marshall Islands Micronesia, Federated States of Republic of Palau are the countries eligible under this agreement. SPI Code is “Z”. General Note 11 Products of Countries Designated as Beneficiary Countries for Purposes of the Andean Trade Preference Act (ATPA). [The ATPA expired at the close of July 31, 2013, and general note 11 was deleted from the HTS pursuant to Presidential Proclamation 9072.] For more information on ATPA, visit the USITC Publication Andean Trade Preference Act Sixteenth Report General Note 12 North American Free Trade Agreement. This agreement is for products manufactured in Canada (CA), Mexico (MX), or the US. NAFTA is covered in detail from General Note page 24 through page 195. Like other FTA’s, NAFTA has specific requirements on what is considered “goods originating in the territory of a NAFTA party”. Our math kicks in here as we have to determine RVC (Regional Value Content) and use one of these formulas: RVC = ((TV-VNM)/TV) X 100 or RVC = ((NC – VNM)/NC) x 100; there are De minimis rules; and “tariff shifts”. SPI Codes are “CA” or “MX”. North American Free Trade Agreement

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General Note 13 Pharmaceutical Products. The pharmaceutical agreement allows any product entered free of duty, provided that such product is included in the pharmaceutical appendix to the tariff schedule. SPI Code is “K”. Pharmaceuticals General Note 14 Intermediate Chemicals for Dyes. This agreement is for any product classifiable in such provision which is the product of a country eligible for tariff treatment under column 1 shall be entered free of duty, provided that such product is listed in the intermediate chemicals for dyes appendix to the tariff schedule. SPI Code is “L”. General Note 15 Exclusions. This preferential agreement is for certain agricultural products subject to in-quota quantity. General Note 16 Products of Countries Designated as Beneficiary Countries under the African Growth and Opportunity Act (AGOA). This is agreement includes sub-Saharan African countries. This agreement is currently effective until the close of September 30, 2025. SPI Code is “D”. Special Trade Legislation

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General Note 17 Products of Countries Designated as Beneficiary Countries under the United States-Caribbean Basin Trade Partnership Act of 2000. CBTPA was implemented on October 5, 2000, and will expire on September 30, 2020. CBTPA countries are a subset of CBERA countries with expanded duty free access to the U.S. market. Although the majority of CBTPA importations are hydrocarbons and textiles, almost 270 non-textile tariff items are eligible, including footwear, tuna, leather goods, travel goods, and watches and watch parts. CBTPA non-textiles must meet the NAFTA rules of origin (HTSUS General Note 12). Non-Textile CBTPA goods must be supported by a CBTPA Certificate of Origin, CBP Form 450, signed by the exporter and in the importer’s possession at the time of the preference claim. SPI Code is “R”. Special Trade Legislation Agreement: Caribbean Basin Initiative (CBI), which comprises both the Caribbean Basin Economic Recovery Act (CBERA) and the Caribbean Basin Trade Partnership Act (CBTPA).

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General Note 18 United States-Jordan Free Trade Area Implementation Act. The Jordan Free Trade Agreement (JOFTA) went into effect on December 17, 2001. Under the agreement virtually all Jordanian goods enter the United States duty free. The Jordan FTA does NOT provide a merchandise processing fee (MPF) exemption. SPI Code is “JO”. Jordan Free Trade Agreement (JOFTA)

General Notes 19-24 [Transferred and designated as subdivisions € through (j), respectively, of general note 3]

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General Note 25 United States-Singapore Free Trade Agreement Implementation Act. The Singapore Free Trade Agreement (SGFTA) went into effect on January 1, 2004, and provided for complete duty phase out by January 1, 2013. Singapore FTA goods are also free of merchandise processing fee (MPF). The SGFT is covered in the HTS on pages 202-302. Here we see terms like “remanufactured”; also special rules for textile and apparel articles; de minimis; change in tariff classification. These are also seen in other FTA’s, but not all. SPI Code “SG”. Singapore Free Trade Agreement (SGFTA)

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General Note 26 United States-Chile Free Trade Agreement Implementation Act. The Chile Free Trade Agreement (CLFTA) went into effect on January 1, 2004. Under the agreement most Chilean goods enter the United States free of duty and the merchandise processing fee (MPF) and virtually are entered free by the time it was fully implemented in 2015. In this FTA we see a RVC (Regional Value Content), however the formula is different than what we noted in the NAFTA agreement. For CL, the RVC formula is RVC = ((AV – VNM)/AV) x 100 for a “build-down method” and RVC = (VOM /AV) x 100 for a “build-up method”. The CLFTA also has tariff shift requirements. SPI Code “CL”. Chile Free Trade Agreement (CLFTA)

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General Note 27 United States-Morocco Free Trade Agreement Implementation Act. The Morocco Free Trade Agreement (MAFTA) went into effect on January 1, 2006. Under the agreement most Moroccan goods enter the United States duty free and virtually all will enter free by the time it is fully implemented on January 1, 2023. The Morocco FTA does NOT provide a merchandise processing fee (MPF) exemption. Tariff shift rules apply SPI Code is “MA”. Morocco Free Trade Agreement (MAFTA)

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General Note 28 United States-Australia Free Trade Agreement Implementation Act. Most goods imported into the U.S. under the Australia Free Trade Agreement (AUFTA) are free of duty and merchandise processing fee (MPF). All AUFTA goods will be duty free on January 1, 2022. We see more familiar terms here, as in other FTA’s like, “good wholly obtained or produced”, “nonoriginating material”, “Regional Value Content”, special rules for certain automotive goods and textile and wearing apparel, tariff classification changes required. The SPI Code is “AU”. Australia Free Trade Agreement (AUFTA)

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General Note 29 United States-Dominican Republic-Central America-United States Free Trade Agreement Implementation Act (CAFTA). The Dominican Republic-Central America FTA (CAFTA-DR) is the first free trade agreement between the United States and a group of smaller developing economies: our Central American neighbors Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the Dominican Republic. Again in this FTA, we see definitions, some specific to the FTA; “For the purposes of this note” language; RVC and other special requirements for duty free or preferential duty treatment. Most CAFTA-DR goods currently enter the United States free of duty and the merchandise processing fee (MPF), and virtually all will enter free by the time the Agreement is fully implemented on January 1, 2025. SPI Code is “P” or “P+”. CAFTA-DR (Dominican Republic-Central America FTA)

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General Note 30 United States-Bahrain Free Trade Agreement. The Bahrain Free Trade Agreement (BHFTA) went into effect on August 1, 2006. Under the agreement most Bahraini goods enter the United States free of duty and the merchandise processing fee (MPF) and virtually all now enter free since the time it was fully implemented on January 1, 2015. As with other FTA’s we see certain definitions; terms like – “direct costs of processing operations,”, “new or different article of commerce”, “substantially transformed”, indirect materials, “Product-specific rules of origin” all of which play a part in the eligibility of the duty free treatment of goods entering the US. SPI Code is “BH”. Bahrain Free Trade Agreement (BHFTA)

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General Note 31 United States-Oman Free Trade Agreement Implementation Act. The Oman Free Trade Agreement (OMFTA) went into effect on January 1, 2009, and provided for a complete duty phase out by January 1, 2018. Oman FTA goods are also free from the merchandise processing fee (MPF). The formula for calculating whether the value of materials produced in the territory of one or both of the parties plus the direct costs of processing operations performed in the territory of one or both of the parties is not less than 35 percent of the appraised value of the good is (VOM + DCP)/AV X 100. Again we see some specific rules that must be followed and certain process that an article can and cannot undergo to be eligible for duty free treatment. SPI Code is “OM”.

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General Note 32 United States-Peru Trade Promotion Agreement Implementation Act. The Peru Trade Promotion Agreement (PETPA, sometimes referred to as the Peru FTA) went into effect on February 1, 2009. A large majority of Peruvian goods currently enter the United States free of duty and merchandise processing fee (MPF) and virtually all will enter free by the time the agreement is fully implemented in 2025. The PTPA is the first agreement in force that incorporates groundbreaking provisions concerning the protection of the environment and labor rights that were included as part of the Bipartisan Agreement on Trade Policy developed by Congressional leaders on May 10, 2007. SPI Code is “PE”. Peru Trade Promotion Agreement (PETPA)

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General Note 33 United States-Korea Free Trade Agreement. The Korea Free Trade Agreement (KORUS) went into effect on March 15, 2012. Most Korean industrial and consumer goods currently enter the United States free of duty and the merchandise processing fee (MPF) and as of 2016 that figure has grown to over 95 percent. Although not specifically stated, the Korea FTA is with South Korea only; North Korea is a column 2 duty rate country. The term “UKFTA country” refers only to Korea or to the United States. SPI Code is “KR”. Korea Free Trade Agreement (KORUS)

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General Note 34 United States-Colombia Trade Promotion Agreement. The Colombia Trade Agreement (COTPA) went into effect on May 15, 2012. Most Colombian goods currently enter the United States free of duty and the merchandise processing fee (MPF) and virtually all will enter free by the time the COTPA is fully implemented in 2028. Again, we have certain definitions and language in the agreement, such as: “recovered goods”, “material that is self-produced”, “Goods classifiable as goods put up in sets”, and other special provisions for duty free and preferential duty treatment. SPI Code is “CO”. Colombia Trade Promotion Agreement (COTPA)

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General Note 35 United States-Panama Trade Promotion Agreement. The Panama Trade Promotion Agreement (PATPA) went into effect on October 31, 2012. Most Panamanian goods currently enter the United States free of duty and merchandise processing fee (MPF) and virtually all will enter free by the time it is fully implemented in 2028. As seen in other FTA’s and TPA’s, we find requirements such as, “component of the good that determines the tariff classification of the good”, RVC, and “inventory management method”. SPI Code is “PA”. Panama Trade Promotion Agreement (PATPA)

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Special Program Indicator Codes Agreement on Trade in Civil Aircraft.......................................................C Agreement on Trade in Pharmaceutical Products...................................K African Growth and Opportunity Act.......................................................D Australia Free Trade Agreement..............................................................AU Automotive Products Trade Act...............................................................B Bahrain Free Trade Agreement Implementation Act…............................BH Caribbean Basin Economic Recovery Act.................................................E or E* Caribbean Basin Trade Partnership Act....................................................R Chile Free Trade Agreement....................................................................CL Colombia Trade Promotion Agreement Implementation Act.................CO Dominican Republic-Central America Act................................................P or P+ Generalized System of Preferences.........................................................A, A* or A+ Israel Free Trade Area..............................................................................IL Jordan Free Trade Area Implementation Act..........................................JO Korea Free Trade Agreement Implementation Act..................................KR Morocco Free Trade Agreement Implementation Act…………….……….....MA Nepal Preference Program ......................................................................NP North American Free Trade Agreement: Canada, under the terms of general note 12 to this schedule…...CA Mexico, under the terms of general note 12 to this schedule…...MX Oman Free Trade Agreement Implementation Act.................................OM Panama Trade Promotion Agreement Implementation Act…………………PA Peru Trade Promotion Agreement Implementation Act.........................PE Singapore Free Trade Agreement............................................................SG Uruguay Round Concessions on Intermediate Chemicals for Dyes........L Side-by-Side Comparison of Free Trade Agreements and Selected Preferential Trade Legislation Programs--Non-Textiles