U.S./Colombia Free Trade Agreement By Gerald J. McManus

Transcription

1 U.S./Colombia Free Trade Agreement By Gerald J. McManus

2 US/Colombia Free Trade Agreement 1) U.S. Colombia Free Trade Agreement Took Effect on Tuesday, May 15, ) Almost All of the Following are Immediately Duty Free: Agricultural and Construction Equipment, Aircraft and Parts, Fertilizers, I.T. Equipment, Medical Equipment, and Wood. 3) Colombian Tariff rates prior to the Agreement for the above products ranged from 7.4% to 14.6%. 4) Under the Agreement, U.S. Suppliers get nondiscriminatory treatment on procurement within Colombia Government Agencies.

3 US/Colombia Free Trade Agreement 5) U.S. exports to Colombia were: Machinery ($2.8 bil), Oil ($2.2 bil), Electrical Machinery ($942 mil), Organic Chemicals ($814 mil), and Plastics ($616 mil). 5) U.S. imports from Colombia were: Crude Oil ($10.5 bil), Gold ($1.6 bil), Coffee ($817 mil), Flowers ($562 mil), Bananas ($269 mil). U.S. has a goods trade deficit with Colombia of $3.6 billion. 7) Colombia has trade agreements with Brazil, Argentina, Paraguay, Uruguay and Canada. 8) Colombia will soon implement agreement with EU and South Korea and begin an economic partnership with Japan.

4 US/Colombia Free Trade Agreement Art Temporary admission of professional equipment for display or demonstration. Commercial samples (not to be sold) are free of duty. Art Goods may re-enter the exporting country free of duty after being exported to be repaired or altered as long as the work does not destroy the essential character of the item. Art. 2-8 No import or export prices may be required for goods (outside of Antidumping and Countervailing Duty). Art No Merchandise Processing Fee may be levied on Originating goods entering either country.

5 U.S./Colombia Duty Reductions Stages A. Duty free on May 15, 2012 (Korus = March 15) B. Five equal stages. Duty-free effective January 1 of year five - (Korus B = 2 equal stages) C. Ten annual stages. Duty-free effective Jan 1 of year ten - (Korus C = 3 equal stages) D. Fifteen equal stages. Duty-free January 1 of year fifteen Korus D = 5 equal stages) E. Remain at base rate for years 1 thru10. Then 7 equal stages until year 17 (Korus E = 6 equal stages) F. Continue to be Duty Free (Korus F = 7 stages) T. Eleven equal stages. Duty free effective January 1 of year eleven.

6 U.S./Colombia Duty Reductions Stages Year One means the year this Agreement enters into force. Beginning in year two, each annual stage shall take effect on January 1 of the year. Year 2 will begin January 1, 2013.

7 Colombia Rates of Duty Chapter Prior Rate May 15, Inorganic Chemicals 5%,10% A (most) C (some) 29 Organic Chemicals 5%,10% A (most) C (some) 30 Pharmaceuticals 10%,15% A (most) C (some) 31 Fertilizers 5% A 32 Tanning/Dyeing 5%,10%,15% A (most) B&C (some) 33 Essential Oils, Cosmetics 20% A (most) B&C (some) 34 Washing/Lubricating 5%,10%,15% A (most) B&C (many)

8 Colombia Rates of Duty Chapter Prior Rate May 15, Starches, Glues 5%,10%,15% A (most) B&C (many) 36 Combustible Products 10% A (most) C (some) 37 Photographic Goods 5% A (all) 38 Miscellaneous Chemicals 5%,10%,15% A (most) B&C (some) 39 Plastics 5%,15%,20% A (many) B&C (1/2) 84 Mechanical Appliances 5%,10%,15% A (some) C (many) 85 Electrical Machinery 5%,10%,15% A (some) B&C (many) 87 Vehicles 5%.15%,35% A (some) B&C (most)

9 U.S./Colombia Duty Reduction Stages Go to: Free Trade Agreements; Then go to: Colombia FTA; Then go to: Full Text of the Agreement; Then go to: Section 2 - Colombia Tariff Schedule: HTS Description Base Rate Stage Hydrocarburos 5% A Aciclicos saturados

10 Harmonized Tariff Terminology Synthetic Detergents HTSUS Chapter 34 Heading 3402 Subheading ****** Rate Subheading Statistical Subheading

11 U.S./Colombia FTA Specific Rules of Origination Go to: Free Trade Agreements; Then go to: Colombia FTA; Then go to: Section 4 Rules of Origin and Origin Procedures Annex Product Specific Rules A change to heading 0101 through 0106 from any other chapter.

12 Tariff Shift Review #1 You produce Synthetic Detergents ( ) here in the United States and sell to Colombia. The Synthetic Detergents are made from Polyhydric Alcohols ( ) imported from China. This is the only non-originating ingredient in the product. Your Colombian customer is requesting a Certificate of Origin for the Detergents. Can you give them one? U.S/ Colombia FTA Rule of Origination A change to subheading from any other subheading.

13 Tariff Shift Review #2 You produce Printing Ink ( ) here in the United States. This Printing Ink is made from Pigments ( ) imported from Malaysia. Your Colombian customer is requesting a Certificate of Origin. Can you give them one? U.S./Colombia FTA Rule of Origination A change to subheading from any other Chapter.

14 Tariff Shift Review #3 You produce Arsenic Trioxide ( ) here in the United States and sell to Colombia. This Arsenic Trioxide is made from Arsenic ( ) imported from Mexico. (This Mexican Arsenic originated under NAFTA when imported into U.S.) Your Colombian customer is requesting a Certificate of Origin. Can you give them one? U.S./Colombia FTA Rule of Origination A change to subheading from any other subheading.

15 Tariff Shift Review #4 You process metals ( ) here in the U.S. and sell to Colombia. Your Colombian customer is asking if these metals Originate under the Agreement. The only non U.S. material added during processing is Barium ( ) from Australia. U.S. /Colombia Rule of Origination A change to through from any other subheading.

16 Interpreting Rules of Origin Annex 4.1 Specific Rules of Origin Part I(e) General Interpretative Notes (e) When a single rule of origin is applicable to a group of headings or subheadings and that rule of origin specifies a change of heading or subheading, it shall be understood that the change in headings or subheadings may occur within a single heading or subheading, or between headings or subheadings of the group. When, however a rule refers to a change in heading or subheading outside that group this shall be understood to require that the change in heading or subheading must occur from a heading or subheading that is outside the group of headings or subheadings set out in the rule.

17 U.S./Colombia Agreement, Annex 4.1 Specific Rules of Origin, Part 1(e) Metals Sold to Colombia U.S. Metals ( ) containing Australian Barium ( ) sold to Colombia. A change to through from any other subheading. ******************************* Molding Machinery Sold to Colombia U.S. Molding Machinery ( ) - with Chinese parts ( ) Sold to Colombia. A change to subheading through from any other subheading outside that group.

18 U.S./Colombia De Minimis Art. 4.6 Except as provided in Annex 4.6 (Exceptions to DeMinimis) each Party shall provide that a good that does not undergo a change in tariff classification pursuant to Annex 4-1 (Specific Rules of Origin) is nonetheless Originating if the value of all Non-Originating Materials used in production of the good does not exceed 10% of the Adjusted Value. However, the value of Non- Originating Material will be included in any Regional Value requirement. Exceptions to De Minimis Annex 4.6 De Minimis will not apply to a non-originating material used in the production of a good classified in HS Chapters 1 through 24 unless the nonoriginating material is classified under a different subheading than the good for which origin is being determined. In addition to the above, there are more De Minimis exceptions in Chapters 4, 8, 9, 15, 17, 18, 19, 20, 21, 22 and 23.

19 U.S/Colombia - Adjusted Value Article 4.3 Definitions Adjusted Value Means the value of the goods, adjusted if necessary to exclude any costs, charges or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation. Adjusted value for merchandise exported from the U.S. would be the FOB U.S. port value. Adjusted value for merchandise imported into the U.S. would be the FOB foreign port value.

20 U.S./Colombia FTA - De Minimis You produce a chemical product ( ) that is used in papermaking. Your firm sells to Colombia. Your Bill of Materials shows: Material A (U.S) $0.60 Material B (Canada) Material C (Colombia) Material D (China) Labor 0.05 Profit 0.05 General Expense 0.05 Selling Price (FOB Philadelphia) $1.00 U.S./Colombia FTA Rule of Origination A change to subheading from any other subheading.

21 U.S./Colombia FTA - De Minimis You produce a chemical product ( ) here in the U.S. The product is used in paper making. You sell to Colombia. Your bill of materials shows: Material A (U.S) $0.60 Material B (Canada) Material C (Colombia) Material D (China) Labor 0.05 Profit 0.05 General Expense 0.05 Selling Price (FOB Philadelphia) $1.00 U.S./Colombia FTA Rule of Origination A change to subheading from any other subheading.

22 U.S./Colombia Textile - De Minimis (Article 3.3 #8) A textile or apparel good that is not originating because certain fibers or yarns used in the production of the component of the good that determines the tariff classification do not undergo an applicable change in tariff classification set out in Annex 3-A, shall nonetheless be considered to originate if the total weight of all such fibers or yarns in that component is not more than 10 percent of the total weight of that component. However, Elastomeric Yarns in the component of the good that determines the tariff classification shall be considered Originating only if such yarns are wholly formed in the territory of a Party.

23 U.S./Colombia - De Minimis - SETS Article 4.9: If goods are classified as a set under GRI 3 (Goods put up in sets for retail sale), the set is Originating only if each good in the set is Originating. Notwithstanding the above, a set is Originating if the value of all the Non-originating goods in the set does not exceed 15% of the Adjusted Value of the set. Article 3.3-8: Textile or apparel goods (Ch 50 through 63) that are classifiable under GRI 3 (Goods put up in sets for retail sale) shall not be regarded as Originating unless each of the goods in the set is Originating or total value of Non-originating goods does not exceed 10% of the Adjusted Value of the set. The above Articles are the same for KORUS, Colombia, and Panama.

24 U.S./Colombia FTA - Regional Value Content Regional Value Content requirement is included in the Rules of Origination in the following Chapters: 30 Pharmaceutical 84 - Machinery 39 Plastics 85 Electrical Machinery 64 Footwear 86 Railway equipment 65 Headgear 87 - Vehicles 70 Glass 89 - Ships 71 Precious items 90 Optical instruments 73 Iron and steel 91 - Clocks 74 Copper 92 Musical instruments 76 Aluminum 93 Arms & ammunition 81 Base metal 94 Furniture 82 Tools 95 - Toys 83 - Misc. base metal 96 Misc. manufactures

25 Regional Value Content (Same for all Recent FTA s) Build-down Method RVC = AV - VNM X 100 AV Build-up Method RVC = VOM X 100 AV AV is the Adjusted Value of the good VNM is the value of NON-Originating Material VOM is the value of Original Material RVC Requirement is usually 35% Build-Up or 45% Build-Down

26 Regional Value Content You sell Electron Guns ( ) to Colombia. These guns are made using Chinese microwave tubes. Your BOM shows: $ 80 for Chinese tubes ( ) $ 40 for U.S. material $ 30 for labor and profit $150 Selling price, FOB NY A change to any other subheading, or a Regional Value Content of: a) 35% under the build-up method, or b) 45% under the build-down method Build-down Method Build-up Method RVC = AV - VNM X 100 RVC = VOM X 100 AV AV 46% = $150 - $80 X % = $40 X 100 $150 $150

27 U.S./Colombia FTA - VALUE OF MATERIALS For purposes of calculating the Regional Value Content and for applying De Minimis rules, the value of a material is: Art Originating Goods The following expenses, if not included in the value, may be added to the value of the Originating material: Freight, insurance, packing, duties, brokerage fees and other costs incurred up to the place of the producer. Art Non-originating Material The following expenses, if included in the value of Non-originating material, may be deducted: Freight, insurance, packing, duties, brokerage fees, and all other costs incurred in transporting the material within or between the parties. Same for All Recent FTA s

28 Non-Originating Materials - RVC & De Minimis You produce a chemical product ( ) that is used in coating textiles. Your FOB BOM China Material A (U.S) $0.60 Material B (Germany) Material C (Colombia) Material D (China) $0.10 Labor 0.05 Profit 0.05 General Expense 0.05 Selling Price (FOB Philadelphia) $1.00 U.S./Colombia Rule of Origination A change to from any other subheading.

29 Automotive Goods - Regional Value Content RVC = NC - VNM X 100 NC Art Net Cost Method of calculating Regional Value Content only applies to the following Harmonized Tariff Numbers: thru (Engines) (Diesel) 8409 (Parts of engines) 8701 thru 8705 (Vehicles) 8706 thru 8707 (Chassis) 8708 (Motor vehicle parts)

30 Miscellaneous Articles Art. 4.8: Accessories, Spare Parts and Tools Disregard if shipped with the goods; And classified with the goods; And not invoiced separately; And quantities are customary. Art. 4.10: Packaging material and containers for retail sale - Disregard for tariff shift. Include value for Regional Value Content. Art. 4.11: Packing materials and shipment containers Disregard. Art Indirect Material is considered Originating. Fuel, tools, dies, lubricants, clothing, testing apparatus, catalysts & solvents, and other goods not incorporated into the good KORUS - Art Indirect material Disregard for tariff shift. Include for Regional Value Content. Art. 4.13: Good must be shipped directly between the parties.

31 Sec. VI - Chemicals (Ch 28-38) Rules of Origination - Notes to Section VI Rules 1 through 7 confer origin to a good of any heading or subheading in this Section, unless otherwise specified. Rule 1 Chemical Reaction Rule 2 Purification Rule 3 Mixtures & Blends Rule 4 Change in Particle Size Rule 5 Standards Material Rule 6 Isomer Separation Rule 7 Separation Prohibition

32 U.S./Colombia FTA Claims for Preferential Tariff Treatment Art. 4.15: Each Party shall provide that an importer may make a claim for preferential treatment based on either (a) a written or electronic certification by the importer, exporter, or producer, or (b) the importer s knowledge that the good is an originating good, including reasonable reliance on information in the importer s possession that the good is an originating good. Art. 4-16: Certification not required where the Customs value does not exceed $1500. Art. 4-17: All necessary records to be maintained for five years. Art : Importer must have in its possession at the time the declaration is made, a written or electronic certification as described in Art if the certification forms basis for the claim. Art : If the Importer did not make claim at importation, the importer may, no later than one year after importation make a claim by presenting written or electronic evidence.

33 Claims for Preferential Tariff - Article 4.15 A certification need not be made in a prescribed format provided that the certification is in written or electronic form, including the following elements: o The name of the certifying person, including necessary contact information o The importer of the good (if known) o The exporter of the good (if different from the producer) o The producer of the good (if known) o Tariff classification (HTS) and a description of the goods o Information demonstrating that the good is originating o Date of the certification o Period that the blanket certification covers. Same for all recent FTA s

34 Origination A good is originating when: Criterion A - The good is wholly obtained or produced entirely in the territory of one of or both of the parties Criterion B - The good is produced in the territory of one or both of the parties and satisfies the tariff shift and/or regional value content. Criterion C - The good is produced exclusively from originating materials, e.g., The producer has certificates of origination from all domestic suppliers.

35 Colombian Customer Request Origination Criteria A Colombian customer has requested that the Certification of Origination indicate one of the following references: 4.1(a), 4.1(b)(i), 4.1(b)(ii), 4.1(c): 4.1(a) It is a good wholly obtained or produced entirely in the territory of one or more of the Parties: (This is the same as our Criterion A ). 4.1(b)(i) Each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in Annex 4.1 or Annex 3-A (Textile and Apparel Specific Rules of Origin) (This is the same as our Criterion B ). 4.1(b)(ii) The good otherwise satisfies any applicable regional value content or other requirements specified in Annex 4.1 or Annex 3-A (Textile and Apparel Specific Rules of Origin). ( This is also the same as our Criterion B as the U.S. Criterion B states that the good satisfies the tariff shift and/or regional value content). 4.1(c) It is produced entirely in the territory of one or more of the Parties exclusively from originating materials. (This is the same as our Criterion C ).

36 U.S./Colombia Free Trade Agreement By Gerald J. McManus For further information please contact: