Did you know that in 2014, 47 percent of U.S. goods exports were sold to Free Trade Agreement (FTA) partner countries? The United States currently has 14 FTAs in force with 20 countries, supporting growth for U.S. products in foreign markets.The reduction of trade barriers by FTAs makes it easier and cheaper for U.S. companies to export their products to these markets.
A Free Trade Agreement is an agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, protections for investors and intellectual property rights, among other topics. For example, a country that normally charges a tariff of 5% of the value for an incoming product, will eliminate the tariff for the products which originates (as defined in the FTA) in the United States.
Currently the U.S. has Free Trade Agreements in place with:
- Costa Rica
- Dominican Republic
- El Salvador
The U.S. is also currently negotiating the Trans-Pacific Partnership (TPP) agreement with the leaders of 11 other countries. Click here to learn more about the TPP.
Many FTAs are structured similarly. Most include a tariff elimination schedule where during the first year a majority of tariffs are eliminated, then during the second stage (usually a year later) further product tariffs are eliminated. Eventually, all tariffs are eliminated.
In order to claim a preferential duty rate under a FTA, the product's components must be "originating" with supporting documentation. For example, in order to claim a North American Free Trade Agreement (NAFTA) duty rate, a NAFTA certificate of origin is mandatory. On the contrary, the Korea - United States Free Trade Agreement (KORUS FTA), does not have a designated certificate of origin document. However, origin documentation can still be requested by Customs. If proper documentation does not support the tariff claimed, fines can be assessed on top of the duties owed.
Understanding the Rules of Origin is very important prior to claiming a preferential duty rate under a FTA. If the product to be exported contains only U.S. content, then it automatically qualifies for the preferential duty rate under the FTA. However, if any of the product components are imported into the U.S., the final product must undergo a change in tariff classification by additional manufacturing or it must undergo a regional value-content requirement. If the final export product contains any imported materials, consult an international trade professional to guarantee the product will qualify for preferential duty rates under the FTA.
Furthermore, many Free Trade Agreements also include a De Minimis provision, ranging from 7 to 10 percent, which could help U.S. manufacturers qualify for preferential duty rates. The provision allows for a percentage of the export product to not be of U.S. origin. For example, a product valued at $100 could have up to $10 worth of components which originated in a different country.
Exporters should note that Free Trade Agreements do not eliminate the need for the goods to be customs cleared upon arrival in the destination country. Buyers and sellers should agree on the responsibility for customs brokerage related charges during the initiation of the sales order.
Marisol freight forwarders help ensure shippers have proper documentation in place for exportation. Additionally, Marisol professionals assist with product classification, estimation of duties and taxes, global transportation, customs clearance, cargo insurance and AES (Automated Export System) filings. Contact us today to learn more about our export services including ocean, air, rail and truck transportation solutions.