Chapter 7 Free Trade Agreements

triple transformation

(Textile products) the materials used to produce the goods must go through triple transformation in order to obtain regional-goods status.

ROO may require

1. A change in tariff classification 2. A regional value-content requirement 3. both Each product type will have specific ROO which may be determined by the product's HTS classification

Four types of methods or agreements used to increase the free flow of goods, services and investments between countries

1. Free Trade Agreements (FTAs) 2. Bilateral Investment Treaties (BITs) 3. Cooperation Agreements 4. Free or Foreign Trade Zones (FTZs)

How many FTAs does the U.S. have?

14 FTAs with 20 countries: Australia, Bahrain, Chile, Columbia, CAFTA-DR (Costa Rica, Dom. Rep. El Salvador, Guat., Hondu., and Nicaragua), Israel, Jordan, South Korea, Morocco, NAFTA, Oman, Panama, Peru, and Singapore

What is an FTA

Agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights among others.

Article XXIV

Article XXIV treats the FTA as a singular country- FTAs cannot be accused of violating the most-favored-nation or national treatment principles

Costs test

Automobiles, electronics and machinery have to pass stringent costs tests. 50% to 62.5% of the good's costs must be regional in origin.

Benefits of FTA

Expansion and diversification of trade, elimination of barriers to trade in goods and services to increase the investment opportunities and to advance effective environmental protection, labor rights and the enforcement of intellectual property rights. These objectives are accomplished through the implementation of the core principles of national treatment, most-favored-nation treatment and transparency within the FTA

Competitive Advantages of FTA

Lower tariffs and removal or quantitative restrictions

Ultimate Goal of FTA

Movement of goods across national borders tariff-free The reduction of trade barriers and the creation of a more stable and transparent trading and investment environment make it easier and cheaper for U.S. companies to export their products and services to markets of foreign country partners.

Regional Goods

Must be certifies as regional goods to cross NAFTA borders freely which means they must originate in a NAFTA country or passed the test of substantial transformation (where a good or material is further processed) which usually results in a tariff classification change for the goods

NAFTA

North American Free Trade Agreement; allows open trade with US, Mexico, and Canada. January 1, 1994- began

U.S. main goal of trade agreements

Reduce barriers to U.S. exports, protect U.S. interests competing abroad, and enhance the rule of law in the FTA partner country or countries.

How can FTAs benefit U.S. exporters or investors?

U.S. FTAs typically address a wide variety of government activities. One example is the reduction or elimination of tariffs charged on regional or qualified goods coming from the other country. Ex: A country that normally charges a tariff of 6 percent of the value of the incoming product will eliminate that tariff for products that originate in another FTA member country.

Illegal Government Subsidies

allow domestic manufacturers and growers to export and sell their goods at below market price

snapback provisions

allow for the reinstitution of previous tariff levels at times in order to alleviate short-term negative impacts on domestic industries and businesses

Anti-dumping duties

are special levies or tariffs imposed on imported merchandise to protect an affected domestic industry from injury caused by the sale of dumped goods.

Rules of Origin

describe how exported goods shipped to a country or a region may qualify for duty-free or reduced-duty benefits. A number of tests or rules apply including substantial transformation, product-specific and percentage-based formulas. FTAs contain specific chapters on Rules of Origin Procedures and lists all product-specific ROO by harmonized tariff schedule (HTS) numbers

Countervailing Duty

is a special duty imposed on imported merchandise to protect a domestic industry from injury caused by illegally subsidized imports being sold at below market prices. Injury: lost sales, reduced prices, lost market share, decreased profits and others.

Examples of subsidies

loans at preferential rates, grants, tax incentives or the providing of goods or services by a government at prices below market levels

Dumping

selling products in a foreign country at lower prices than those charged for comparable sales in the home country or that are below the cost of production