We understand that customs can get complex. There’s always something new to learn or intricacy to master. That’s why we love to break down customs into bite-sized, digestible tips. And on that note, after seeing some confusion around Free Trade Agreements (FTAs) and how it affects imports, we decided it was time to set the record straight.
Free Trade Agreement Basics
There are a bunch of countries that participate in Free Trade Agreements with the United States, like South Korea (KORUS), Australia (AUSFTA) and, of course, Mexico and Canada (USMCA). However, no two FTAs are alike. Each FTA has its own set of requirements surrounding goods’ eligibility for duty-free status, and some are very stringent, like with automotive articles within USMCA.
Different though they may be, there’s one thing every FTA has in common: they all require a certificate of origin. This certificate must cover every item in the shipment where duty-free preference is to be claimed.
Bilateral vs. Multilateral
FTAs come in two types—multilateral and bilateral. Both types are comparable, but they typically differ based on the intents of the countries making the agreements.
Multilateral trade agreements incorporate three or more countries under one agreement. This is done to reduce trade interference like tariffs, subsidies, and embargoes that are typically responsible for limiting an entity’s ability to import or export goods.
On the other hand, bilateral trade agreements are only comprised of two countries. These limit tariffs, import quotas, and export restraints to encourage trade and investment between two nations.
What This Means for Importers
FTAs offer a lot of benefits for importers who ship cargo between the nations in question. However, there are a few things that importers should be aware of before claiming a FTA on their shipments.
Certificates of Origin
For starters, importers are responsible for supplying any Certificates of Origin for goods that are eligible for Free Trade Agreements at the time of entry. Even though documents are generally issued by the supplier for shipments, Customs holds the importers responsible for supplying all necessary documentation for U.S. import entries. While these forms might vary by country, they all must include the required data elements to be accepted. These forms are reciprocal agreements, so the requirements in the U.S. will be known to the exporting countries as well.
If, for some reason, a broker doesn’t have the correctly completed certificate at the time of entry, they can’t claim a duty-free preference. That means duties on the imported goods will be assessed. If the document is submitted after entry, Customs might require Post Summary Corrections or Petitions to be filed, which adds to import costs.
There are times when Customs will want to validate the data submitted on an entry where a Free Trade Agreement was claimed. In these cases, they will request highly detailed information from the importers about a product’s manufacturing process, along with all of the components and their individual values and countries of origin. This information helps Customs determine if the FTA claim is allowed or rejected.
Since that information is so detailed, it’s important that the forms are completed by someone with in-depth knowledge about the origin of a product. If a good does not qualify, the person filling out the form must absolutely make it clear that is the case.
Duty reduction is a key component for many importers who are reviewing their supply chains. Because of that, it’s important to fully understand the eligibility requirements for each commodity within a supply chain.
It’s common for some importers to believe that all goods coming from an FTA-eligible country will be duty free, but that’s not always the case. Because of the in-depth information that Customs might request, it’s imperative for importers and their suppliers to be aware of their supply chains. If those suppliers are not the producers of the products, it’s even more important for every organization in that supply chain to completely understand the requirements under a specific FTA.
Utilize Your Customs Broker Customs brokers are ultimately here to help importers understand requirements and then communicate effectively with a supplier. When it comes to the where and how to best handle any shipment, a licensed customs broker is an organization’s best bet. Brokers can assist by providing explanations to importers about the rules and regulations of origin for items they may import. Customs brokers can also review this information with suppliers ahead of shipments when necessary.
Brokers do not validate that information an organization provides related to the origin or manufacture of its goods is accurate. However, they will review forms for any blatant errors, which may include:
· Missing data related to origin criteria
· Invalid date ranges
· Descriptions that don’t match the goods in the shipment
· A missing signature
· And other items that may cause a shipment to be held or denied
There’s a lot going on with customs, and that’s why we’re here to help. Still have questions about how best to transport your shipments and communicate with Customs? Get ahold of us for more information.