preference programs

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1 CHAPTER IV CHAPTER IV SPECIAL TARIFF SPECIAL TARIFF PREFERENCE PROGRAMS PREFERENCE PROGRAMS Generalized System of Preferences Generalized System of Preferences (GSP) (GSP) Caribbean Basin Initiative (CBI) Caribbean Basin Initiative (CBI) Andean Trade Preference Act (ATPA) Andean Trade Preference Act (ATPA) Freely Associated States (FAS) Freely Associated States (FAS) African Growth & Opportunity Act African Growth & Opportunity Act (AGOA) (AGOA) U.S.-Caribbean Basin Trade U.S.-Caribbean Basin Trade Partnership Act (CBTPA) Partnership Act (CBTPA) Maquiladora Maquiladora

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Page 1: Preference Programs

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CHAPTER IV CHAPTER IV SPECIAL TARIFF SPECIAL TARIFF PREFERENCE PROGRAMSPREFERENCE PROGRAMS

Generalized System of Preferences (GSP)Generalized System of Preferences (GSP) Caribbean Basin Initiative (CBI) Caribbean Basin Initiative (CBI) Andean Trade Preference Act (ATPA) Andean Trade Preference Act (ATPA) Freely Associated States (FAS) Freely Associated States (FAS) African Growth & Opportunity Act (AGOA)African Growth & Opportunity Act (AGOA) U.S.-Caribbean Basin Trade Partnership U.S.-Caribbean Basin Trade Partnership

Act (CBTPA)Act (CBTPA) MaquiladoraMaquiladora

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Grants duty-free entry to specified products from Grants duty-free entry to specified products from designated developing countries designated developing countries

Trade Act of 1974: 1/1/76 to 7/4/93 & To 9/30/94, Trade Act of 1974: 1/1/76 to 7/4/93 & To 9/30/94, 7/31/95, 5/31/97,6/30/98, 6/30/99, 9/30/01 7/31/95, 5/31/97,6/30/98, 6/30/99, 9/30/01

12/31/2006 per the Trade Act of 2002 & extended 12/31/2006 per the Trade Act of 2002 & extended again to 12/31/2008again to 12/31/2008

Approximately 4,400 items eligible from more Approximately 4,400 items eligible from more than 140 countries in 1994than 140 countries in 1994

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Eligibility Requirements:Eligibility Requirements: A beneficiary developing country designated A beneficiary developing country designated

by the President by the President A or A* or A+ in "Special subcolumn of A or A* or A+ in "Special subcolumn of

Column 1 of HTSUSColumn 1 of HTSUS Directly imported into the USA Directly imported into the USA Produced in a beneficiary country Produced in a beneficiary country

• Wholly (100%) the growth, product or Wholly (100%) the growth, product or manufacture of a beneficiary country manufacture of a beneficiary country

• Substantially transformed into a new and Substantially transformed into a new and different product different product

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Produced in a beneficiary country (continued)Produced in a beneficiary country (continued) The sum of the cost or value of the The sum of the cost or value of the

materials and direct cost of processing materials and direct cost of processing operations in the beneficiary country, not operations in the beneficiary country, not less than 35% of the appraised value at the less than 35% of the appraised value at the time of entry into the U.S. time of entry into the U.S.

General and Administrative (G&A) expenses General and Administrative (G&A) expenses and profit not considered as direct cost of and profit not considered as direct cost of process operations. process operations.

A Certificate of Origin Form A of the UNCTADA Certificate of Origin Form A of the UNCTAD

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Ineligible ArticlesIneligible Articles

– Textile and apparel articles Textile and apparel articles – Watches Watches – Import-sensitive electronic articles Import-sensitive electronic articles – Import-sensitive steel products Import-sensitive steel products – Footwear, handbags, luggage, flat goods, work Footwear, handbags, luggage, flat goods, work

gloves, leather wearing apparel gloves, leather wearing apparel – Import-sensitive glass products Import-sensitive glass products – Articles determined to be import-sensitive by Articles determined to be import-sensitive by

the President the President

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Competitive Need LimitsCompetitive Need Limits:: A country loses its GSP eligibility A country loses its GSP eligibility for a product when the U.S. imports for a product when the U.S. imports from that country from that country either account for 50 % or more of the either account for 50 % or more of the

value of the U.S. total importsvalue of the U.S. total imports or Exceeds a specific annual adjusted Exceeds a specific annual adjusted

value set at $75 million in 1996 with value set at $75 million in 1996 with annual increase of $5 million. The value annual increase of $5 million. The value limit increased to $125 million in 2006.limit increased to $125 million in 2006. Terminates July 1 of the next calendar yearTerminates July 1 of the next calendar year

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Ineligible countriesIneligible countries A Communist country. But eligible if such A Communist country. But eligible if such

country (a) receives Normal Trade country (a) receives Normal Trade Relations (NTR) treatment, (b) is a Relations (NTR) treatment, (b) is a member of WTO and IMF, (c) and is not member of WTO and IMF, (c) and is not dominated or controlled by international dominated or controlled by international communism. communism.

A member or a party to an arrangement A member or a party to an arrangement of foreign countries such OPEC (a) to of foreign countries such OPEC (a) to hold vital commodity resources from hold vital commodity resources from international market or raise price to an international market or raise price to an reasonable level and (b) cause serious reasonable level and (b) cause serious disruption of world economy disruption of world economy • But eligible if it is a party to a trade But eligible if it is a party to a trade

agreement with the U.S. and is not in violation agreement with the U.S. and is not in violation of such agreementof such agreement

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Ineligible countries (continued):Ineligible countries (continued): A country affording preferential A country affording preferential

treatment to a product of a developed treatment to a product of a developed country which has a significant country which has a significant adverse effect on the U.S. commerceadverse effect on the U.S. commerce

A country nationalized or expropriated A country nationalized or expropriated the U.S. property, or violated patents, the U.S. property, or violated patents, trademarks, copyrights of a U.S. trademarks, copyrights of a U.S. citizen citizen

A country which fails to honor arbitral A country which fails to honor arbitral awardsawards

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)Ineligible countries (continued):Ineligible countries (continued):

A country which aids or grants a A country which aids or grants a sanctuary to international terrorists sanctuary to international terrorists

A country which is not taking steps A country which is not taking steps giving internationally recognized giving internationally recognized worker rights to its workersworker rights to its workers

A country that does not implement any commitments to eliminate the worst forms of child labor

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Generalized System of Generalized System of Preferences (GSP)Preferences (GSP)

Graduation & SuspensionGraduation & Suspension Graduation: Hong Kong, Singapore, Taiwan & Graduation: Hong Kong, Singapore, Taiwan &

S. Korea on 1/1/89, Malaysia 1/1/97 S. Korea on 1/1/89, Malaysia 1/1/97 Recently more countries were delisted.Recently more countries were delisted. Countries of Free Trade Agreement were Countries of Free Trade Agreement were

delisteddelisted Suspension: Suspension:

• Chile: 1988-1991 Chile: 1988-1991 • Thailand: 1989-1994 Thailand: 1989-1994 • Maldives 1995 Maldives 1995 • Miyanma 1997Miyanma 1997

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

Caribbean Basin Economic Recovery Act Caribbean Basin Economic Recovery Act of 1983 1/1/84-9/30/95 of 1983 1/1/84-9/30/95

Caribbean Basin Economic Expansion Act Caribbean Basin Economic Expansion Act of 1990 Extended to perpetuity of 1990 Extended to perpetuity

Caribbean and Central American countriesCaribbean and Central American countries

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)Eligibility Requirements:Eligibility Requirements:

A beneficiary developing country A beneficiary developing country E or E* in "Special" subcolumn of HTSUS E or E* in "Special" subcolumn of HTSUS Directly imported Directly imported Produced in a beneficiary country Produced in a beneficiary country

• Wholly (100%) the growth, product or Wholly (100%) the growth, product or manufacture manufacture

• Substantially transformed into a new and Substantially transformed into a new and different product different product

• 35% or more value added in one or more 35% or more value added in one or more beneficiary countries. General & beneficiary countries. General & Administrative expenses and profit are Administrative expenses and profit are excluded. excluded.

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

Not substantially transformed Not substantially transformed productsproducts Putting batteries in devices Putting batteries in devices Bolting, gluing or soldering Bolting, gluing or soldering Adding water to concentrates Adding water to concentrates Diluting chemicals Diluting chemicals Painting or applying decals or labelsPainting or applying decals or labels

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

Substantially transformed productsSubstantially transformed products Assembling a large number of components Assembling a large number of components

onto a printed circuit board onto a printed circuit board Mixing two bulk medicinal substances and Mixing two bulk medicinal substances and

repackaging into individual doses for retail repackaging into individual doses for retail sale. sale.

Adding water to a chemical compound under Adding water to a chemical compound under pressure resulting in a new chemical pressure resulting in a new chemical compound compound

A simple combining. packaging, or dilution A simple combining. packaging, or dilution operation coupled with another type of operation coupled with another type of processing such as fabricating or testingprocessing such as fabricating or testing

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)Items excluded from duty free entry Items excluded from duty free entry

Textiles and apparel Textiles and apparel Watch and watch parts containing Watch and watch parts containing

components from Non-NTR countriescomponents from Non-NTR countries Luggage, handbags, flat goods (wallet)Luggage, handbags, flat goods (wallet) Work glovesWork gloves Leather wearing apparel Leather wearing apparel Agricultural products subject to a tariff-Agricultural products subject to a tariff-

rate quotarate quota

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

Products of 100% U.S. components:Products of 100% U.S. components:

Duty-free entry except water, textile & apparel, Duty-free entry except water, textile & apparel, petroleum and petroleum products petroleum and petroleum products

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Caribbean Basin Initiative (CBI)Caribbean Basin Initiative (CBI)

Special Access Program (SAP) for CBI Special Access Program (SAP) for CBI TextileTextile

– Since the textile quota ended as of January 1, Since the textile quota ended as of January 1, 2005` this grogram does not have any effect 2005` this grogram does not have any effect anymore.anymore.

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Andean Trade Preference Act Andean Trade Preference Act (ATPA)(ATPA)

12/4/1991-12/4/2001, 12/31/2006: Trade Act of 2002. Extended to 12/31/2008

Bolivia, Colombia, Ecuador, Peru "J "or "J*" in the "Special" subcolumn of

Column 1 Min. 35% Regional Value Content (RVC)

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Andean Trade Preference Act Andean Trade Preference Act (ATPA)(ATPA)

Articles Excluded from Duty-free Entry Textiles & Apparel articles Footwear Tuna in airtight containers Petroleum and its products Watches and its parts Handbags, luggage, flat goods, work

gloves, leather apparel

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Andean Trade Preference Act Andean Trade Preference Act (ATPA)(ATPA)

Articles Excluded from Duty-free Entry (continued) Sugars, syrups, molasses Rum & tafia Agricultural product subject to tariff-

rate quotas

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Freely Associated States (FAS)Freely Associated States (FAS)

October 18, 1989. No expiry date Marshal Islands, Micronesia, Palau "Z" on Customs Form 7501, Entry

Summary Min. 35% RVC

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Freely Associated States (FAS)Freely Associated States (FAS)

Articles Excluded from Duty-free Entry Textiles & apparel articles Footwear, handbags, luggage, flat goods, work

gloves, leather wearing apparel Watches, clocks, timing apparatus Buttons Tuna & skipjack in airtight containers in

excess quantity afforded duty-free Agricultural products

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African Growth & Opportunity Act African Growth & Opportunity Act (AGOA)(AGOA)

October 1, 2000-September 30, 2008 & October 1, 2000-September 30, 2008 & 9/30/20159/30/2015

Sub-Saharan African countries Sub-Saharan African countries ““D” in “Special” subcolumn of Column 1 D” in “Special” subcolumn of Column 1

of HTSUS of HTSUS Certain textiles & apparel articles: Duty & Certain textiles & apparel articles: Duty &

quota-free quota-free Min. 35% RVCMin. 35% RVC

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U.S.-Caribbean Trade U.S.-Caribbean Trade Partnership Act (CBTPA)Partnership Act (CBTPA)

October 1, 2000-September 30, 2008 or October 1, 2000-September 30, 2008 or FTA entry date, whichever comes firstFTA entry date, whichever comes first

Caribbean and Central American countries Caribbean and Central American countries (fewer countries than CBI) (fewer countries than CBI)

““R” in “Special” subcolumn of Column 1 R” in “Special” subcolumn of Column 1 of HTSUS of HTSUS

More trade benefits than the initial CBI More trade benefits than the initial CBI Certain textile & apparel articles: Duty & Certain textile & apparel articles: Duty &

quota-free quota-free 50% RVC under net cost. 60% under 50% RVC under net cost. 60% under

transaction value transaction value

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Maquiladora ProgramMaquiladora Program Launched as Border Industrialization Launched as Border Industrialization

Program by the Mexican government in Program by the Mexican government in 1966 after the end of 23-year Bracero 1966 after the end of 23-year Bracero Program in1965Program in1965

Mexican Corporation operating under In-Mexican Corporation operating under In-Bond Program of MexicoBond Program of Mexico

Mexican production facilities processing Mexican production facilities processing or assembling components into finished or assembling components into finished products for exportationproducts for exportation

Partly or entirely owned by non-MexicansPartly or entirely owned by non-Mexicans

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Tariff No. 9802.00.80 of Chapter Tariff No. 9802.00.80 of Chapter 98 of Harmonized Tariff Schedule 98 of Harmonized Tariff Schedule of the U.S. (HTSUS):of the U.S. (HTSUS):– Articles Exported and Returned, Articles Exported and Returned,

Advanced or Improved AbroadAdvanced or Improved Abroad

– Permits only assembly operation Permits only assembly operation abroadabroad

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Maquiladoras & the U.S.Maquiladoras & the U.S.

(1) Procedures of Maquiladora Operation

U.S. parts, components, equipment and machinery are imported into Mexico duty-free

Parts and components assembled into the products

Pays U.S. import duty only on the value added in Mexico, when finished products are imported into the U.S.

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Maquiladoras & the U.S.Maquiladoras & the U.S.(2) Requirements by HTSUS (2) Requirements by HTSUS Components ready for assembly without Components ready for assembly without

further fabrication further fabrication Have not lost physical identity Have not lost physical identity Have not advanced in value except Have not advanced in value except

assembly processassembly process

(3) Items Excluded: (3) Items Excluded: Raw materials such as Chemicals, Food Raw materials such as Chemicals, Food

ingredients, Gases, Liquid & Powderingredients, Gases, Liquid & Powder

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Maquiladoras & the U.S.Maquiladoras & the U.S.

(4) Documents for Finished Goods (4) Documents for Finished Goods

Importer must file with the U.S. Importer must file with the U.S. Customs & Border ProtectionCustoms & Border Protection

Commercial Invoice Commercial Invoice Declaration by the Assembler Declaration by the Assembler Endorsement by the ImporterEndorsement by the Importer

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Benefits to MexicoBenefits to Mexico

Provides Mexico with employments Provides Mexico with employments – Higher wages than domestic Mexican factoriesHigher wages than domestic Mexican factories

Provides Mexico with foreign exchangeProvides Mexico with foreign exchange – More than tourismMore than tourism– 22ndnd foreign exchange provider after oil foreign exchange provider after oil

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Benefits to U.S. BusinessesBenefits to U.S. Businesses Mexico's large, low-cost, highly trained Mexico's large, low-cost, highly trained

work force: 8 to 13% of the U.S. wagework force: 8 to 13% of the U.S. wage Relaxed environmental and worker-safety Relaxed environmental and worker-safety

standards standards Quick access to the U.S. consumer market Quick access to the U.S. consumer market

– Lower inventory requirements, lower Lower inventory requirements, lower transportation costs and lower insurance transportation costs and lower insurance costs than Asian factoriescosts than Asian factories

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Maquiladoras & the U.S.Maquiladoras & the U.S.Entry Options for Maquiladora Subcontracting

– With a maquiladora to manufacture products on a per-piece cost basis.

– Can quickly find out cost savings and production quality

Shelter Program – U. S. firm manages assembling activities– Contracts out administrative tasks to a

Mexican firm at a pre-determined rate per hour Ownership

– 100% owned by a U.S. person

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Maquiladoras & the U.S.Maquiladoras & the U.S.Most Promising Products Most Promising Products In 2000, 4,000 plants employing 1,300,000 In 2000, 4,000 plants employing 1,300,000

workersworkersMore of U.S. factories for time-sensitive More of U.S. factories for time-sensitive

products in Asia are expected to move to products in Asia are expected to move to Mexico Mexico

Besides U.S. and Canadian firms, Asian Besides U.S. and Canadian firms, Asian companies started production operation in companies started production operation in maquiladora for U.S. marketmaquiladora for U.S. market

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Most Promising ProductsMost Promising Products

Highly labor-intensive productsHighly labor-intensive products Electronics, Apparel, Auto parts, Furniture, Electronics, Apparel, Auto parts, Furniture,

Toys, Sporting GoodsToys, Sporting Goods

Time-sensitive productsTime-sensitive products Fashionable goods: Apparel, ToysFashionable goods: Apparel, Toys

Bulky productsBulky products Transportation containers for domestic and Transportation containers for domestic and

international transportationinternational transportation

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Maquiladoras & the U.S.Maquiladoras & the U.S.Labor Management & Environment Labor Management & Environment Labor turnover up to 25%: the biggest Labor turnover up to 25%: the biggest

headacheheadache To reduce high labor turnoverTo reduce high labor turnover

– Locate in the interior far from the borderLocate in the interior far from the border– Train supervisorsTrain supervisors– Introduce good work ethicsIntroduce good work ethics– Provide incentive programs to prevent Provide incentive programs to prevent

absenteeismabsenteeism

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Maquiladoras & the U.S.Maquiladoras & the U.S.

Environmental Problems (Air, Water, & Environmental Problems (Air, Water, & Hazardous waste) Hazardous waste) – Factories toxic materials including solvents, Factories toxic materials including solvents,

heavy metals and dangerous chemicals heavy metals and dangerous chemicals – Lack of sewage and water treatment plants Lack of sewage and water treatment plants – More relaxed Mexican environmental laws More relaxed Mexican environmental laws – Lack of enforcement by Mexican governmentLack of enforcement by Mexican government – Mexico must improve environment to shed the Mexico must improve environment to shed the

image of a polluter's haven image of a polluter's haven