Title: Andean Trade Promotion
1 Andean Trade Promotion Drug Eradication Act
- Whats In, Whats Not
- A Practical Guide To the
- New ATPA Preferences
- Presented by
- Brenda A. Jacobs
- Sidley Austin Brown Wood LLP
- September 2002
2Overview
- Scope
- IN Covers any product not specifically excluded
- OUT Excluded products
textiles other than certain apparel and
certain luggage,
rum and tafia,
sugars, syrups and
sugar-containing products subject to TRQs,
tuna other
than in flexible foil pouches
3Overview
- Scope, continued
- PROBABLY included unless identified as import
sensitive
Footwear,
petroleum and petroleum products,
watches and watch parts,
handbags, luggage, flat goods, work gloves and
leather wearing apparel
4Overview
- When do benefits become available?
- Upon enactment on August 6, previously eligible
products were once again duty-free - Retroactive duty-free treatment, for previously
eligible goods entered between December 5, 2001
and August 5, 2002 - But requests for refunds must be filed with U.S.
Customs within 180 days of August 6.
5Overview
- New benefits wont be available until Colombia is
designated as a beneficiary country and, for some
products, until the import sensitivity review is
completed, but may be retroactive to August 6 - Reduced duty goods under the old ATPA currently
have no benefits
6Overview
- Apparel tariff preference level (cap) effective
October 1, - BUT country designation has to occur first, as
well as confirmation of NAFTA-like Customs
procedures
7Overview
- Benefits last only through December 31, 2006.
- The apparel cap lasts through September 30, 2007.
- A seeming contradiction but the result the
duty-free benefits under the cap expire 12/31/06.
8ATPA Non-textile Benefits
- Some products are automatically duty-free
- Others will not be duty-free until a
determination is made that they are not import
sensitive in the context of imports from the
region - But implementation could be retroactive.
- Import sensitivity review process is likely to
take several months.
9Import Sensitivity Review
- Import sensitivity review
- Investigation by the U.S. International Trade
Commission, which will make recommendations to
the Trade Policy Staff Committee (chaired by the
U.S. Trade Representatives office) - Expect a USITC hearing and briefing process
10Import Sensitivity Review
- Import sensitivity review, continued
- TPSC may hold a hearing, too, and will make a
recommendation to the President - The President declares by Proclamation which
products are eligible - Qualifying products will be identified in the
Harmonized Tariff Schedule with a J or J in
the Special Column
11ATPA Non-textile Benefits
- Duty-free access is based upon meeting the
following rules - Products must meet the value added requirements
(35 percent, up to 15 percent of which may be
accounted for by US content, in terms of cost or
value) - Products must be substantially transformed into a
product of a beneficiary country - Products must be imported into the U.S. directly
from the beneficiary country
12ATPA Non-textile Benefits
- For purposes of identifying whether the Andean
content is met, content from other ATPA
beneficiary countries and from Caribbean Basin
Initiative beneficiary countries may be counted - 35 percent must consist of
- local materials or U.S. materials (up to 15
percent) and - direct costs of processing within beneficiary
countries
13ATPA Non-textile Benefits
- Imported materials may be counted toward the 35
percent if they are substantially transformed
into new and different constituent materials of
the which the product is composed. - This is usually referred to as a double
substantial transformation - Example
- imported leather which is cut and sewn into an
upper and then assembled into a complete shoe
14ATPA Non-textile Benefits
- Direct costs of processing include
- all labor costs involved in production,
- fringe benefits,
- on-the-job training,
- costs of quality control and supervisory
personnel, - dies and molds,
- equipment depreciation, and
- inspection and testing costs.
- Does NOT include profit and general expenses.
15ATPA Non-textile Benefits
- For purposes of meeting the direct shipment
requirement, shipment through or from another
ATPA beneficiary country is permitted. - a product may not pass through the territory of
any other country, or if shipped through another
territory, must not have entered the commerce of
that country while en route to the U.S. - invoices, bills of lading, and other documents
must show the U.S. as the final destination.
16ATPDEA v. CBTPA
- ATPDEA duty-free treatment for goods that meet
the 35 local content, substantial
transformation, direct shipment rule of origin
(non-apparel) - CBTPA only has NAFTA parity for newly
designated products, meaning the current NAFTA
duty rate based upon meeting the more stringent
NAFTA rules of origin
17ATPA Non-textile Benefits
- Tuna Duty-free if harvested by U.S. or ATPDEA
beneficiary country vessels, and - prepared or preserved in an ATPDEA beneficiary
country in foil or other flexible airtight
containers weighing not more than 6.8 kg each,
and - imported directly into the U.S. from an ATPDEA
country
18Tuna
- ATPDEA vessel is one
- which is registered or recorded in an ATPDEA
beneficiary country, - which sails under the flag of an ATPDEA
beneficiary country, - which is at least 75 owned by nationals of an
ATPDEA beneficiary country or by a company having
its principal place of business in an ATPDEA
beneficiary country . . . . ,
19Tuna
- ATPDEA vessel is one, continued
- of which the master and officers are nationals of
an ATPDEA country, and - of which at least 75 of the crew are nationals
of an ATPDEA beneficiary country.
20Textile Benefits
- In the textile sector, apparel gets benefits
- BUT benefits also for textile luggage if made
from U.S. fabric/U.S. yarn - No benefits for the export of yarns or fabrics
- No benefits for household textile furnishings,
such as bed linens or towels - No benefits for textile accessories, handbags.
21Apparel Benefits
- Apparel made from U.S. formed fabric or from
components knit-to-shape in the U.S. - Either U.S. or Andean origin yarns may be used
Yarns must be formed (spun or extruded) in the
United States or Andean countries - Does not matter whether some or all of the
cutting to shape occurs in the U.S. or in Andean
countries
22Apparel Benefits
- Apparel made from U.S. formed fabric, or U.S.
k-t-s components, continued - Assembly in Andean countries
- Unlimited duty-free treatment
- Any dyeing, printing or finishing of U.S. fabrics
must occur within the United States - U.S. dyeing, printing and finishing requirement
does NOT apply to garment finishing processes
23Apparel Benefits
- Apparel made from fabrics or fabric components
formed or components knit-to-shape in ATPDEA
beneficiary countries from yarns wholly formed in
ATPDEA beneficiary countries in chief value of
llama, alpaca or vicuna. - Unlimited duty-free treatment.
24Apparel Benefits
- Unlimited duty-free treatment for apparel made
from fabrics or yarns in short supply - short supply cannot be supplied by the domestic
industry in commercial quantities in a timely
manner - As already identified under Annex 401 of the
NAFTA - Yarns or fabrics as additionally identified and
proclaimed by the President.
25Short Supply NAFTA Annex 401
- fine count cotton knitted fabrics
- linen
- silk
- cotton velveteen
- fine wale corduroy
- Harris Tweed
- certain woven fabric made with animal hairs
- certain lightweight, high thread count
poly-cotton woven fabrics - certain lightweight, high thread count broadwoven
fabrics used in the production of mens boys
shirts
26Short Supply
- List can be expanded by the President, with
advice from advisory committees and the US
International Trade Commission - President will delegate this authority to the
Committee for the Implementation of Textile
Agreements, CITA
27Short Supply
- Administrative process takes at least 120 days
total. - Once a request is filed, CITA has 60 days to
decide on the request - Then a 60 day Congressional layover
- So far, a few products have been added to the
lists, for CBTPA and AGOA. - Note separate lists, separate determinations for
each preference program
28Short Supply
- Conference report notes that where fabrics or
yarns identified as short supply impart the
essential character of an article, the remaining
textile components may be constructed of fabrics
or yarns regardless of origin, as under NAFTA
Annex 401
29Apparel Benefits
- Apparel made from regionally formed fabric
- Either U.S. or Andean origin yarns may be used
Yarns must be formed (spun or extruded) in the
United States or Andean countries - Regardless of whether the garment also contains
U.S. formed fabrics or short supply fabrics/yarns
(hybrid issue) - Assembled entirely in the Andean countries.
30Apparel Benefits
- Apparel made from regionally formed fabric,
continued - Duty-free treatment subject to an annual cap
- Cap covers 10/1-9/30 annual period
- First cap, for 10/1/02 - 9/30/03, set at a level
equal to 2 percent of total apparel imports - Likely to be based upon year ending July 2002 data
31Apparel Benefits
- Apparel made from regionally formed fabric,
continued - Cap gradually increases, by 0.75 each year, to
reach 5 percent in the 5th year. - Put this in context total apparel from the 4
ATPDEA countries has generally been less than 1
of total apparel imports and not all apparel
imports will fall under the cap
32Apparel Benefits Bras
- Unlimited benefit, subject to conditions.
- A single-transformation rule only applies to
bras classified under HTS 6212.10, cut in either
the U.S. or ATPDEA countries and sewn in ATPDEA
countries - Expectation is that most of the fabric used to
make these bras will be woven in the U.S. (It
does not matter whether U.S. yarn is used yarn
origin is irrelevant.)
33Apparel Benefits Bras
- During each annual period beginning 10/1/03, at
least 75 of the aggregate declared customs value
of the fabrics used, not counting findings and
trimmings, must be formed in the U.S. - by producer or entity controlling production
- only production for which the brassiere duty-free
treatment is claimed is counted - excludes production under other provisions or for
which no benefit is claimed
34Apparel Benefits Bras
- Failure to meet the 75 standard means the
producer's bras will not be accorded duty-free
treatment under this provision during any
succeeding years, until - the producer proves that at least 85 of the
aggregate cost of the fabric components used to
produce the bras during the previous one-year
period is attributable to U.S. formed fabric.
35Apparel Special Rules
- OK to use findings and trimmings of foreign
origin, so long as they do not exceed 25 of the
cost of the components of the assembled product. - Examples of findings trimmings are sewing
thread, hooks eyes, snaps, buttons, bow buds,
decorative lace, trim, elastic strips, zippers,
zipper tapes, labels. - Note that elastic strips are not limited to
brassiere straps
36Apparel Special Rules
- Pocketing and interlinings are FABRICS, not
findings and trimmings. Therefore, they must be
U.S. or regional products. - Certain interlinings may be foreign origin
because they are not available in the U.S. - But such permitted foreign interlinings will be
counted against the 25 percent cost allowance for
foreign findings and trimmings
37Apparel Special Rules
- Permissible foreign interlinings are
- chest type plate, hymo piece, or sleeve
header, - of woven or weft-inserted warp knit construction
and - of coarse animal hair or man-made filaments
38Apparel Special Rules
- 7 de minimis rule allows some foreign yarns,
so long as the total weight of these foreign
yarns does not account for more than 7 of the
total weight of the finished garment.
39Apparel Special Rules
- Certain nylon filament yarns may be from Israel,
Mexico, or Canada. - Classified under HTS subheadings 5402.10.30,
5402.10.60, 5402.31.30, 5402.31.60, 5402.32.30,
5402.32.60, 5402.41.10, 5402.41.90, 5402.51.00,
or 5402.61.00 - But not elastomeric yarn (must be U.S. or Andean
origin or within the 7 percent de minimis if
foreign)
40Apparel ATPDEA v. CBTPA
- ATPDEA less categorization
- CBTPA has 3 groups for apparel made from U.S.
fabric while ATPDEA has only one - depending upon where the fabric is cut and
whether the garment is subject to finishing
operations, such as stone-washing or embroidery
41Apparel ATPDEA v. CBTPA
- ATPDEA Use of regional yarns
- Under CBTPA, only garments made with U.S. yarns
get benefits while under ATPDEA fabrics made in
the U.S. and the Region can be made from either
U.S. or Andean yarns
42Apparel ATPDEA v. CBTPA
- ATPDEA For apparel made from regional fabrics,
both knits and wovens get duty-free, quota-free
access - Under CBTPA, the regional apparel benefit is
limited to knit apparel
43Apparel ATPDEA v. CBTPA
- ATPDEA right to use any thread to assemble
apparel or luggage - Under CBTPA, only U.S. thread may be used to
assemble apparel or luggage made from U.S. formed
fabrics from U.S. formed yarns
44Apparel ATPDEA v. CBTPA
- ATPDEA No t-shirt cap
- Under CBTPA, there is a separate cap on
non-underwear t-shirts - ATPDEA Benefits for socks
- CBTPA excludes socks from benefits
45Textile Luggage
- Unlimited duty-free treatment for textile luggage
assembled in an ATPDEA beneficiary country from
fabric wholly formed in the U.S. from yarns
wholly formed in the U.S., ,whether cut in the
U.S. or cut in the Andean region
46 Handloomed, Handmade, Folklore Articles
- U.S. and each Andean country may consult to reach
agreement identifying textile products that may
be certified by an Andean Government as
qualifying and therefore unlimited duty-free - hand-loomed fabrics of a cottage industry
- hand-made cottage industry goods made of such
hand-loomed fabrics or - traditional folklore handicraft goods
47Cautions on Textile Benefits
- Colombia has a comprehensive visa arrangement,
under which all textile and apparel shipments are
subject to a visa/export license requirement - Mens Boys Wool Suits, category 443, are
subject to quota. - 443 merchandise that qualifies for duty-free
access is outside the quota, but 443 goods that
do not qualify will be subject to quota
limitations
48Caution on Benefits Safeguard
- A duty snap-back can be imposed by the U.S.,
following consultations, in accordance with the
procedures established under NAFTA (in the event
that increased duty-free imports are causing
serious damage to a domestic industry). - But, unlike NAFTA, no compensation provided
(since this is not a reciprocal agreement
situation).
49Cautions On Apparel Benefits
- Fear of cheating -- illegal transshipment
- Defined broadly claiming preferential treatment
on the basis of false information concerning
country of origin, manufacture, processing or
assembly of the article or any of its components - That is, falsely claiming a preference even if
origin is correct will be considered
transshipment.
50Cautions On Apparel Benefits
- Penalties for exporters denial of benefits under
ATPDEA for up to 2 years - Unstated penalty a bad visit by U.S. Customs and
resulting increased scrutiny of shipments,
discouraging business - Factories need to prepare for visits by U.S.
Customs and have the necessary records on site.
51Factory Visits - Compliance
- Foreign factory visits by U.S. Customs are a lot
like customs audits of U.S. importer facilities - They include
- a review of the company's records, with a focus
on a specific entry or several entries into the
U.S. market and - an inspection of the company's facilities
52What Is Customs Looking For?
- 1. Compliance with the rules of the ATPDEA
- Do your goods qualify for duty-free access to the
U.S. market? - Do your production documents prove it?
- 2. Illegal transshipment
- Are you correctly identifying the country
of origin of your goods? - Do your production documents prove it?
53Factory Visits
- Customs reports on visits to CBTPA countries
indicate that many factories are not maintaining
the required documentation at the factories - Even if U.S. fabric used, the records have to be
maintained in the apparel manufacturing facility
to prove that it is U.S. fabric from U.S. yarn.
54Cautions On Apparel Benefits
- Penalties for countries, for failure to take all
necessary actions to prevent transshipment,
reduction of apparel trade, by 3 times the amount
illegally transshipped, to the extent consistent
with WTO obligations - Such reductions in trade would not be consistent
with the WTO.
55Implementation Issues
- U.S. Customs needs to issue regulations, to
identify how the qualifying products should be
identified (by groupings) - Separate rules expected for brassieres
56Certificate of Origin
- The regulations will include a Certificate of
Origin form. - Importers claiming duty-free treatment will have
to have in their possession at the time of entry
a Certificate of Origin prepared by the exporter
in the ATPDEA country supporting the claim.
57Customs Procedures
- Certificate of Origin must be presented to
Customs if requested, but is not part of the
entry package. - Failure to document qualification for preferences
may result in duties being owed on shipments. - 5 Year record retention requirement.
58Eligibility Determination
- President also has to issue a determination that
each country has implemented or follows or is
making substantial progress toward implementing
or following procedures and requirements similar
in all material respects to the procedures and
requirements under Chapter 5 of NAFTA.
59Eligibility Determination
- NAFTA Chapter 5 addresses
- Certificate of origin requirements for importers
and exporters - Recordkeeping- 5 year retention rule
- Origin verifications through written
questionnaires or visits - Confidentiality of business information
- Maintenance of criminal, civil or administrative
penalties for violations - government to government cooperation
60Eligibility Determination
- New benefits will not apply until the President
designates each country as a beneficiary, based
upon ATPDEA criteria - For example, whether a country undertakes its WTO
obligations and participates in FTAA, - extent to which it provides internationally
recognized worker rights, e - extent to which it meets anti-drug
certifications, - whether it is a party to the Inter-American
Convention Against Corruption . . . .
61Eligibility Determination
- U.S. Trade Representative currently soliciting
comments on whether each of the ATPDEA countries
meet the eligibility criteria - President has authority to withdraw or suspend
beneficiary designation - A new annual review process will be established,
similar to GSP program review
62Conclusions
- ATPDEA offers significantly better benefits than
CBTPA - Maximizing sales through these benefits is also
dependent upon minimizing the risks of error. - Compliance with the rules is key.
63 Andean Trade Promotion Drug Eradication Act
- Brenda A. Jacobs
- Sidley Austin Brown Wood LLP
1501 K Street NW
Washington, DC 20005 202-736-8149 voice
202-736-8711 fax
bjacobs_at_sidley.com