Into the Sunset
Here’s a fast way to figure current tariffs while they phase out under FTAs
by Bill Armbruster, blog anchor
Exporters and importers who expect all tariffs to be eliminated once a Free Trade Agreement takes effect may be in for a rude awakening. It turns out that free trade is not entirely free, even under FTAs.
The majority of goods typically become duty free immediately, but tariff reductions are often phased out over many years. In most cases, it’s at least five years, but for some products, it may be 10, 15, or even 20 years. It wasn’t until 2008 – 15 years after the passage of NAFTA – that all tariffs on goods traded among the US, Canada and Mexico were completely eliminated.
No two FTAs are exactly the same. They often require years of painstaking negotiations followed by years of political wrangling before they finally take effect. FTAs cover a wide spectrum of issues, including tariffs, quotas, non-tariff barriers, plus rules on investment, services and intellectual property protection. But tariffs are by far the most important element.
If you’re an exporter or importer looking to take advantage of a specific FTA, it’s vital to know whether the tariffs on your product have been completely eliminated, and if not, how they are being phased out. But the FTA tariff schedules typically run several hundred pages, and making your way through them can be a very tedious and frustrating process.
Thankfully, the US Department of Commerce has a nifty service called the FTA Tariff Tool that makes it a lot easier to determine the tariff on your product. The tool includes a very helpful short video.
Here’s how the tariff tool works. You can start either by identifying the particular country you’re targeting or your specific product. The tariff tool provides a dropdown box listing the 20 countries with which the US has FTAs.
Products are identified by their HS Code numbers. All countries use the same 2-, 4-, and 6-digit code numbers under the internationally accepted Harmonized System of commodity classification, but some countries may append as many as 6 digits more to identify specific products. If you do not know the HS code for your product, the US Census Bureau’s Schedule B Search Engine can help you determine it.
Once you identify the target market and your HS Code, the tariff tool works like bingo. It provides the HS Code’s Tariff Line Description. The descriptions in some FTAs, such as Colombia, are in Spanish, but the tariff tool also provides a subheading description in English. If the product is not immediately duty-free, the tariff tool tells you how much the tariff is being reduced each year until the product becomes duty free.
The tariff is especially helpful for exporters seeking to capitalize on the new FTAs with Korea, Colombia and Panama, but it’s also very useful with other FTAs, especially those that have taken effect relatively recently, such as the Central America Free Trade Agreement, which covers fives countries plus the Dominican Republic. That’s because many of those tariffs are still being phased out.
This is how the Colombia FTA treats tariffs for US exports of seat belts in motor vehicles. Before the FTA took effect on May 15 of this year, the rate was 15%. It immediately fell to 12%, and will be reduced by 3% in each of the next four years until seat belts are completely duty-free in 2016. The rate on seat belt exports to Korea was 8%, but was completely eliminated when the FTA took effect on March 15. The FTA with Panama is still pending approval by the Panamanian legislature, but the rate will drop from 5% to zero as soon as it takes effect.
The tariff tool works the same way for imports into the US. The rate on seat belt imports from Korea, for example, had been 2.5%, but dropped to zero immediately.
You can also use the tariff tool to do market research and get tariff and trade snapshot information. You can start with broad categories, such as electrical machinery. Then you can narrow your focus to more specific segments, such as electric motors and generators. You can also compare US tariffs with those of the FTA partner.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected].
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: October 24, 2012