With all the discussion concerning the new U.S.-Korea Free Trade Agreement, I am thinking of sourcing products in Korea to take advantage of duty free treatment. What do I need to know about the trade agreement?
The US-Korea FTA is only one of a number of FTA’s to which the U.S. is a party. FTA’s provide excellent opportunities for companies involved in international trade to save money when importing into the U.S. However, using the FTA to your advantage involves much more than just purchasing the goods from Korea.
Each FTA, including the US-Korea, has specific rules of origin that must be reviewed prior to making a claim for preferential duty treatment. In the case of US-Korea, the importer is responsible for ensuring that the goods do in fact qualify for preferential duty treatment under these rules. Thus, they should work closely with their supplier to determine first, if the supplier is familiar with the rules of origin and second, if the goods do qualify for preferential duty treatment.
The rules can be difficult to understand but basically there are several criteria with the first involving whether or not the product “wholly originates” under the rules. This is a difficult criterion to meet for any manufactured product as each and every component would need to “wholly originate” in Korea.
The second criterion is more prevalent and is commonly referred to as the “tariff shift” rules of origin. This analysis involves looking at the classification of the product in question and then reviewing all of the components within that product. Those that do not originate in US or Korea must meet a specific “tariff shift” rule of origin. These rules can involve both a change in classification for non-originating components and possible regional value content. However, it is very important to understand that the rules are not strictly a “value added” test, i.e., being more than 50% Korean origin, etc.
The good news is that most of the FTA’s use the same types of origin rules, thus once you understand the rules for purposes of US-Korea, and then you should be able to apply that knowledge to other FTA’s such as the NAFTA.
The TradeLaw Q&A column addresses your questions concerning the import and export regulations of the United States. Paula Connelly is principal in the Law Offices of Paula M. Connelly and has over 25 years of experience in Customs law and related import and export matters. She works with businesses of all sizes providing advice on all aspects of international trade law. She can be reached at paula@connellycustomslaw.com or 781-897-1771.
Disclaimer – Material presented in this column is intended for information purposes only. It is not intended as legal advice and should not be construed as such.
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