Savings Strategies: FTAs and Preference Programs

There are a number of duty savings strategies companies can use to conserve cash, lower customs duties and tariffs, and seek refunds. These strategies are always a high priority for businesses involved in international trade, but particularly so in today’s volatile environment. This is another in ST&R’s series of articles examining these strategies in more detail and covers the use of free trade agreements and trade preference programs.

The U.S. has 14 FTAs encompassing major trading partners like Canada, Mexico, Korea, and Australia as well as smaller countries like Chile, Colombia, Morocco, and Singapore. For trade between the U.S. and partner countries, FTAs eliminate ordinary duties (even if additional tariffs like those currently on the horizon are imposed) and lower a wide range of non-tariff barriers on goods and services. In addition, for imports into the U.S., FTAs can benefit otherwise duty-free products by exempting them from the merchandise processing fee.

Additionally, preference programs like the Generalized System of Preferences (though congressional authorization for this program has been lapsed for several years), the Caribbean Basin Initiative, the African Growth and Opportunity Act, and the Haiti HELP and HOPE acts allow unilateral duty-free and reduced duty treatment to imports from more than 100 developing countries. 

However, rules for taking advantage of these benefits often differ between and even within each FTA and preference program. These rules may also be subject to change if the U.S. renegotiates or revises the agreements, as it did with NAFTA and is considering with the potential renewal of GSP and extension of AGOA.

Moreover, U.S. Customs and Border Protection has established trade agreements as a priority trade issue to ensure that only qualifying goods get favorable duty treatment. CBP closely scrutinizes imports claiming such treatment to protect against violations like fraudulent trade practices, transshipment, false importer claims, undervaluation, and undercounting of goods.

Complying with FTA and preference program requirements can be a complex task. Importers must be able to document eligibility for claims of preferential treatment and maintain recordkeeping systems to support those claims. Effective internal policies, procedures, and controls are vital to help importers promote compliance and avoid violations. If trouble does arise, trusted partners like ST&R can be a valuable resource in mitigating the impact of CBP enforcement actions like inquiries, validations, and audits.

For more information on how your business can take advantage of FTAs and preference programs, or create internal controls to defend your FTA and preference program savings, please contact Mark Tallo at (202) 730-4968 or via email.