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

2 Generalized System of Preferences (GSP)  Grants duty-free entry to specified products from designated developing countries  Took effect on 1/1/76 for 10 years by Trade Act of 1974  Since then, expired and been renewed retroactively several times  Current status: U.S. Trade Representative U.S. Trade RepresentativeU.S. Trade Representative  Started with approximately 4,400 items eligible from 140 designated beneficiary countries & territories.  4,800 items from 127 countries as of 1/1/ 2011

3 Generalized System of Preferences (GSP)  Eligibility Requirements:  A beneficiary developing country designated by the President  A or A* or A+ in "Special subcolumn of Column 1 of the Harmonized Tariff Schedule of the United States (HTSUS)  Directly imported into the USA  Produced in a beneficiary country Wholly (100%) the growth, product or manufacture of a beneficiary countryWholly (100%) the growth, product or manufacture of a beneficiary country Substantially transformed into a new and different productSubstantially transformed into a new and different product

4 Generalized System of Preferences (GSP)  Produced in a beneficiary country (continued)  The sum of the cost or value of the materials and direct cost of processing operations in the beneficiary country, not less than 35% of the appraised value at the time of entry into the U.S.  General and Administrative (G&A) expenses and profit not considered as direct cost of process operations.  A Certificate of Origin Form A of the UNCTAD not required for customs clearance but must be submitted if requested by U.S. Customs

5 Generalized System of Preferences (GSP)  Ineligible Articles –Textile and apparel articles –Watches – Footwear – Handbags, luggage, flat goods – Work gloves – Leather apparel –Import-sensitive Electronic Articles, Steel, and Glass –Agricultural products of tariff-rate quota –Articles determined to be import-sensitive by the President

6 Generalized System of Preferences (GSP)  Competitive Need Limits: A country loses its GSP eligibility for a product when the U.S. imports from that country  either account for 50 % or more of the value of the U.S. total imports  either account for 50 % or more of the value of the U.S. total imports or  Exceeds a specific annual adjusted value set at $75 million in 1996 with annual increase of $5 million. The value limit increased to $145 million in  Terminates July 1 of the next calendar year

7 Generalized System of Preferences (GSP)  Ineligible countries  A Communist country. But eligible if such country (a) receives Normal Trade Relations (NTR) treatment, (b) is a member of WTO and IMF, (c) and is not dominated or controlled by international communism.  A member or a party to an arrangement of foreign countries such OPEC (a) to hold vital commodity resources from international market or raise price to an unreasonable level and (b) cause serious disruption of world economy But eligible if it is a party to a trade agreement with the U.S. and is not in violation of such agreementBut eligible if it is a party to a trade agreement with the U.S. and is not in violation of such agreement

8 Generalized System of Preferences (GSP)  Ineligible countries (continued):  A country affording preferential treatment to a product of a developed country which has a significant adverse effect on the U.S. commerce  A country nationalized or expropriated the U.S. property, or violated patents, trademarks, copyrights of a U.S. citizen  A country which fails to honor arbitral awards

9 Generalized System of Preferences (GSP)  Ineligible countries (continued):  A country which aids or grants a sanctuary to international terrorists  A country which is not taking steps giving internationally recognized worker rights to its workers  A country that does not implement any commitments to eliminate the worst forms of child labor

10 Generalized System of Preferences (GSP)  Graduation & Suspension  Graduation: Hong Kong, Singapore, Taiwan & S. Korea on 1/1/89, Malaysia 1/1/97  Recently more countries were delisted. Per capita income set at $12,196 in 2010  Countries of Free Trade Agreement were delisted  Suspension: Chile: Chile: Thailand: Thailand: Maldives: 1995Maldives: 1995 Myanma: Since1997Myanma: Since1997

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12 Caribbean Basin Initiative (CBI) A. Caribbean Basin Economic Recovery Act of 1983 (CBERA) B. U.S. Caribbean Basin Trade Partnership Act of 2000 (CBTPA)  Caribbean and Central American countries

Caribbean Basin Economic Recovery Act (CBERA)  Caribbean Basin Economic Expansion Act of 1990 expanded the CBERA and made it permanent.  18 beneficiary countries as of 1/1/2011  Eligibility Requirements:  A beneficiary developing country  E or E* in "Special" subcolumn of HTSUS  Directly imported 13

14 Caribbean Basin Economic Recovery Act (CBERA)  Eligibility Requirements (cont.):  Produced in a beneficiary country Wholly (100%) the growth, product or manufactureWholly (100%) the growth, product or manufacture Substantially transformed into a new and different productSubstantially transformed into a new and different product 35% or more value added in one or more beneficiary countries. General & Administrative expenses and profit are excluded.35% or more value added in one or more beneficiary countries. General & Administrative expenses and profit are excluded.

15 Caribbean Basin Economic Recovery Act (CBERA)  Not substantially transformed products  Putting batteries in devices  Bolting, gluing or soldering  Adding water to concentrates  Diluting chemicals  Painting or applying decals or labels

16 Caribbean Basin Economic Recovery Act (CBERA)  Substantially transformed products  Assembling a large number of components onto a printed circuit board  Mixing two bulk medicinal substances and repackaging into individual doses for retail sale.  Adding water to a chemical compound under pressure resulting in a new chemical compound  A simple combining. packaging, or dilution operation coupled with another type of processing such as fabricating or testing

17 Caribbean Basin Economic Recovery Act (CBERA)  Items excluded from duty free entry  Textiles and apparel  Watch and watch parts  Luggage, handbags, flat goods (wallet)  Work gloves  Leather wearing apparel  Agricultural products subject to a tariff- rate quota

18 Caribbean Basin Economic Recovery Act (CBERA)  Products of 100% U.S. components: Duty-free entry except water, textile & apparel, petroleum and petroleum products

19 U.S.-Caribbean Basin Trade Partnership Act (CBTPA)  Took effect on October 1, 2000  Expires on FTA entry date  Caribbean and Central American countries: 8 countries as of 1/1/2011  “R” in “Special” subcolumn of Column 1 of HTSUS  More eligible articles including those excluded under the CBERA  Certain textile & apparel articles: Duty & quota- free, if fabrics of U.S. origin yarn cut in the U.S. & assembled in the Caribbean countries  50% RVC under net cost. 60% under transaction value –NAFTA equivalent treatment

20 Andean Trade Preference Act (ATPA)  Orinally 10 years12/4/ /4/2001.  Since then, expired and been renewed retroactively several times  Current status: U.S. Trade Representative  Bolivia, Colombia, Ecuador, Peru  Bolivia suspended in 2008  FTAs with Colombia and Peru  "J "or "J*" in the "Special" subcolumn of Column 1  Min. 35% Regional Value Content (RVC)

21 Andean Trade Preference Act (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

22 Andean Trade Preference Act (ATPA)  Articles Excluded from Duty-free Entry (continued)  Sugars, syrups, molasses  Rum & tafia  Agricultural products subject to tariff- rate quotas

23 Freely Associated States (FAS)  October 18, No expiry date  Marshal Islands, Micronesia, Palau  "Z" on Customs Form 7501, Entry Summary  Min. 35% RVC

24 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 subject to a tariff-rate quota

25 African Growth & Opportunity Act (AGOA)  October 1, 2000-September 30, 2015  Sub-Saharan African countries  “D” in “Special” subcolumn of Column 1 of HTSUS  Certain textiles & apparel articles: Duty & quota-free  Min. 35% RVC

26 Maquiladora Program  Launched as Border Industrialization Program by the Mexican government in 1966 after the end of 23-year Bracero Program in1965  Mexican Corporations operating under In- Bond Program of Mexico  Mexican production facilities processing or assembling components into finished products for exportation  Partly or entirely owned by non-Mexicans

27 Maquiladoras & the U.S.  Tariff No of Chapter 98 of Harmonized Tariff Schedule of the U.S. (HTSUS): –Articles Exported and Returned, Advanced or Improved Abroad –Permits only assembly operation abroad

28 Maquiladoras & the U.S. (1) Procedures of Maquiladora Operation  U.S. parts, components, equipment and machinery were imported into Mexico duty-free  Parts and components assembled into the products  Paid U.S. import duty only on the value added in Mexico, when finished products were imported into the U.S.

29 Maquiladoras & the U.S. (2) Requirements by HTSUS  Components ready for assembly without further fabrication  Have not lost physical identity  Have not advanced in value except assembly process (3) Products Excluded:  Raw materials such as Chemicals, Food ingredients, Gases, Liquid & Powder

30 Maquiladoras & the U.S.  End of Maquiladora with the U.S. –NAFTA, which took effect on 1/1/1994, required Mexico to abolish duty-free importation of inputs into Mexico, regardless of origin –Duty-free status is determined by the NAFTA’s rules of origin –Replaced by the NAFTA on 1/1/2001

31 Maquiladoras & the U.S. Benefits to Mexico  Provided Mexico with employments –Higher wages than domestic Mexican factories  Provided Mexico with foreign exchange –More than tourism –2 nd foreign exchange provider after oil

32 Maquiladoras & the U.S. Benefits to U.S. Businesses  Mexico's large, low-cost, highly trained work force: 8 to 13% of the U.S. wage  Relaxed environmental and worker-safety standards  Quick access to the U.S. consumer market –Lower inventory requirements, lower transportation costs and lower insurance costs than Asian factories

33 Maquiladoras & the U.S. Most Promising Products  Highly labor-intensive products  Electronics, Apparel, Auto parts, Furniture, Toys, Sporting Goods  Time-sensitive products  Fashionable goods: Apparel, Toys  Bulky products  Transportation containers for domestic and international transportation

34 Maquiladoras & the U.S. Labor Management & Environment  Labor turnover up to 25%: the biggest headache  To reduce high labor turnover –Locate in the interior far from the border –Train supervisors –Introduce good work ethics –Provide incentive programs to prevent absenteeism  Environment problem –Many factories moved to Mexico from the U.S. to avoid environmental problems

35 Maquiladoras & the U.S. –Factories using toxic materials including solvents, heavy metals and dangerous chemicals: higher environmental reason than labor costs –Mexico was called a polluter’s heaven Lack of sewage and water treatment plantsLack of sewage and water treatment plants More relaxed Mexican environmental lawsMore relaxed Mexican environmental laws Lack of enforcement by Mexican governmentLack of enforcement by Mexican government –Mexico must improve environment

Impact of NAFTA on Maquiladora  Phase 1: –Duty-free importation of inputs into Mexico regardless of origin –Gradually allowed to sell Mexican market I/O export. In 2001, 100% –Products sold in domestic market must pay import duties for inputs –Not many sold their products in domestic market 36

Impact of NAFTA on Maquiladora  Phase 2: 2001 and beyond –In 2001, Mexico abolished duty-free importation of inputs, regardless of country of origin –Inputs from the U.S. still duty-free under NAFTA –Non-NAFTA inputs required to pay import duties, but can file drawback claim for the lesser of Mexican import duties on inputs or U.S. or Canada duty on finished products –Mexico made import duties zero or very low 37