1. www.export.gov 1-800-USA-TRADE Taking Advantage of NAFTA Anthony Hill Sacramento Export Assistance Center & Trade Information Center Anthony Hill Sacramento Export Assistance Center & Trade Information Center

2. www.export.gov 1-800-USA-TRADE Agenda 1.General Information FTAs and NAFTA 2.Researching Opportunities 3.Tariff Rate Benefits 1.General Information FTAs and NAFTA 2.Researching Opportunities 3.Tariff Rate Benefits

3. www.export.gov 1-800-USA-TRADE FTAs in Force 1.Israel 1985 2.NAFTA 1994 3.Jordan 2001 4.Chile 2004 5.Singapore 2004 6.Australia 2005 7.Morocco 2006 8.Bahrain 2006 9.CAFTA-DR 2006-2009 10.Oman 2009 11.Peru 2009 1.Israel 1985 2.NAFTA 1994 3.Jordan 2001 4.Chile 2004 5.Singapore 2004 6.Australia 2005 7.Morocco 2006 8.Bahrain 2006 9.CAFTA-DR 2006-2009 10.Oman 2009 11.Peru 2009

4. www.export.gov 1-800-USA-TRADE FTA’s Pending Approval Pending Congressional Approval Panama Colombia South Korea Pending Congressional Approval Panama Colombia South Korea

5. www.export.gov 1-800-USA-TRADE Exports to FTA Countries Continue to Increase Country20092010Percent Change Canada148.62184.57+24% Mexico92.45118.61+28% Chile6.548.06+23% Dominican Rep3.834.76+24% Peru3.584.86+36% Costa Rica3.363.89+16% Morocco1.171.38+18% Data compiled from tariff and trade data from the U.S. Department of Commerce and the U.S. International Trade Commission. US Exports to Certain FTA Countries US Billions, from Jan – Sept

6. www.export.gov 1-800-USA-TRADE NAFTA Opportunities Canada and Mexico are the first and second largest export markets for US products. Total merchandise trade between all NAFTA countries (U.S- Canada, U.S-Mexico, Canada-Mexico) has grown from $297 billion in 1993 to $754.0 billion in 2009, an increase of 154 percent. Total merchandise trade between the United States and its NAFTA partners has grown from $293 billion in 1993 to $735.1 billion in 2009, an increase of 151 percent. Canada and Mexico are the first and second largest export markets for US products. Total merchandise trade between all NAFTA countries (U.S- Canada, U.S-Mexico, Canada-Mexico) has grown from $297 billion in 1993 to $754.0 billion in 2009, an increase of 154 percent. Total merchandise trade between the United States and its NAFTA partners has grown from $293 billion in 1993 to $735.1 billion in 2009, an increase of 151 percent.

7. www.export.gov 1-800-USA-TRADE What is NAFTA? NAFTA Provides Tariff Rate Elimination AND NAFTA Provides Tariff Rate Elimination AND

8. www.export.gov 1-800-USA-TRADE Much More… Special Agreements on: Trade and Investment in Autos Textiles and Apparel Energy and Petrochemicals Trade in Agricultural Products Special Agreements on: Trade and Investment in Autos Textiles and Apparel Energy and Petrochemicals Trade in Agricultural Products

9. www.export.gov 1-800-USA-TRADE Plus… Additional Agreements on: Protecting Investments Telecommunication Services Financial Services Additional Agreements on: Protecting Investments Telecommunication Services Financial Services

10. www.export.gov 1-800-USA-TRADE As well as… Treaties dealing with: Intellectual Property Rights Protection Sanitary Measures Customs Procedures Government Procurement Labor Protections Environmental Protection Trade Compliance Center E-Mail: tcc@mail.doc.gov, Phone: (202) 482-1191tcc@mail.doc.gov Treaties dealing with: Intellectual Property Rights Protection Sanitary Measures Customs Procedures Government Procurement Labor Protections Environmental Protection Trade Compliance Center E-Mail: tcc@mail.doc.gov, Phone: (202) 482-1191tcc@mail.doc.gov

11. www.export.gov 1-800-USA-TRADE NAFTA Common Misconceptions: U.S., Canadian & Mexican Tariffs are the same Originating means purchased in a NAFTA Country NAFTA Certification is Mandatory NAFTA Certificates are required to clear Canadian customs A producer is required to supply a buyer with a NAFTA Certificate of Origin U.S., Canadian & Mexican Tariffs are the same Originating means purchased in a NAFTA Country NAFTA Certification is Mandatory NAFTA Certificates are required to clear Canadian customs A producer is required to supply a buyer with a NAFTA Certificate of Origin

12. www.export.gov 1-800-USA-TRADE Taking Advantage of NAFTA Starts with Market Research and Finding Customers –Commercial Service is here to help Next, Qualifying your product for NAFTA benefits Finally, Providing documentation to your customer Starts with Market Research and Finding Customers –Commercial Service is here to help Next, Qualifying your product for NAFTA benefits Finally, Providing documentation to your customer

13. www.export.gov 1-800-USA-TRADE Trade specialists in over 100 U.S. cities 160+ offices in US Embassies and Consulates in 80+ countries worldwide Sector-specific teams Regional teams Local advising councils, District Export Councils—DECs Our Global Network

14. www.export.gov 1-800-USA-TRADE How can Commercial Service Assist U.S. Companies?  Export Counseling  Gold Key Service  International Partner Search  International Company Profile  Customized Market Research  Catalogue Exhibitions  International Buyer Program  Certified Trade Shows  Trade Missions  Training

15. www.export.gov 1-800-USA-TRADE Finding Opportunities

16. www.export.gov 1-800-USA-TRADE

17. www.export.gov 1-800-USA-TRADE PA-2011 Market Research

18. www.export.gov 1-800-USA-TRADE PA-2011 Market Research

19. www.export.gov 1-800-USA-TRADE PA-2011 Market Research

20. www.export.gov 1-800-USA-TRADE PA-2011 Market Research

21. www.export.gov 1-800-USA-TRADE Market Research – Other Resources TH-2011 World Bank: www.worldbank.orgwww.worldbank.org - Doing Business: www.doingbusiness.orgwww.doingbusiness.org International Monetary Fund: www.imf.orgwww.imf.org World Trade Organization: www.WTO.orgwww.WTO.org US Department of Agriculture: www.FAS.USDA.govwww.FAS.USDA.gov CIA World Factbook: www.cia.gov/librarywww.cia.gov/library Economist Intelligence Unit: www.eiu.comwww.eiu.com University websites International Magazines and Newspapers World Bank: www.worldbank.orgwww.worldbank.org - Doing Business: www.doingbusiness.orgwww.doingbusiness.org International Monetary Fund: www.imf.orgwww.imf.org World Trade Organization: www.WTO.orgwww.WTO.org US Department of Agriculture: www.FAS.USDA.govwww.FAS.USDA.gov CIA World Factbook: www.cia.gov/librarywww.cia.gov/library Economist Intelligence Unit: www.eiu.comwww.eiu.com University websites International Magazines and Newspapers

22. www.export.gov 1-800-USA-TRADE Finding Opportunities Sources for Trade Data Free Sources www.USITC.gov – US International Trade Commissionwww.USITC.gov http://tse.export.gov/TSE/ - Trade Stats Expresshttp://tse.export.gov/TSE/ www.WTO.org – World Trade Organizationwww.WTO.org Fee-based Sources http://www.usatradeonline.gov/ - US Trade Data from Census Bureauhttp://www.usatradeonline.gov/ www.Piers.com – Piers collects document information from US ports.www.Piers.com www.gtis.com – Global Trade Information Services has trade data for most countries of the world.www.gtis.com Free Sources www.USITC.gov – US International Trade Commissionwww.USITC.gov http://tse.export.gov/TSE/ - Trade Stats Expresshttp://tse.export.gov/TSE/ www.WTO.org – World Trade Organizationwww.WTO.org Fee-based Sources http://www.usatradeonline.gov/ - US Trade Data from Census Bureauhttp://www.usatradeonline.gov/ www.Piers.com – Piers collects document information from US ports.www.Piers.com www.gtis.com – Global Trade Information Services has trade data for most countries of the world.www.gtis.com

23. www.export.gov 1-800-USA-TRADE 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies Basic Steps for NAFTA Tariff Benefits If a product is entirely US content, it automatically qualifies for NAFTA

24. www.export.gov 1-800-USA-TRADE Step 1: What is the HS Code? Number that classifies products for customs purposes, typically 6-10 digits Other similar terms: Schedule ‘B’ Number, HTS code, Harmonized Tariff Code First 6 digits "harmonized” internationally Can be found at www.census.gov under “export codes” or call 1-800-549-0595www.census.gov Number that classifies products for customs purposes, typically 6-10 digits Other similar terms: Schedule ‘B’ Number, HTS code, Harmonized Tariff Code First 6 digits "harmonized” internationally Can be found at www.census.gov under “export codes” or call 1-800-549-0595www.census.gov

25. www.export.gov 1-800-USA-TRADE Breakdown of HS Code Example: HS #9608.10 – ballpoint pens First 2 digits = Chapter, i.e. Chapter 96 (described as miscellaneous manufactured articles) First 4 digits = Heading, i.e. Heading 9608 (described as pens, markers, etc.) First 6 digits = Subheading, i.e. Subheading 9608.10 (described as ballpoint pens) Example: HS #9608.10 – ballpoint pens First 2 digits = Chapter, i.e. Chapter 96 (described as miscellaneous manufactured articles) First 4 digits = Heading, i.e. Heading 9608 (described as pens, markers, etc.) First 6 digits = Subheading, i.e. Subheading 9608.10 (described as ballpoint pens)

26. www.export.gov 1-800-USA-TRADE Basic Steps for NAFTA Tariff Benefits 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies

27. www.export.gov 1-800-USA-TRADE Step 2: Is there a benefit? In FTAs, tariffs for some items decrease over time All rates for NAFTA qualified products are zero Exceptions: –Mexican retaliatory rates see www.export.gov/FTA/NAFTA www.export.gov/FTA/NAFTA –Mexican Customs Fee of 0.8% In FTAs, tariffs for some items decrease over time All rates for NAFTA qualified products are zero Exceptions: –Mexican retaliatory rates see www.export.gov/FTA/NAFTA www.export.gov/FTA/NAFTA –Mexican Customs Fee of 0.8%

28. www.export.gov 1-800-USA-TRADE Step 2: Is There a Benefit? NAFTA rate vs. MFN rate NAFTA Rate vs. Normal Rate (MFN rate) –Normal or MFN (Most Favored Nation) rate = rate applied to products entering from countries with normal trade relations If MFN rate = 0%, STOP, there is no tariff benefit Exception Mexican Customs Fee If MFN rate > 0% (NAFTA rate), continue NAFTA Rate vs. Normal Rate (MFN rate) –Normal or MFN (Most Favored Nation) rate = rate applied to products entering from countries with normal trade relations If MFN rate = 0%, STOP, there is no tariff benefit Exception Mexican Customs Fee If MFN rate > 0% (NAFTA rate), continue

29. www.export.gov 1-800-USA-TRADE Back to the Steps 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies 1)Determine the HS code 2)Determine whether there is a tariff benefit 3)Determine whether product qualifies 4)Certify that product qualifies

30. www.export.gov 1-800-USA-TRADE NAFTA Qualification A. Wholly obtained or produced entirely in the territory – for agricultural products & natural resources. B. Produced in the territory using foreign materials that meet the rule of origin C. Produced in the territory only with originating materials A. Wholly obtained or produced entirely in the territory – for agricultural products & natural resources. B. Produced in the territory using foreign materials that meet the rule of origin C. Produced in the territory only with originating materials Qualify Automatically Preference Criteria (Criteria to qualify for NAFTA preferences)

31. www.export.gov 1-800-USA-TRADE US Product with non-NAFTA Foreign Inputs (Preference Criterion B) Product Specific Rules of Origin, May require: A.Tariff Classification Change (Change HS code of foreign input (tariff shift) or B.Minimum Regional Value Content (RVC) (Percent of value added in region: US, Canada, Mexico) or A + B. Both (tariff shift and RVC) Product Specific Rules of Origin, May require: A.Tariff Classification Change (Change HS code of foreign input (tariff shift) or B.Minimum Regional Value Content (RVC) (Percent of value added in region: US, Canada, Mexico) or A + B. Both (tariff shift and RVC)

32. www.export.gov 1-800-USA-TRADE NAFTA Rules of Origin In Annex 401 of the original agreement Most current version in: Harmonized Tariff Schedule of the US, General Note 12(t), www.USITC.govwww.USITC.gov Or through www.Export.gov/FTA/NAFTAwww.Export.gov/FTA/NAFTA Look for heading or subheading which encompasses the heading or subheading of your product’s HS code In Annex 401 of the original agreement Most current version in: Harmonized Tariff Schedule of the US, General Note 12(t), www.USITC.govwww.USITC.gov Or through www.Export.gov/FTA/NAFTAwww.Export.gov/FTA/NAFTA Look for heading or subheading which encompasses the heading or subheading of your product’s HS code

33. www.export.gov 1-800-USA-TRADE A. Example of Tariff Shift Cupcakes Assume all inputs (flour, sugar, cocoa, etc.) were imported 1.Find the HS Code: 1905.90 2.NAFTA Rule of Origin covering 1905.90 “A change to 1905 from any other chapter.” Assume all inputs (flour, sugar, cocoa, etc.) were imported 1.Find the HS Code: 1905.90 2.NAFTA Rule of Origin covering 1905.90 “A change to 1905 from any other chapter.” Interpretation: Cupcakes qualify if all imported components are not from chapter 19 of the HS schedule

34. www.export.gov 1-800-USA-TRADE Cupcake Inputs Material HTS # Flour 1101 Sugar 2102 Cocoa 1806 Baking Soda2836 Eggs0407 These cupcakes meet the Rule of Origin requirements. Material HTS # Flour 1101 Sugar 2102 Cocoa 1806 Baking Soda2836 Eggs0407 These cupcakes meet the Rule of Origin requirements. Chapter 19: Preparations of Cereals, Flour, Starch or Milk; Bakers' Wares

35. www.export.gov 1-800-USA-TRADE More Difficult Tariff Shift Example Garden Umbrellas HS Code = 6601.10 A change to heading 6601 from any other heading, except from a combination of both: (A) subheading 6603.20; and (B) headings 3920 through 3921, 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 5801 through 5811, 5901 through 5911 or 6001 through 6006. 6603.20 is an umbrella frame, the other headings after (B) are umbrella parts Interpretation: An umbrella can qualify if either the frame or the parts are originating, it does not qualify if the frame and parts are imported. HS Code = 6601.10 A change to heading 6601 from any other heading, except from a combination of both: (A) subheading 6603.20; and (B) headings 3920 through 3921, 5007, 5111 through 5113, 5208 through 5212, 5309 through 5311, 5407 through 5408, 5512 through 5516, 5602 through 5603, 5801 through 5811, 5901 through 5911 or 6001 through 6006. 6603.20 is an umbrella frame, the other headings after (B) are umbrella parts Interpretation: An umbrella can qualify if either the frame or the parts are originating, it does not qualify if the frame and parts are imported.

36. www.export.gov 1-800-USA-TRADE Regional Value Content Example Ballpoint Pens Ballpoint Pens = 9608.10 (A)A change to subheadings 9608.10 through 9608.50 from any other chapter; or (B) A change to subheadings 9608.10 through 9608.50 from subheadings 9608.60 through 9608.99, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used. Ballpoint Pens = 9608.10 (A)A change to subheadings 9608.10 through 9608.50 from any other chapter; or (B) A change to subheadings 9608.10 through 9608.50 from subheadings 9608.60 through 9608.99, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: (1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used.

37. www.export.gov 1-800-USA-TRADE Chapter 96 = Misc. manufactured articles Subheading 9608.60 = refills for pens Through Subheading 9608.99 = other pen parts Interpretation: If the imported materials are not manufactured articles under Chpt. 96, i.e. pen parts, the pen qualifies If the imported materials are pen parts, the pen can qualify if there is enough value-added in NAFTA countries (it meets the RVC criteria) Chapter 96 = Misc. manufactured articles Subheading 9608.60 = refills for pens Through Subheading 9608.99 = other pen parts Interpretation: If the imported materials are not manufactured articles under Chpt. 96, i.e. pen parts, the pen qualifies If the imported materials are pen parts, the pen can qualify if there is enough value-added in NAFTA countries (it meets the RVC criteria) Ballpoint Pens Regional Value Content Example

38. www.export.gov 1-800-USA-TRADE NAFTA Qualification Option of Using: 1. 60% of Transaction Value or 2. 50% of Net Cost Option of Using: 1. 60% of Transaction Value or 2. 50% of Net Cost

39. www.export.gov 1-800-USA-TRADE NAFTA Qualification Formulas for Calculating NAFTA Regional Value Content (RVC) Transaction Value: RVC = TV – VNM x 100 (60%) TV Net Cost: RVC = NC – VNM x 100 (50%) NC Formulas for Calculating NAFTA Regional Value Content (RVC) Transaction Value: RVC = TV – VNM x 100 (60%) TV Net Cost: RVC = NC – VNM x 100 (50%) NC TV = Transaction Value VNM = Value of Non-Originating Materials NC = Net Cost

40. www.export.gov 1-800-USA-TRADE NAFTA Qualification Transaction Value: RVC = TV – VNM x 100 TV TV adjusted to F.O.B. basis VNM should include (if not already included in purchase price) –freight, insurance, packing and all other costs incurred in transporting the material to the location of the producer; –duties, taxes and customs brokerage fees on the material that were paid in the territory of Canada, Mexico, and/or the United States; and –the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product. Transaction Value: RVC = TV – VNM x 100 TV TV adjusted to F.O.B. basis VNM should include (if not already included in purchase price) –freight, insurance, packing and all other costs incurred in transporting the material to the location of the producer; –duties, taxes and customs brokerage fees on the material that were paid in the territory of Canada, Mexico, and/or the United States; and –the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product.

41. www.export.gov 1-800-USA-TRADE NAFTA Qualification Net Cost = NC – VNM x 100 NC Net Cost Subtract any sales, promotion, marketing, after- sales service costs and royalties Subtract shipping and packing costs and non- allowable interest costs Net Cost = NC – VNM x 100 NC Net Cost Subtract any sales, promotion, marketing, after- sales service costs and royalties Subtract shipping and packing costs and non- allowable interest costs

42. www.export.gov 1-800-USA-TRADE NAFTA Qualification De Minimus Rule allows up to 7% of the value to be non-qualifying material If a foreign input does not meet the Rule of Origin and does not qualify under the de minimus rule, then the good does not qualify as duty-free under NAFTA. De Minimus Rule allows up to 7% of the value to be non-qualifying material If a foreign input does not meet the Rule of Origin and does not qualify under the de minimus rule, then the good does not qualify as duty-free under NAFTA.

43. www.export.gov 1-800-USA-TRADE Back to the Steps 1)Determine the HS code 2)Determine tariff rate benefit 3)Determine whether product qualifies –Review Rule of Origin 4)Certify that product qualifies 1)Determine the HS code 2)Determine tariff rate benefit 3)Determine whether product qualifies –Review Rule of Origin 4)Certify that product qualifies

44. www.export.gov 1-800-USA-TRADE NAFTA Certificate Download at Export.gov/FTA/NAFTA Self-certification Send to buyer Keep copy Certification

45. www.export.gov 1-800-USA-TRADE Box 2 – Blanket period: One document for multiple identical shipments can be used for up to 1 year Box 7 – Preference Criteria: Usually A, B, or C Box 8 – Producer: Yes or No 1, No 2, No 3 Box 9 – Net Cost: No or NC Filling out the certificate See page 2 instructions

46. www.export.gov 1-800-USA-TRADE Back to the Steps 1)Determine the HS code 2)Determine tariff rate benefit 3)Determine whether product qualifies –Review Rule of Origin 4)Certify that product qualifies 1)Determine the HS code 2)Determine tariff rate benefit 3)Determine whether product qualifies –Review Rule of Origin 4)Certify that product qualifies

47. www.export.gov 1-800-USA-TRADE Direct Transport Requirement Shipped directly from U.S. to Country Shipped via a third country: –Remains under customs control in 3 rd country. –Or, placed in a customs warehouse or customs-controlled FTZ prior to shipment to FTA partner country. Shipped directly from U.S. to Country Shipped via a third country: –Remains under customs control in 3 rd country. –Or, placed in a customs warehouse or customs-controlled FTZ prior to shipment to FTA partner country.

48. www.export.gov 1-800-USA-TRADE Record Keeping Importers and exporters should maintain documents to support FTA claim for five years after importation Customs officials can seek information from either party Importers and exporters should maintain documents to support FTA claim for five years after importation Customs officials can seek information from either party

49. www.export.gov 1-800-USA-TRADE Taking Advantage of NAFTA Starts with Market Research and Finding Customers –Commercial Service is here to help Qualifying your product for NAFTA benefits Providing documentation to your customer Starts with Market Research and Finding Customers –Commercial Service is here to help Qualifying your product for NAFTA benefits Providing documentation to your customer

50. www.export.gov 1-800-USA-TRADE Contact Anthony Hill E-mail: Anthony.Hill@trade.gov Visit www.export.gov/FTA/NAFTA Anthony Hill E-mail: Anthony.Hill@trade.gov Visit www.export.gov/FTA/NAFTA