NCBFAA - CCS (Certified Customs Specialist) Course Part 1 (Modules 1-5)

Transcription

1 NCBFAA - CCS (Certified Customs Specialist) Course Part 1 (Modules 1-5) Introduction to Part 1 Part 1 of the CCS course includes the following 5 modules: 1: The U.S. Customs and Border Protection 2: Legislative Process in the U.S. 3: Tariff Treatment and Trade Agreements 4: North America Free Trade Agreement (NAFTA) 5: Acts and Regulations of Other Government Agencies In the first part of the course you will become familiar with the structure of CBP, understand how the various acts of Congress shape and impact the import and entry process, learn the details of various trade agreements that the U.S. has negotiated with foreign governments, including the North American Free Trade Agreement which is a regional agreement, and understand how other governmental agencies affect the process of importation. You are welcome to review the content in any order, at your own pace. You will find module quizzes which will enhance your understanding of the material. These quiz results are not tracked by the NEI; they are for review purposes only. Part 1: Module 1: The United States Customs and Border Protection The United States Customs and Border Protection (CBP), headquartered in Washington D.C. is guided by the following mission statement: We are the guardians of our Nation s borders. We are America s frontline. We safeguard the American homeland at and beyond our borders. We protect the American public against terrorists and the instruments of terror. We steadfastly enforce the laws of the United States while fostering our Nation s economic security through lawful international trade and travel. We serve the American public with vigilance, integrity and professionalism. Guided by this mission statement, CBP operates as the unified border agency within the Department of Homeland Security. It is charged with the management, control and protection of our nation's borders at and between the 329 official ports of entry in the U.S. and 15 pre-

2 clearance offices in Canada and the Caribbean. CBP is charged with keeping terrorists and terrorist weapons out of the country while enforcing hundreds of U.S. laws. List of Lessons: Lesson 1: History of the U.S. Customs and Border Protection Lesson 2: The U.S. Department of Homeland Security (DHS) Overview Lesson 3: DHS Organizational Structure Lesson 4: Commissioner of U.S. Customs and Border Protection Lesson 5: CBP s Goals and Responsibilities Lesson 1: History of the U.S. Customs and Border Protection For almost the first 125 years of the U.S. Customs Service (USCS) 223-year history, the revenue generated paid for the fledgling nation s growth and development including the satisfaction of the national debt. Conceived by James Madison as a cure for the new nation s debt, on July 4, 1789 President George Washington signed the Tariff Act that created the statutory authority to collect duties on goods imported into the United States. A few short weeks later, on July 31, 1789, the U.S. Customs Service was founded by the fifth act of Congress. Besides funding America s early growth and expansion, activities within the USCS gave rise to many of today s agencies including the Department of Veterans Affairs, the U.S. Coast Guard, Bureau of the Census and the National Institute of Standards and Technology. At its inception, the USCS was under the direction of the Department of the Treasury (DOT) to regulate the collection of the duties imposed by law. As America developed, the U.S. Customs Service also grew and assumed additional responsibilities to protect the nation. As a result of the terrorist attacks in 2001, portions of the government were reorganized and on March 1, 2003 several departments, including the U.S. Customs Service, combined to form the Customs and Border Protection (CBP) within the Department of Homeland Security (DHS). Today, CBP enforces its own laws as well as provisions for over 40 other government agencies. Lesson 2: The U.S. Department of Homeland Security (DHS) Overview Since September 11, 2001, the United States has taken many steps to greatly improve the nation s security. One of the most important steps in this process was the creation of the U.S. Department of Homeland Security (DHS). At the time of its creation, there was no single government agency that was primarily responsible for safeguarding our nation s territory. In fact, the responsibility was scattered across 100 different government organizations at the federal, state and local levels.

3 With the passage of the Homeland Security Act by Congress in November 2002, the Department of Homeland Security formally came into being as a stand-alone, Cabinet-level department to further coordinate and unify national homeland security efforts, opening its doors on March 1, By combining the various agencies and organizations under one department, DHS is designed to provide a national and unified security structure for the United States that is sufficiently flexible to meet the unknown threats of the future. The DHS mission statement is: There are five homeland security missions: 1. Preventing terrorism and enhancing security; 2. Securing and managing our borders; 3. Enforcing and administering our immigration laws; 4. Safeguarding and securing cyberspace; 5. Ensuring resilience to disasters. In addition, we must specifically focus on maturing and strengthening the homeland security enterprise itself. The DHS is headquartered in Washington, D.C and is led by the Secretary of the DHS. The Office of the Secretary oversees activities with other federal, state, local, and private entities as part of a collaborative effort to strengthen our borders, provide for intelligence analysis and infrastructure protection, improve the use of science and technology to counter weapons of mass destruction, and to create a comprehensive response and recovery system. The DHS Secretary is a member of the President s cabinet thereby maintaining advisory influence upon the President. Pennsylvania Governor Tom Ridge was sworn in as the first Director of the Office of Homeland Security in September 2001, eleven days following the tragic events of September 11. On January 24, 2003, Tom Ridge became the first Secretary of the Department of Homeland Security. Ridge stepped down as Secretary in February Secretary Michael Chertoff took office on February 15, Janet Napolitano was sworn in on January 21, 2009 as the third Secretary of the Department of Homeland Security, under the Obama Administration. Her term ended on September 6, 2013 and on December 23, 2013, Jeh Charles Johnson was sworn in as the fourth Secretary of Homeland Security. Lesson 3: DHS Organizational Structure The Office of the Secretary includes multiple offices that contribute to the overall Homeland Security mission. The DHS is comprised of three directorates and twenty-one departments. Each directorate is headed by an undersecretary who reports directly to the DHS Secretary. The following is a brief description of those directorates and their responsibilities:

4 Directorate for Management: Responsible for budget, appropriations, expenditure of funds, accounting and finance; procurement; human resources and personnel; information technology systems; facilities, property, equipment, and other material resources; and identification and tracking of performance measurements relating to the responsibilities of the DHS. National Protection & Programs Directorate (NPPD): The NPPD's primary responsibility is to advance DHS s risk-reduction mission. Reducing risk requires an integrated approach that encompasses both physical and virtual threats and their associated human elements. Directorate for Science and Technology: This primary research and development division for DHS is charged with protecting the U.S. from biological, chemical, radiological and nuclear weapon attacks. The remaining twenty-one departments have very diverse responsibilities. The following is a quick overview of a few of those departments and their delegated responsibilities: Office of Intelligence & Analysis (I&A): The principle department responsible for analyzing intelligence in order to detect threats and identify the country s vulnerabilities for use by various agencies of the federal government Federal Emergency Management Agency (FEMA): Prepares the nation for natural disasters, manages Federal response and recovery efforts following any catastrophic incident, and administers the National Flood Insurance Program. Federal Law Enforcement Training Center: Provides career-long training to law enforcement professionals to help them fulfill their responsibilities safely and proficiently. Office of Operations Coordination and Planning: Responsible for monitoring the security of the United States on a daily basis. This office coordinates activities within the DHS, as well as between the DHS and state governors, Homeland Security Advisors, law enforcement partners, and critical infrastructure operators in all 50 states and more than 50 major urban areas nationwide. Office of Policy: Primarily responsible for policy formulation and coordination for the Department of Homeland Security. It provides a centralized, coordinated focus to the development of Department-wide, long-range planning to protect the United States. Transportation Security Administration (TSA): Protects the nation's transportation systems to ensure freedom of movement for people and commerce. U.S. Citizenship and Immigration Services (USCIS): Responsible for the administration of immigration and naturalization adjunction functions and establishing immigration services policies and priorities. Ensures the integrity of the immigration system by providing accurate and useful information to promote awareness and understanding of Citizenship and granting immigration and citizenship benefits.

5 U.S. Coast Guard (USCG): Protects the public, the environment, and U.S. economic interests. Supports national security in the nation s ports and waterways, along the coasts, on international waters, or in any maritime region as required. U.S. Customs and Border Protection (CBP): Responsible for protecting our nation s borders in order to prevent terrorists and terrorist weapons from entering the United States, while facilitating the flow of legitimate trade and travel. U.S. Immigration and Customs Enforcement (ICE): As the largest investigative arm of the DHS, ICE is responsible for identifying and shutting down vulnerabilities in the nation s border, economic, transportation and infrastructure security. U.S. Secret Service: Protects the President and other high-level officials. Investigates counterfeiting and other financial crimes, including financial institution fraud, identity theft, computer fraud; and computer-based attacks on our nation s financial, banking, and telecommunications infrastructure. Lesson 4: Commissioner of Customs and Border Protection The position of Commissioner of Customs and Border Protection (CBP) is filled by presidential nomination, subject to the advice and consent of the Senate. Robert C. Bonner was nominated by President George W. Bush to serve as Commissioner of the U.S. Customs Service on June 24, He was sworn in as the 17th Commissioner of the USCS on September 24, Mr. Bonner also has the distinction of being the first Commissioner of U.S. Customs and Border Protection. He retired in November In January of 2006, President George W. Bush nominated W. Ralph Basham to be the next CBP Commissioner. In April of 2006, Mr. Basham was sworn in by DHS Secretary Michael Chertoff. Alan Bersin was the third Commissioner of CBP. He was directly appointed by President Barack Obama on March 27, 2010, after the Senate failed to act on the President s nomination. Commissioner Bersin retired on December 22, 2011, one day before his appointment ended. On December 30, 2011, David V. Aguilar was named Acting Commissioner of CBP. He served until his retirement on February 8, Thomas Winkowski served as Deputy Commissioner until R. Gil Kerlikowske was sworn in as Commissioner of CBP on March 7, Lesson 5: CBP Goals and Responsibilities CBP employs multiple strategies and utilizes the latest in technology to accomplish its goals. The goals and objectives are reviewed annually for relevancy and updated every three years. The strategic plan to secure borders, safe travel and legal trade for fiscal year includes two major goals and eight primary objectives. The plan will be in use at all ports, Border Patrol checkpoints and where CBP operates internationally as follows:

6 GOAL 1: Secure the Nation s borders to protect America from the entry of dangerous people and goods and prevent unlawful trade and travel. Use infrastructure, technology and personnel to establish and maintain control of air, land and sea borders. Use inspection and scanning technology to detect and prevent hazardous materials, goods and instruments of terror from entering the U.S. Use biometric and biographical information based on risk analysis to detect and prevent dangerous people from entering the U.S. Provide training and resources to field CBP special teams that respond to critical missions. Use a risk analysis-based approach to determine where product safety risks are the greatest in the import life cycle to protect consumers from health and safety issues GOAL 2: Ensure the efficient flow of legitimate trade and travel across U.S. borders. Expedite processing at all ports (land, sea, and air) using accurate advance information and modern systems Detect and deter non-compliance selecting targets based on analyzing risk and consistent enforcement Use compliance reviews to identify delinquencies and to facilitate release and revenue collection on compliant cargo The responsibilities of CBP are vast and significant. In addition to administering its own laws and regulations, CBP is also responsible for enforcing a minimum of 400 regulations for over 40 other government agencies. CBP's responsibilities include: Assessing and collecting customs duties (including associated fees, penalties and excise taxes) on imported goods Identifying and seizing illegal imports such as narcotics and other contraband Regulating and facilitating the movement of cargo, mail, passengers, and their baggage Detecting fraud and taking into custody those engaged in fraudulent activities Compiling import and export trade data Inspecting agricultural products at the time of importation to protect against harmful pests and diseases Protecting the welfare and security of the United States by compelling compliance with export and import restrictions and regulations Preventing individuals from attempting to enter the U.S. illegally Guarding against intellectual property theft Enforcing U.S. trade laws such as quotas, anti-dumping, and marking of imported goods. You have now finished Module 1.

7 Part 1: Module 2: Legislative Process in the United States; Principal Acts A legislature is an assembly of representatives with the power to create, amend, and ratify laws for the country which they represent. The legislature of the United States is comprised of the Senate and the House of Representatives ( House ). Congress, the name for the combined Senate and House, is driven by the simple words of Article 1, Section 1 of the United States Constitution. These words are: All Legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives. Congress deals with four basic types of legislative measures: bills, simple resolutions, joint resolutions, and concurrent resolutions. List of Lessons: Lesson 1: The United States Senate Lesson 2: The United States House of Representatives Lesson 3: Principal Acts Lesson 4: Statutes and Regulations Lesson 1: The United States Senate Article I, Section 3 of the Constitution sets forth three qualifications for Senators: each Senator must be at least thirty years old, a citizen of the United States for the past nine years, and, at the time of the election, an inhabitant of the state they seek to represent. There are one hundred members of the Senate, two Senators from each state. Each Senator serves a six-year term. The Constitution also provides that the Vice President of the United States serve as President of the Senate and cast a vote to break ties in the Senate. The Legislative Branch, e.g., the Senate and the House of Representatives, acts to "check and balance" the powers of the Executive Branch (the President) and the Judicial Branch of the Federal Government. The Senate s powers include the requirement that the Senate ratify all treaties with foreign governments. The President may only conclude a treaty if two-thirds of the senators vote their consent. However, not all international agreements are considered treaties, and, therefore, do not require the Senate's approval. Historically, Congress has passed laws authorizing the President to conclude executive agreements without ratifying action by the Senate. Similarly, the President may make congressional-executive agreements with the approval of a simple majority in each House of Congress rather than a two-thirds majority in the Senate. Lesson 2: The United States House of Representatives Under Article I, Section 2 of the Constitution, seats in the U.S. House of Representatives are allocated to the states by population. For purposes of representative apportionment, a state's

8 population is based upon data collected by the United States Census Bureau once every ten years. Even though each state receives representation in the House is proportional to its population, each state is entitled to at least one representative. Currently, the total number of representatives is fixed at four hundred and thirty-five by the Reapportionment Act of 1929; however, Congress retains the authority to change that number as necessary. Each representative must be at least 25 years old, a U.S. citizen for 7 years and a resident of the state where he/she is elected. House members serve a two-year term. The Constitution does not provide for the representation of the District of Columbia or of territories of the United States. These territories are represented by elected, non-voting delegates or Resident Commissioners. The District of Columbia and the territories of American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands are represented by one delegate each. Puerto Rico elects a Resident Commissioner, but other than having a four-year term, the Resident Commissioner's role is identical to the delegates from the other territories. In November 2008, the Commonwealth of the Northern Mariana Islands elected its first delegate. Proposed laws, or bills, may be introduced in either the Senate or the House. However, Article 1, Section 7 of the Constitution asserts, All bills for raising Revenue shall originate in the U.S. House of Representatives." As a result, the Senate does not have the power to initiate bills imposing taxes or to originate appropriation bills, or bills authorizing the expenditure of federal funds. The approval of both the Senate and the House is required for any bill to become law. Thousands of pieces of legislation are administered on a daily basis during the normal practice of international trade. For our purposes, it is important to emphasize three pieces of legislation that significantly impact the flow of international trade to and from the United States. These controlling acts are: the Tariff Act of 1930, the Customs Modernization Act, and the Trade Act of Understanding the fundamental principles and objectives of these Acts will advance a company s or an individual s overall grasp of international trade compliance. The Tariff Act of 1930 The Tariff Act of 1930, formally known as the "Hawley-Smoot Tariff Act," was passed by Congress to serve as a protective tariff, particularly for U.S. farm products. The Act raised U.S. duty rates on more than 20,000 items imported to the USA with the intent of assisting domestic commerce. However, implementation of the Act brought retaliatory tariff measures from foreign countries, and U.S. trade declined. U.S. imports from Europe declined from $1,334 million in 1929 to just $390 million in U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in Overall, world trade declined by some 66% between 1929 and The Act hindered trust and cooperation among nations during a perilous era in international relations and did nothing to help the US economy during the Great Depression.

9 After World War II, global trade gravitated towards multilateral trading agreements. To prevent an economic calamity similar to the one presumably caused by the Tariff Act of 1930, the United States signed the Bretton Woods Agreement in 1944 which was designed to establish an international financial policy and reduce global tariffs beginning in December Although Bretton-Woods was a step forward, additional measures were needed. Following swiftly on the heels of the Bretton-Woods Agreement was the General Agreement on Tariffs and Trade ( GATT ), which was signed in 1947 and remains in effect today. Fortunately, the Tariff Act of 1930 has undergone many amendments since its initial implementation. Two of these changes were: 1. Subtitle B, which required the President to conform the old Tariff Schedules to the Harmonized Tariff Schedule effective on January 1, 1989; and, 2. The Softwood Lumber Act of Currently the Act is divided into six subtitles: I. Harmonized Tariff Schedule of the United States ( HTSUS ) II. III. IV. Special Provisions Administrative Provisions Countervailing and Antidumping Duties V. Requirements Applicable to Imports of Certain Cigarettes and Smokeless Tobacco Products VI. Softwood Lumber The subtitles are discussed in later sections of the course. The Customs Modernization Act The Customs Modernization Act ( Mod Act ) of the North American Free Trade Agreement Act of 1993 ( NAFTA ) amended sections of the Tariff Act of On December 8, 1993 the Mod Act became effective. The Mod Act introduced three important concepts into trade law shared responsibility ; informed compliance ; and reasonable care. Informed compliance and shared responsibility are premised on the idea that in order to maximize, the trade community needs to be clearly and completely informed of its legal obligations. Informed compliance requires CBP to inform the importing public how to be compliant with applicable rules, laws and regulations. Importers, on the other hand, have an obligation to actively utilize the resources produced by CBP for informed compliance purposes. This "shared responsibility" for compliance between the importing community and CBP

10 compels the parties to achieve a higher level of cooperation and understanding regarding the relevant laws and regulations. "Reasonable care," as employed in the Mod Act, significantly shifted the responsibility for compliance with import laws and regulations to importers. Before the Mod Act, responsibility was apportioned among importers, brokers, and, primarily, on CBP. Frequently, importers would claim ignorance due to CBP's lack of outreach to the trade community thereby avoiding responsibility. Now, the importer must exercise the degree of care that a person of ordinary prudence would exercise in the same or similar circumstances. This is not an official definition; neither the law nor the regulations clearly define reasonable care. CBP s Informed Compliance Publication entitled Reasonable Care states, Despite the seemingly simple connotation of the term reasonable care, this explicit responsibility defies easy explanation. In practice, the importer must exercise reasonable care in the entry of merchandise into the commerce of the U.S. Importer accountability and liability for errors has grown and CBP has taken measures to boost enforcement measures. Conversely, CBP is dedicating more time and employing more effective methods to maximize voluntary compliance thereby reducing the number of instances where enforced compliance is necessary. The Trade Act of 2002 The final trade act regulations were published in the Federal Register on December 5, 2003 (68 FR 68140). Central provisions of the bill include granting the President Trade Promotion Authority (TPA), formerly known as "Fast Track" authority, for negotiating international trade agreements. Under this authority, the President of the United States is authorized to negotiate agreements that the Congress can either approve or disapprove but cannot amend. The Trade Act of 2002 also renewed and enhanced the Andean Trade Preference Act, as well as the Andean Trade Promotion and Drug Eradication Act (ATPDEA), expanded and clarified the Caribbean Basin Economic Recovery Act (CBERA) and the African Growth and Opportunity Act (AGOA), and in addition renewed the Generalized System of Preferences (GSP). The Trade Act of 2002 extended the Andean Trade Preferences (ATPA) to December 31, 2006, retroactive to December 4, The Act also restored GSP benefits retroactive to September 30, 2001, and extended GSP benefits through the end of A new regulation that came out of the Trade Act of 2002 deals with advance electronic manifest requirements for all modes of transportation both into and out of the United States. Previously, under the 24-hour rule, only cargo arriving via container vessel was subject to advance reporting by ocean carriers. All ocean, air and rail carriers were required to automate in order to participate in AMS (Advanced Manifest System). Airlines were required to file manifest information, called Air AMS, at least 4 hours prior to US arrival or once wheels up for flights

11 shorter than 4 hours. Rail carriers were required to report at least 2 hours prior to arrival. Truckers could file at least 1 hour in advance under the FAST program (Free and Secure Trade). Lesson 4: Statutes and Regulations The positive flow of international trade depends upon the statutes and regulations governing each transaction. A "statute" is a law enacted by the legislative branch of the U.S. government, in other words, Congress. Statutes or the black letter laws generally order or restrict certain types of behavior. Laws may also convey a public policy concern. A "regulation" is a rule or order issued by an executive authority or regulatory agency of a government and has the force of law. A regulation is used to implement the mandates of the primary piece of legislation. Regulations are also implemented as a result of unforeseen circumstances or factors that emerged during the implementation of a statute or preceding regulations. Every regulation in the Code of Federal Regulations (CFR) must have a statutory authority. The statutes enacted by Congress are found in the United States Code (U.S.C.). The CFR contains regulations that detail how the law should be interpreted by the executive branch. For example, assessing countervailing duties is authorized under United States Code Title, 19, Chapter 4, Subtitle IV, Part I, Section The process by which countervailing duties may be assessed is found in Title 19 of the Code of Federal Regulations (CFR), Chapter II, Subchapter B, Section 207. It is crucial for individuals to know where to find the information relevant to this dynamic industry. Without meaningful access to the current statutes and regulations, compliance is virtually impossible. You have now finished Module 2. Part 1: Module 3: Tariff Treatment and Trade Agreements The dutiable or duty-free status of goods entering the United States is determined by the applicable classification number in the Harmonized Tariff Schedule of the United States ( HTSUS, or HTS in short) which includes corresponding available trade agreements. A tariff is defined as a schedule of duties imposed by a government on imported, or in some countries, exported goods. The HTS number assigned to a particular commodity will determine how much tariff or tax will be assessed upon entry.

12 A trade agreement is an international agreement setting forth conditions of trade in goods and services between countries granting specified concessions to the administration of the import and export of goods among the signatory countries. This module will focus on the leading free trade agreements in the international trade community. Full information on all free trade agreements are in the General Notes of the HTSUS. Given the continual negotiation of new trade agreements, regular reference to General Note 3(c) of the HTSUS is recommended. Goods allowed entry under the North American Free Trade Agreement (NAFTA) are the subject matter of Module 4 of this course. List of Lessons: Lesson 1: Types of Tariffs Lesson 2: Tariff Treatments Lesson 3: The Trade Promotion Authority and the Trade Act of 2002 Lesson 4: The Generalized System of Preferences (General Note 4) Lesson 5: Caribbean Basin Economic Recovery Act (General Note 7) Lesson 6: U.S.-Israel Free Trade Implementation Act of 1985 (General Note 8) Lesson 7: Andean Trade Preference Act or Andean Trade Promotion and Drug Eradication Act (General Note 11) Lesson 8: United States - Jordan Free Trade Area Agreement (General Note 18) Lesson 9: United States - Chile Free Trade Agreement (General Note 26) Lesson 1: Types of Tariffs The HTSUS utilizes various types of tariffs. The following are the most widely used: An ad valorem tariff is a set percentage of the value of the good that is being imported. Sometimes these are problematic as when the international price of a good falls, so does the tariff, and domestic industries become more vulnerable to competition. Conversely when the price of a good rises on the international market so does the tariff, but a country is often less interested in protection when the price is higher. They also face the problem of inappropriate transfer pricing where a company declares a value for goods being traded which differs from the market price, aimed at reducing overall taxes due. This is the most common type of tariff used in the United States. A specific tariff is a tariff of a specific amount of money that does not vary with the price of the good. They are based on a specified amount per unit of weight or quantity. The amounts of these tariffs may be harder to decide, and they may need to be updated due to changes in the market or inflation. ( is an example of both ad valorem and specific tariffs.) A compound tariff is a combination of both an ad valorem tariff and a specific tariff. (Example: ) A revenue tariff is a set of rates designed primarily to raise money for the government. A tariff on coffee imports, for example (imposed by countries where coffee cannot be grown) raises a steady flow of revenue.

13 A protective tariff is intended to artificially inflate prices of imports and "protect" domestic industries from foreign competition (see also effective rate of protection). For example, a 50% tax on an imported machine raises the price from $100 to $150. Without a tariff, the local manufacturers could only charge $100 for the same machine; now they can charge $149 and make the sale. Anti-dumping is another type of protective tariff. A prohibitive tariff is one so high that generally no one imports any of that item. Lesson 2: Tariff Treatments Note: As mentioned at the outset, this course is designed for professionals who have at least one year of experience in the import business. Therefore, the following information is presented in a manner that presumes the audience is familiar with the format of the pages of the HTSUS. The HTSUS is organized with the rates of duty listed in two individual columns labeled Rates of Duty. Column 1 is further subdivided into two sub-columns, General and Special. The General sub-column indicates the rates of duty for countries enjoying normal trade relations (NTR) with the United States. The full or statutory rates of duty apply to imports from countries that do not have normal trade relations with the United States. These are located in Column 2 of the HTSUS. (Column 2 countries are listed under General Note 3(b) in the HTSUS.) The Special sub-column indicates tariff preference programs under which special tariff treatment, either reduced rates of duty or conditionally duty-free treatment, may be provided. The specific requirements of these programs are listed in general notes of the HTSUS. The corresponding symbols for these programs are indicated in the "Special" sub-column, and are listed in General Note 3 (c) as seen in the following chart. Tariff Preference Programs Symbol Generalized System of Preferences A, A* or A+ United States-Australia Free Trade Agreement Implementation Act AU Automotive Products Trade Act B United States-Bahrain Free Trade Agreement Implementation Act BH Agreement on Trade in Civil Aircraft C North American Free Trade Agreement: Goods of Canada Goods of Mexico CA MX United States-Chile Free Trade Agreement CL African Growth and Opportunity Act D

14 Caribbean Basin Economic Recovery Act E or E* United States-Israel Free Trade Area Andean Trade Preference Act or Andean Trade Promotion and Drug Eradication Act United States-Jordan Free Trade Area Implementation Act Agreement on Trade in Pharmaceutical Products Uruguay Round Concessions on Intermediate Chemicals for Dyes United States-Morocco Free Trade Agreement Implementation Act Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA) United States-Caribbean Basin Trade Partnership Act United States-Singapore Free Trade Agreement United States-Oman Free Trade Agreement Implementation Act United States-Peru Trade Promotion Agreement Implementation Act United States-Korea Free Trade Agreement Implementation Act United States-Columbia Trade Promotion Agreement Implementation Act IL J, J* or J+ JO K L MA P or P+ R SG OM PE KR CO The Symbols, or Special Program Indicators (SPI) are further explained below beginning with Lesson 5 of this Chapter. Lesson 3: The Trade Promotion Authority and the Trade Act of 2002 As mentioned in Module 2, Trade Promotion Authority ( TPA ) allows the President, in consultation with Congress, to negotiate trade agreements. The Trade Act included the renewal of the GSP, the expansion of the benefits of the existing Andean Trade Preference Act, Caribbean Basin Economic Recovery Act, and the African Growth and Opportunity Act preferential trade regimes. The Trade Act of 2002 also included: The Trade Adjustment Assistance Program to help workers who face loss of work due to imports or if their employer moves production to a country that enjoys the benefits of a preferential trade agreement with the United States; Financial support to the Automated Commercial Environment system (ACE); Appropriations for textile trans-shipment operations; and

15 The authority for CBP to collect shipment data from carriers in advance of the arrival at the first port in the U.S. Lesson 4: The Generalized System of Preferences (General Note 4) The Generalized System of Preferences (GSP), a program designed to promote economic growth in the developing world, provides preferential duty-free entry for more than 4,650 products from 131 designated beneficiary countries and territories. The GSP program was instituted on Jan. 1, 1976, and was authorized under the Trade Act of 1974 for a 10-year period. It has been renewed periodically since then, including the Trade Act of 2002 and most recently in 2011, when President Barack Obama signed legislation that re-authorized the GSP program through July 31, In addition to providing documentary proof of eligibility, goods that are eligible for duty-free treatment under GSP (19 U.S.C ) are identified by an A, A* or A+ on the entry. You must determine the 10 digit HTS code for the goods. After the HTS code is determined, reference the duty rate in the "Special Rates" sub column. If the SPI for your trade preference program or free trade agreement is listed under Special Rate, your goods are eligible for the rate indicated. Details regarding current countries, benefits and conditions of eligibility for GSP can be found in the General Note 4 of the HTSUS. Duty-free treatment under the GSP is subject to the following conditions: 1. The merchandise must have been produced in a beneficiary country. To be produced in a beneficiary country occurs when: a) the goods are wholly the growth, product, or manufacture of a beneficiary country or b) the goods have been substantially transformed into a new or different article of commerce in a beneficiary country. 2. The merchandise must be imported directly from any beneficiary country into the customs territory of the United States. 3. The cost or value of materials produced in the beneficiary country and/or the direct cost of processing performed there must represent at least 35 percent of the appraised value of the goods. Tariffs which are subject to this limitation are designed by an A+ in the special column. 4. Documentation must be presented to CBP upon request. For formal entries, a declaration that the product qualifies is required on the invoice for products wholly

16 made or grown in one single country. If the product is made in more than one beneficiary country, a certificate of origin, Form A, is required to be kept on file. Verification of origin is not required for informal shipments unless requested by CBP. Goods imported into a beneficiary country or territory may be included in the value calculation for GSP purposes. This is acceptable only if the imported goods have undergone a double substantial transformation in a beneficiary country. This means the materials have been substantially transformed into new or different goods and then used as inputs in the production of the final product exported to the United States. This is applicable when the tariff number is subject to the least-developed beneficiary designation. The direct cost of processing includes costs directly incurred in the production process such as: labor research and development dies, molds, tooling depreciation of equipment inspection and testing (19 C.F.R ) Specifically excluded from the calculation of direct cost of processing are general business and administrative expenses such as: insurance administrative and salesman salaries profits advertising (19 C.F.R (a)(2)) When claiming GSP, or any other special provision, the importer must be able to substantiate all additions and subtractions made to the value and content upon Customs request. CBP has the authority to demand production records relevant to the manufacture of the product from the importer, the foreign exporter, or both. This type of request may be made to verify any special program claim and is usually requested on a Customs Form 28 - Request for Information. The inability to produce the requested information can subject the importer to denial of duty free treatment, and ultimately, possible fines and penalties. Recordkeeping requirements for GSP claims are outlined in 19 CFR through Documentation supporting the country of origin and GSP eligibility must be retained for a period of five years. GSP importations are subject to a review through a Compliance Assessment or other audit review by Customs Regulatory Audit. During a compliance assessment, such review will usually occur when the volume of GSP importations by the audited importer exceeds $10 million dollars for the fiscal year under review. However, GSP transactions of a lesser volume may be

17 reviewed during the compliance assessment as well if they are among those transactions under review for another issue. If the transactions exhibit compliance problems, Regulatory Audit may expand its review to include additional GSP transactions. Lesson 5: Caribbean Basin Economic Recovery Act (General Note 7) The Caribbean Basin Economic Recovery Act (CBERA) allows non-reciprocal tariff preferences by the United States to developing countries in the Caribbean Basin area to aid their economic development and to diversify and expand their production and exports. CBERA remains a vital element in U.S. economic relations with its neighbors in Central America and the Caribbean. CBERA was the first U.S. trade program to contain intellectual property rights (IPR) related provisions. The CBTPA requires that each participating country must meet all the CBERA IPR criteria as well as satisfying the CBTPA s criteria that the country is meeting or exceeding its WTO trade-related aspects of intellectual property rights obligations and is taking steps to provide protection equivalent to standards found in bilateral IPR agreements. The Caribbean Basin Initiative (CBI) became effective on January 1, 1984 through CBERA. CBI was substantially expanded in 2000 through the U.S.-Caribbean Basin Trade Partnership Act (CBTPA). The CBI currently provides 24 beneficiary countries with duty-free access to the U.S. market for most goods. CBTPA will continue in effect until September 30, 2020, unless another free trade agreement provided for in the legislation comes into force between the U.S. and the 9 CBTPA beneficiary countries first. Entries claiming preferential tariff treatment under CBERA must include the special program symbol on the entry. For CBERA the HTSUS classification number should be preceded by E or E*. The countries and territories which are entitled to the benefits of the CBERA can be found in the General Note 7 (a) of the HTSUS. Entries under CBTPA should be preceded by an R. Goods originate if they are wholly obtained or produced entirely in a CBTPA territory, or based on the requirements in General Note 17. The duty-free entry of goods under CBERA is subject to all of the following conditions: The merchandise must be imported from any beneficiary country directly into the customs territory of the United States. The merchandise must be wholly the growth, product, or manufacture of a beneficiary country or substantially transformed into a new or different article of commerce, which has been grown, produced, or manufactured in a beneficiary country. (19 C.F.R ) Documentation must be presented to CBP upon request. For formal entries, a declaration that the product qualifies is required on the invoice for products wholly

18 made or grown in one single country. If the product is made in more than one beneficiary country the CBI Declaration found at 19CFR , is required to be kept on file. Verification of origin is not required for informal shipments unless requested by CBP. Duty-free treatment under the CBERA may be accorded to merchandise only if the sum of the cost or value of the material produced in a beneficiary country or countries, plus the direct costs of processing operations performed in a beneficiary country or countries, is not less than 35 percent of the appraised value of the article at the time it is entered. The value attributed to Puerto Rico and the U.S. Virgin Islands may also be counted because they are part of the agreement. The value attributed to U.S. goods other than Puerto Rico may be counted but only up to 15 percent of the value. Materials from non-beneficiary countries may be included in the 35 percent calculation if they are substantially transformed and then used in the production of the eligible article. In addition, articles from Puerto Rico processed in a CBI beneficiary country may enter the U.S. duty free if they are imported directly from a beneficiary country, advanced in value or improved in condition in the beneficiary country and material added in the beneficiary country is the product of a beneficiary country or the U.S. Articles assembled or processed from U.S. goods in a beneficiary country are also duty free. Lesson 6: United States-Israel Free Trade Area Implementation Act of 1985 (General Note 8) This was the first free trade agreement entered into by the United States. It was signed into law by President Reagan in 1985 and has no termination date. Tariff numbers are indicated with IL if eligible for U.S.-Israel Free Trade Area Implementation Act (IFTA). IFTA was amended in 2009 so that articles of qualifying industrial zones encompassing portions of Israel and Jordon and Israel and Egypt are also eligible for duty free treatment. This includes eligible products manufactured in or shipped from the Gaza Strip and the West Bank. Lesson 7: Andean Trade Preference Act or Andean Trade Promotion and Drug Eradication Act (General Note 11) The Andean Trade Promotion and Drug Eradication Act (ATPDEA) provided duty-free access to U.S. markets for a wide range of exports from Ecuador. It was enacted on October 31, 2002 as a replacement for the similar Andean Trade Preference Act (ATPA) and originally also included Bolivia, Columbia, and Peru that have since been replaced by other free trade agreements. The purpose of this program is to combat drug production and trafficking in these Andean countries and help these countries foster legitimate industries. Eligible goods were identified at the time of entry by either a J or J+ preceding the HTSUS classification. In addition, the importer had to provide CBP with CBP Form 449, ATPDEA Certificate of Origin, upon request. The program expired July 31, 2013.

19 Lesson 8: United States - Jordan Free Trade Area Agreement (General Note 18) On October 24, 2000, the United States and the Hashemite Kingdom of Jordan signed the U.S.- Jordan Free Trade Agreement ( JFTA ). JFTA was implemented on December 17, JFTA is the third free trade agreement entered into by the United States and is the first U.S. agreement with an Arab country. The major provisions addressed in the JFTA include: Intellectual Property Rights: Includes the most up-to-date international standards for copyright, patent, and trademark-related commitments Electronic Commerce: Promotes a liberalized trade environment for e-commerce Trade-Related Environment: Implementation of environmental protection laws Labor Provisions: Includes provisions to protect workers rights Services: Provides for liberalization in certain sectors of trade Consultation and Dispute Settlements: Provides for a dispute settlement panel that will issue legal interpretations of the JFTA after consultation with both countries As with other special programs, rules of origin are specifically applied in order to determine from what country a product is imported, especially when two or more countries contribute to the production of the product. Production of the product includes material as well as labor. The rules of origin are designed to ensure that the intended beneficiary countries benefit from the trade liberalization. The rules of origin and other eligibility requirements are essentially identical to those outlined for the CBERA discussed in previous lessons. However, textile and apparel articles, imported directly from Jordan into the United States, meet the eligibility requirements only if: the article is wholly obtained or produced in Jordan; the article is a yarn, thread, twine, cordage, rope, cable or braiding, and the constituent staple fibers are spun in Jordan, or the continuous filament is extruded in Jordan; the article is a fabric, including a fabric classified in chapter 59 of the HTSUS, and the constituent fibers, filaments or yarns are woven, knitted, needled, tufted, felted, entangled or transformed by any other fabric-making process in Jordan; or the article is any other textile or apparel article that is wholly assembled in Jordan from its component pieces. Articles not wholly obtained or produced in Jordan may qualify for the preferential duty rate if they meet the standard 35 percent value requirements. Materials produced in the U.S. up to 15 percent can be applied to the 35 percent. Classification numbers eligible for the special

20 program are noted by a JO in the Special column in column 1 of the HTSUS. Eligible goods must be identified on the CBP Form 7501 at the time of entry by a JO preceding the HTSUS classification. JFTA also introduces a significant burden on the importer to make, if requested, detailed declarations supporting the claim for preference. Presidential Proclamation 7512, dated December 7, 2001, created two new annexes within the HTSUS that were necessary in order to implement the JFTA rate reductions and temporary tariff-rate quotas. These amendments, including a complete list of eligible goods, are contained in the Federal Register (66 FR ) dated December 13, These declarations include a description of: the article, quantity, numbers, and marks of packages, invoice number, and bills of lading; the operations performed in the article s production in Jordan and an identification of the direct costs of processing operations; any materials used in the article s production that are wholly the growth, product, or manufacture of Jordan, and a statement of the cost or value of these materials; the operations performed on, and a statement as to the origin and cost or value of, any foreign materials used in the article which are claimed to have been sufficiently processed in Jordan that they now qualify as materials produced in Jordan; and the origin and cost or value of any foreign materials used in the article that were not substantially transformed in Jordan. Compliance with all conditions of this and any other trade agreement provisions is mandatory in order to receive the program s benefits. Non-compliance subjects the importer to the full duty rate on the entered merchandise as well as the potential for fines and penalties. Lesson 9: United States - Chile Free Trade Agreement (General Note 26) The Chile Free Trade Agreement ( CFTA ), which was approved by Congress in 2003 and signed by President George W. Bush on September 3, 2003, is a state-of-the-art agreement that eliminates bilateral tariffs, lowers trade barriers, promotes economic integration and expands opportunities for the peoples of both countries effective January 1, It is the first comprehensive trade agreement between the United States and a South American country. Over a maximum transition period of twelve years, CFTA eliminates duties on most goods originating in the United States and Chile. There are CFTA rules of origin for preferential tariff purposes. The rules of origin for goods that are not wholly obtained from the United States or Chile are based on a tariff-shift method and/or regional value-content method. The regional