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Free Trade Agreements

For March 14 seminar
by

Sara Grogan

on 5 February 2013

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Transcript of Free Trade Agreements

FTAs Around the World What is an FTA? Free Trade Agreements An FTA is a bilateral trade agreement between two or more countries where the countries agree on certain policies that affect trade in goods and services.

These policies include the following:
- Duty Rates
- Non-Tariff Trade Barriers
- Protection for Investors
- Customs Regime Co-operation
- Legal Co-operation
- Foreign Standards Co-operation
- Intellectual Property Rights How is an FTA Ratified? A “Customs & Trade Solutions Inc.” survey conducted in 2011 asked US businesses what they were able to save by qualifying their products for duty-free FTA treatment.

They found that 28% of businesses recorded over $500,000 in savings just in duty treatment alone

And that almost half reported savings of at least $50,000 FTAs and U.S. Trade FTAs account for almost half of US Trade
- In 2010 FTA partners accounted for less than 9% of the world’s GDP yet they account for 41% of the US export market

FTAs add half a trillion dollars to the US economy
- $572.9 billion was added to the US economy by just 17 countries in 2010, and that number is growing

FTAs grow US exports
- In 2011, US exports grew 14.8% with Non-FTA countries but US exports grew 17.1% with its FTA partners

FTAs helps the US service industry
- The US has a trade surplus in services with its FTA partners Future U.S. FTAs Powering Global Trade Today's Agenda: What is a Free Trade Agreement?
How is an FTA Ratified?
FTA Myths
How FTAs affect U.S. Trade
Benefits of FTAs for U.S. Businesses
Current U.S. FTAs
Future U.S. FTAs
FTAs Around the World
FTA Best Practices
FTA Resources Myth #1 – If the product comes from a country party to the FTA, then the product is duty-free

Myth #2 – As soon as a FTA goes into force all products are duty-free

Myth #3 – As long as a product becomes duty-free, anti-dumping or countervailing duties can never be assessed

Myth #4 – Claims for preferential treatment (duty-free treatment) are never investigated by regulatory agencies

Myth #5 – Transshipment is allowed in all FTAs FTA Myths Investigation Phase

1. Discussion between current trading partners about the advantages and degree of mutual interest in entering into an FTA takes place

2. Investigation into current trade relations and the issues which need to be addressed by all parties

3. A series of talks and negotiations take place regarding the reductions of tariffs, transition period, rules of origin, and other pertinent concerns How is an FTA is Ratified? U.S. Negotiation Phase

1. Once terms are agreed upon, The Office of the US Trade Representative (USTR) and other agencies, including State, Commerce, Agriculture, and Treasury, reviews the relevant laws, regulations, and administrative practices (measures) of the FTA partner.

2. The FTA partner is advised of any shortcomings in its laws and other measures, and the Administration consults with the FTA partner on the issue(s). If requested, assistance is provided to help a trading partner implement its commitments.

3. Only when the President determines that the FTA partner has taken measures necessary to comply with the provisions of the agreement, will he/she authorize the FTA to enter into effect. How is an FTA is Ratified? Ratification Phase

1. The requirements agreed upon during negotiations are drafted into separate legislative acts for each partner to be made into domestic law

2. The bills are then presented to the legislative bodies of each partner country for ratification

3. Once the bills have passed their legislative bodies they will be signed into law by the executives of the partner countries

4. After all partners have signed the agreed requirements into law, the FTA is put into effect How is an FTA is Ratified? U.S. Review and Assist Phase

1. Once an FTA has entered into force, the administration continuously reviews the FTA partner’s laws, and other measures to ensure it continues to meet its commitments.

2. A Trade Compliance Program is initiated to provide assistance to US companies affected by the new FTA How is an FTA is Ratified? Trade Promotion Authority

1. Trade Promotion Authority (TPA) has been one of the most useful tools for the US when negotiating FTAs

2. TPA allows the President to negotiate a bilateral FTA based on Congressional guidelines

3. The FTA is signed by the President and then presented to Congress for a vote without the opportunity to add any additional amendments

4. TPA significantly speeds up the negotiation process of FTAs for the US and most recently resulted in the signing of three new US FTAs FTAs and U.S. Trade Percent of World GDP Percent of U.S. Exports FTAs and U.S. Trade Imports and Exports of Goods with FTA Partners Benefits of an FTA Reduction and Elimination of Tariffs

FTAs are most notably known for eliminating tariffs between partner nations

This means that most US goods can enter an FTA partner’s domestic market without having to pay duty

It is important to note that NOT all products qualify for duty-free treatment

- Duty rates for some products will only be reduced

- Some products are NOT affected by the FTA
Example: The US-Australia FTA did not change the quota restrictions or tariff rate on Australian sugar Benefits of an FTA Reduction of Non-Tariff Trade Barriers

Non-tariff trade barriers are any barrier to trade that is not a tax.
- Example: In the 1980s, to protect their domestic beer industry, the German government legally defined “beer” as having to be brewed in Germany. Therefore foreign breweries could not import their products to Germany and legally market them as actual beer.

Before the US ratifies an FTA, there must be assurances by other parties that these barriers have been eliminated by domestic law

The FTA itself can also be voided if there are non-tariff trade barriers raised after it is initiated Benefits of an FTA Easier Customs Policies

FTAs often include requirements for FTA partners to restructure and streamline their customs process.

This results in:
- Faster customs processing
- Simpler filing process
- Improved trade statistics reporting
- Better IT integration for exporters and importers Benefits of an FTA Legal Protections

Expropriation
- The right for a U.S. investors to get adequate compensation if its investment in the FTA partner country is forcibly taken by the government

Service Suppliers
- The right for U.S. service suppliers to supply their services in the FTA partner country

Government Procurement
- The right for a U.S. company to bid on certain government procurements in the FTA partner country

Intellectual Property Rights
- Protection and enforcement of American-owned intellectual property rights in the FTA partner  country

Foreign Standards
- The right for U.S. exporters to participate in the development of product standards in the FTA partner country Current U.S. FTA Partners Currently the US has 14 FTAs with 20 different countries

The most recent agreements came in 2012 with the addition of S. Korea, Colombia, and Panama Trans-Pacific Partnership (TPP)

In November 2009, the United States announced its intention to participate in the Trans-Pacific Partnership (TPP) negotiations, an Asia-Pacific trade agreement that reflects shifting US priorities and values

As a group, TPP countries are the 3rd largest goods export market and 4th largest services export market for the US

U.S. goods exports to the Asia-Pacific totaled $618 billion in 2009, 58 percent of total US goods exports to the world Current U.S. FTA Partners Current U.S. FTA Partners South Korea, Colombia, and Panama

These three countries are the newest US FTA partners with their FTAs being ratified in 2012

South Korea
- GDP: $1.5 trillion (12th largest economy - 2012)
- Exports to US: $100 billion (6th largest export partner - 2012)

Colombia
- GDP: $471.9 billion (29th largest economy - 2012)
- Exports to US: $14.3 billion (22nd largest export partner - 2012)

Panama
- GDP: $50.61 billion (93rd largest economy - 2012)
- Exports to US: $8.2 billion (32nd largest export partner - 2012) Current U.S. FTA Partners NAFTA

On January 1, 1994, the North American Free Trade Agreement between the United States, Canada, and Mexico entered into force and all remaining duties and quantitative restrictions were eliminated by 2008.

NAFTA created the world's largest free trade area, which now links 450 million people producing $17 trillion worth of goods and services.

The NAFTA countries (Canada and Mexico), were the top two purchasers of U.S. exports in 2010.  (Canada $248.2 billion and Mexico $163.3 billion)

The NAFTA countries were the second and third largest supplier of imports to the U.S. in 2010.  (Canada $276.5 billon, and Mexico $229.7 billion) Future U.S. FTAs Trans-Pacific Partnership Countries Future U.S. FTAs U.S.-EU Free Trade Agreement?

Although there is currently no official reports of a US-EU FTA being negotiated, it is well known that both parties have expressed an interest in expanding US-EU trade integration by 2014 through some type of trade agreement

-The US exported $268.5 billion to the EU in 2011
-The US imported $368.4 billion from the EU in 2011

An EU-US FTA would help significantly close this gap by allowing US products easier access to the worlds largest trading bloc

A US Chamber of Commerce study found that eliminating trade barriers between the US and the EU would increase trade volume by $120 billion in five years FTAs Have become a global phenomenon

According to the WTO, as of July 2010, 474 FTAs and customs unions have been or are being negotiated around the world

Approximately 283 FTAs and customs unions were in force by the end of 2012 European Union's FTAs China's FTAs Japan's FTAs FTA Best Practices

Manufacturing process – Know your manufacturing process
Harmonized tariff classification – Verify accuracy of HTS
Changes to sourcing – Changes in sourcing arrangements should be immediately communicated to logistics and trade compliance function within company
Endorsing certificate of origin – Designate individual(s) within the company who have authority to sign certificate of origin
Relationship with broker - Clear instructions should be sent to broker regarding the application of preferential treatment
Written procedures – Incorporate FTA management within your import/export procedures manual
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