I was going to name this entry “TPP vs. NAFTA for TCPs[i]”,
but honestly we trade compliance folk have to deal with enough acronyms
already….
Unless you have been living under a rock the last year or
so, you have no doubt heard of the Trans-Pacific Partnership (TPP). Most of the
press has revolved around the political implications of TPP, such as impact on
jobs and sovereignty. As a trade compliance professional you need to start
thinking about the “how” of TPP. In other words, how are you going to implement
TPP at your company, and is your automation prepared for it?
TPP is a free trade agreement, like many others, but there’s
some aspects to it that may seem new or unusual to many. I’m writing this
primarily to a North American audience, so I’ll use NAFTA as my model to
contrast against the TPP model. This is just a blog entry, so it will not be
comprehensive, but my goal is to alert the reader to significant differences
between NAFTA and TPP, that they should investigate further. I apologize in
advance to anyone unfamiliar with some of the terms used here: this write up is
intended for an audience that already has an appreciation for how NAFTA works.
Most companies in North America have had a stable,
preferably automated solution in place for NAFTA compliance for some time.
Personally, I use SAP GTS, but there are a number of options on the market for
automated rule of origin checks. NAFTA rules of origin[ii]
(ROO) are fairly consistent, across the range of goods. The rules are driven by
the tariff classification (HTS), and there are hundreds of them, but the
structure of those rules tends to follow a common theme.
The majority of NAFTA ROO use the following basic tools:
·
% of regional (NAFTA) content
·
Shift in HTS between component and finished good
·
Some combination of both
I’d like to address the issue of % content, and contrast how
NAFTA and TPP determine this. There are a couple significant differences.
First, NAFTA overwhelmingly measures content by value, i.e. “50% regional value
content”. A search of Annex 401 reveals that only 3 product specific ROO
require a check of % by weight (as well as a general rule that applies to all
of chapter 62).
In contrast, TPP ROO[iii]
contains over 3 dozen product specific ROO referencing weight. Furthermore,
some of these appear in chapters where NAFTA did not reference weight, such as
the rule for HTS 3901. Anyone performing ROO checks on one of these products
will have to verify that their systems can handle this. Furthermore, even TPP’s
use of regional value content differs from NAFTA. NAFTA had a standard rule
where value is checked for 50% if Net Cost is used, and 60% if Transaction
Value is used. TPP uses % by value, but the %’s range wildly: I have seen, 30,
35, 40, 45, 50, 55%.... This will present a challenge to any system built
around the 50/60 split. TPP also uses different categories of value: instead of
Net or Transaction, it uses Net, Build Up, Build Down and Focussed Values. The
variety of rule types is significantly more than found in NAFTA.
Apart from the product specific rules, another area of
difference is found in the large amount of country specific exceptions. Unlike
NAFTA, TPP seems to be much more open to unique exceptions by country. Likely
this is due to the significantly larger amount of countries involved, as
opposed to just 3 in NAFTA.
I don’t want to make this sound entirely negative or scary:
there is good news for us Trade Compliance folk. I live in the chemical
sections of the tariff – primarily chapters 27 through 40. In these sections,
it is clear from an early analysis that there will be less text based
conditions in TPP. What do I mean by this? Here is an example:
In NAFTA, the rule of origin for 3206.49 is very long and
depends on a number of non-tariff based criteria (what I call text based
conditions). For example, the rule differs depending on whether or not your
product is based on Hexacyanoferrates or not. In contrast, with TPP the rule is
very simple:
“A change to a good of subheading 3206.11 through 3206.50
from any other subheading.”
It doesn’t matter if you are based on Hexacyanoferrates,
Cadmium Compounds or anything you can imagine. This is great news for me, as
these conditions pose a problem for automation. For example, in SAP GTS they
are called Additional Conditions, and need to be manually set. The system is
smart, but not that smart; you need to tell it if any of the conditions apply.
Dealing with less of these conditions will be good news for me and many others
in my position.
By the way; to end this on a lighter note. Does anyone else
find it ironic that the USTR uses this logo on their TPP information page?
Considering TPP encourages US company use of foreign
content, I think “Made In America[iv]”
is an odd choice. Especially when you realize that the use of the words “Made
in America” requires “all or virtually all” of the contents to be US origin[v]!
I wonder: could you claim that the USTR misled you if you found yourself in hot
water with the FTC over a claim of USA on a good that meets the TPP ROO,
through a shift in HTS? Sorry, I did say I was going to try and avoid acronyms,
didn’t I…?
Kevin Riddell
[i]
Trade Compliance Practitioners
[ii] http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/ann-401-09.aspx?lang=eng
[iii] https://www.mfat.govt.nz/assets/_securedfiles/Trans-Pacific-Partnership/Annexes/Annex-3-D.-Product-Specific-Rules-of-Origin.pdf
[iv] https://ustr.gov/tpp/#text
[v] https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard
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