Why do traders need advanced FTA software?
Free trade agreements, or FTAs, offer great opportunities for businesses to import and export goods without the costs of tariffs, quota management or other red tape. However, this does not mean that processes for shipping goods within these agreements will always be straightforward.
For example, when dealing with imports to the US, there are still a range of factors to be considered, even when taking advantage of FTA arrangements. Issues such as rules of origin and supplier management can still pose problems for businesses, increasing the time and costs required for goods to clear customs.
To address these issues, it pays to have effective FTA software in place to manage the process from end to end. This can greatly streamline critical activities and declarations from businesses to the US Customs and Border Protection (CBP) and other agencies, ensuring that they remain fully in compliance with FTA requirements at all times.
Understanding the US FTA environment
The US has relatively few full FTAs with partner nations around the world in comparison with some of its allies. For instance, while the EU has 41 trade arrangements covering 72 countries and territories and the UK has 38 active free trade agreements, the US maintains just 14 comprehensive FTAs covering 20 countries.
Of these, the most significant is the trilateral USMCA deal with its neighbors Canada and Mexico, which are the nation's two largest trade partners. Its other FTA agreements, as listed by the CBP, are as follows:
- Australia Free Trade Agreement (AUFTA)
- Bahrain Free Trade Agreement (BHFTA)
- Central America-Dominican Republic Free Trade Agreement (CAFTA-DR)
- Chile Free Trade Agreement (CLFTA)
- Colombia Trade Promotion Agreement (COTPA)
- Israel Free Trade Agreement (ILFTA)
- Jordan Free Trade Agreement (JOFTA)
- Korea Free Trade Agreement (KORUS)
- Morocco Free Trade Agreement (MAFTA)
- Oman Free Trade Agreement (OMFTA)
- Panama Trade Promotion Agreement (PATPA)
- Peru Trade Promotion Agreement (PETPA)
- Singapore Free Trade Agreement (SGFTA)
In addition, the country has a more limited trade agreement with Japan - the US' fourth-largest trading partner - that provides tariff elimination or reduction on 241 product lines.
Meeting rules of origin requirements
One of the biggest areas of focus for importers to the US will be ensuring compliance with rules of origin requirements. These are used to determine whether or not goods entering the US from its FTA partners are actually eligible for tariff-free treatment. If too many component parts actually originate from elsewhere, duties may still have to be paid,
The details of rules of origin differ between FTAs. Calculations for agreements with the likes of Australia, Chile, Colombia, Korea and Singapore are determined based on Harmonized System product classification numbers. However, Israel, Jordan, Bahrain, Morocco, and Oman use the 35 percent Appraised Value method - meaning 35 percent of the final value of a good must originate in these countries to be eligible for FTA benefits.
Such determinations can be difficult for businesses, especially when dealing with complex manufactured goods. Using comprehensive FTA software can take much of the work out of this, calculating the true origin of an item and issuing the correct certification in a format that meets all US government requirements. This provides essential compliance and peace of mind for importers.
Effective supplier declaration management
Accurate supplier declarations are critical to getting rules of origin certifications correct. If these are delayed, incomplete or inaccurate, this can lead to incorrect information being given to CBP. In turn, this can result in a range of consequences, from shipments being delayed at ports until the correct documentation is provided through to the potential for additional costs if firms have incorrectly claimed tariff-free status.
Being able to manage these easily in one place is another key benefit of an FTA software system. A comprehensive tool should be able to automate the collection of critical information and be able to send either manual or automated requests via the web, email or paper.
The right software ought to offer easy assignment and maintenance of suppliers and provide a standardized process for supplier declaration management, regardless of the country suppliers are located in. It should also be able to make an automatic recalculation for items if there are changes to supplier declarations, including reissuing documents when a change to originating status occurs.