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Global Logistics & Transportation Solutions


U.S./Panama Trade Promotion Agreement By Gerald J. McManus


US/Panama Free Trade Agreement

1) U.S. Panama Free Trade Agreement Took Effect on Wednesday, October 31, 2012.

2) Immediate duty-free access for U.S. industrial goods covering 2400 tariff subheadings. Previously these subheadings had an average tariff rate of 8.3%.

3) 87% of U.S. exports of consumer and industrial products to Panama became duty-free immediately.

4) Tariff on Agricultural goods were on average 15%. 56% of current Ag trade receive immediate duty-free

treatment. Remaining tariffs eliminated over 15 years.



5) In 2010, Panama finalized a trade agreement with Canada.

6) The EU negotiated an Association Agreement with Central American countries including Panama in March, 2010. Machinery and transportation equipment, chemicals, and metals are the leading exports from the EU to Panama.

7) Government Procurement - $5.25 billion Panama Canal expansion project, plus $10 billion in other infrastructure projects.

8) U.S. exports of construction equipment used in the Canal project accounted for $280 million in 2011. Tariffs for this sector average 5%. These were immediately eliminated under the agreement.



Art 3-5 - Temporary admission of professional equipment for display or demonstration. Commercial samples (not to be sold) are free of duty. Art. 3-6 - Goods may re-enter the exporting country free of duty after being exported to be repaired or altered as long as the work does not destroy the essential character of the item. Art. 3-10 - No Merchandise Processing Fee may be levied on Originating goods entering either country.


U.S./Panama Duty Reduction Categories, Annex 3.3

Category A Duty free on October 31, 2012 B 5 equal stages. Duty-free effective January 1 of year 5 (Korus B = 2 equal stages)

C 10 annual stages. Duty-free effective Jan 1 of year 10 (Korus C = 3 equal stages) D Remain at base rate for years 1 through 5. Beginning January 1 of

year 6, duties reduced in 5 equal annual stages. Duty-free January 1 of year 10 (Korus D = 5 equal stages beginning March 15, 2012)

E 15 equal annual stages. (Korus E = 6 equal stages) F Remain at base rate for years 1 through 5 Beginning January 1 of

year 6 duties reduced in 10 equal annual stages. Duty free January 1 of year 15. (Korus F = 7 stages)


U.S./Panama Duty Reductions Stages

Category G Base rate during years 1 through 8. Beginning January 1 of year 9,

duties reduced in 7 equal stages. Goods duty free Jan 1 year 15. H Base rate during years 1 through 9. Beginning January 1 of year 10,

duties reduced in 8 annual stages. Duty free January 1 of year17. I Remains free of duty

Staging – In addition to the staging categories listed in Annex 3.3 (above), Appendix 1 contains staging categories M,N,O,P,Q,R,S,T,U,V,W, and X.

Category N Duties shall be reduced 3% of base rate immediately, and by an

additional 3% on Jan 1 of year 2. Duties shall be reduced 5% in year 3, and by an additional 5% for of each year until year 6. Duties shall be reduced 18% in year 7 and in year 8, Duties reduced additional 19% in year 9 and duty free on January 1 of year 10.


U.S./Panama Duty Reductions Stages

Year One means the year this Agreement enters into force. Beginning in year two, each annual stage shall take effect on January 1 of the year. Year 2 will begin January 1, 2013 ( A little over a month)


Panama Rates of Duty

Chapter 28 Inorganic Chemicals All free except: 2804.40 Oxygen – C; 2811.21 Carbon Dioxide – C; 2844.10 Uranium – B.

Chapter 29 Organic Chemicals All free except: 2901.29 Other Acyclic hydrocarbons – C

Chapter 30 Pharmaceutical Products All free except: 3005.90 Other wadding, gauze, bandages – C

Chapter 31 Fertilizer All free

Chapter 32 Tanning & Dyeing Extracts Mostly A, also B, C, and N

Chapter 33 Essential Oils, Perfumery, Cosmetics Mostly A, also B, C, and N

Chapter 34 Soap, Organic surface agents, wax, etc. Mostly A, also B, C and N


U.S./Panama Duty Reduction Stages

www.ustr.gov Go to: Free Trade Agreements; Then go to: Panama TPA (Trade Promotion Agreement) Then go to: Full Text of the Agreement; Then go to: General Notes and Tariff Schedule (Toward the end of the

Agreement); Then go to: Panama Industrial and Textile Tariff Schedule

HTS Description Base Rate Stage 2901.1010 Hexano LIBRE I 2901.1020 Isoctano 2% A 2901.2910 Acetileno 12% C For Reduction Stages for imports into U.S. from Panama, go to: U.S. Industrial and Textile Schedule

http://www.ustr.gov/


Harmonized Tariff Terminology

Synthetic Detergents HTSUS 3402.90.1000

Chapter 34 Heading 3402 Subheading 3402.90

****** Rate Subheading 3402.90.10 Statistical Subheading 3402.90.1000


U.S./Panama FTA Rules of Origination

www.ustr.gov Go to: Free Trade Agreements; Then go to: Panama TPA; Then go to: Annex 4.1 Specific Rules of Origin 0101 – 0106 A change to heading 0101 through 0106 from any other chapter.

http://www.ustr.gov/


Tariff Shift Review #1

You produce Synthetic Detergents (3402.90) here in the United States and sell to Panama.

The Synthetic Detergents are made from Polyhydric Alcohols (3402.13) imported from China. This is the only non-originating ingredient in the product.

Your Panamanian customer is requesting a Certificate of Origin for the Detergents. Can you give them one?

U.S/ Panama FTA Rule of Origination

3402.90 - A change to subheading 3402.90 from any other subheading.



You produce Printing Ink (3215.11.0010) here in the United States.

This Printing Ink is made from Pigments (3212.90.0050) imported from Malaysia.

Your Panamanian customer is requesting a Certificate of Origin.

Can you give them one?

U.S./Panama FTA Rule of Origination

A change to subheading 3215.11 from any other Chapter.



You produce Arsenic Trioxide (2811.29.1000) here in the United States and sell to Panama.

This Arsenic Trioxide is made from Arsenic (2811.29.5000) imported from Mexico. (This Mexican Arsenic originated under NAFTA when imported into U.S.)

Your Panamanian customer is requesting a Certificate of Origin.

Can you give them one?


2811.29 - A change to subheading 2811.29 from any other subheading.



You process metals (2805.12.00) here in the U.S. and sell to Panama. Your Panamanian customer is asking if these metals “Originate” under the Agreement.

The only non U.S. material added during processing is Barium (2805.19.20) from Australia.

U.S. /Panama Rule of Origination

A change to 2804.10 through 2806.20 from any other subheading.


U.S./Panama De Minimis – Art. 4.6

o Except as provided in Annex 4.6 (Exceptions to DeMinimis) each Party shall provide that a good that does not undergo a change in tariff classification is nonetheless Originating if the value of all Non-Originating Materials used in production of the good does not exceed 10% of the Adjusted Value. However, the value of Non-Originating Material will be included in any Regional Value requirement.

Exceptions to De Minimis Annex 4.6

o Chapters 1 through 24 require a different subheading. Additional De Minimis exceptions in Chapters

4, 8, 9, 15, 17, 18, 19, 20, 21, 22 and 23.


U.S./Panama - De Minimis - “SETS”

• Article 4.13: If goods are classified as a set under GRI 3 (Goods put up in sets for retail sale), the set is Originating only if each good in the set is Originating. Or, a set is Originating if the value of all the Non-originating goods in the set does not exceed 15% of the Adjusted Value of the set.

• Annex 3.25.9: Textile or apparel goods (Ch 50 through 63) that

are classifiable under GRI 3 (Goods put up in sets for retail sale) shall not be regarded as Originating unless each of the goods in the set is Originating or total value of Non-originating goods does not exceed 10% of the Adjusted Value of the set.


U.S/Panama - Adjusted Value

Article 4.23 Definitions

Adjusted Value – Means the value of the goods, adjusted if necessary to exclude any costs, charges or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise from the country of exportation to the place of importation.

Adjusted value for merchandise exported from the U.S. would be the FOB U.S. port value. Adjusted value for merchandise imported into the U.S. would be the FOB foreign port value.


U.S./Panama FTA - De Minimis

You sell a chemical product (3811.21) to Panama. Your

Bill of Materials shows:

Material A (U.S) 3812.10 $0.60 Material B (Canada) 3811.30 0.05 Material C (Panama) 3811.21 0.10 Material D (China) 3811.21 0.10 Labor 0.05 Profit 0.05 General Expense 0.05 Selling Price (FOB Philadelphia) $1.00


A change to subheading 3811.21 from any other subheading.


U.S./Panama Textile - De Minimis (Article 3.25.7)

o A textile or apparel good that is not originating because certain fibers or yarns used in the production of the component of the good that determines the tariff classification do not undergo an applicable change in tariff classification, shall nonetheless be considered to originate if the total weight of all such fibers or yarns in that component is not more than 10 percent of the total weight of that component.

o However, Elastomeric Yarns in the component of the good that determines the tariff classification shall be considered Originating only if such yarns are wholly formed

in the territory of a Party.


U.S./Panama TPA - Regional Value Content

Regional Value Content requirement is included in the Rules of Origination in the following Chapters:

39 - Plastics 87 - Vehicles 73 – Iron or Steel 89 - Ships 74 - Copper 90 – Optical, Photographic 76 - Aluminum 91 - Clocks 81 – Other Base Metal 92 – Musical Instruments 82 - Tools 93 – Arms, Ammunition 83 – Misc. base metal 94 - Furniture 84 – Mechanical 95 - Toys 85 - Electrical 96 – Misc. Manufactured 86 - Rail


Regional Value Content (Same for all Recent FTA’s)

Build-down Method RVC = AV - VNM X 100 AV

Build-up Method RVC = VOM X 100 AV

AV is the Adjusted Value of the good VNM is the value of NON-Originating Material VOM is the value of Original Material

RVC Requirement is usually 35% Build-Up or 45% Build-Down


Regional Value Content

You sell Electron Guns (8540.99) to Colombia. These guns are made using Chinese microwave tubes. Your BOM shows:

$ 80 for Chinese tubes (8540.99) $ 40 for U.S. material $ 30 for labor and profit $150 Selling price, FOB NY

8540.99 - A change to any other subheading, or a Regional Value Content of: a) 35% under the build-up method, or b) 45% under the build-down method

Build-up Method Build-down Method

RVC = VOM X 100 RVC = AV - VNM X 100 AV AV 27% = $40 X 100 46% = $150 - $80 x 100 $150 $150


U.S./Panama TPA - VALUE OF MATERIALS

For purposes of calculating the Regional Value Content and for applying De Minimis rules, the value of a material is:

• Art. 4.4-1 Originating Goods – The following expenses, if not included in the value, may be added to the value of the Originating material: Freight, insurance, packing, duties, brokerage fees and other costs incurred up to the place of the producer.

• Art. 4.4-2 Non-originating Material – The following expenses, if included in the value of Non-originating material, may be deducted: Freight, insurance, packing, duties, brokerage fees, and all other costs incurred in transporting the material within or between the parties.

Same for All Recent FTA’s


Non-Originating Materials - RVC & De Minimis

You produce a chemical product (3811.21) that is used in coating textiles. Your FOB BOM China Material A (U.S) 3812.21 $0.60 Material B (Germany) 3811.29 0.04 Material C (Panama) 3811.21 0.10 Material D (China) 3811.21 0.11 $0.10 Labor 0.05 Profit 0.05 General Expense 0.05 Selling Price (FOB Philadelphia) $1.00

U.S./Panama Rule of Origination

A change to 3811.21 from any other subheading.


Automotive Goods - Regional Value Content

RVC = NC - VNM X 100

NC

Art. 4.2-3 Net Cost Method of calculating Regional Value Content only applies to the following Harmonized Tariff Numbers:

8407.31 thru 8407.34 (Engines) 8408.20 (Diesel) 8409 (Parts of engines) 8701 thru 8705 (Vehicles) 8706 thru 8707 (Chassis) 8708 (Motor vehicle parts)


Miscellaneous Articles

Regional Value Content & DeMinimis

o Art. 4.8: Accessories, Spare Parts and Tools – Disregard if shipped with the goods; And classified with the goods; And not invoiced separately; And quantities are customary.

o `Art. 4.9: Packaging material and containers for retail sale - Disregard for tariff shift. Include value for Regional Value Content.

o Art. 4.10: Packing materials and shipment containers – Disregard.

o Art. 4.11 Indirect Material is considered Originating. Fuel, tools, dies, lubricants, clothing, testing apparatus, catalysts & solvents, and other goods not incorporated into the good

o Art. 4.12: Good must be shipped directly between the parties.


Panama TPA Sec. VI - Chemicals (Ch 28-38)

Notes to Section VI – Chemicals (Chapters 28 – 38)

Rules 1 through 7 confer origin to a good of any heading or subheading in this Section, unless otherwise specified.

Rule 1 – Chemical Reaction Rule 2 – Purification Rule 3 – Mixtures & Blends Rule 4 – Change in Particle Size Rule 5 – Standards Material Rule 6 – Isomer Separation Rule 7 – Separation Prohibition

Notes to Section VII Chemicals & Allied Products (Chapter 39- 40)

Rule 1, Rule 2, Rule 3, Rule 4, Rule 6 Confer Origin in this Section


U.S./Panama TPA Claims for Preferential Tariff Treatment

Art. 4.15: Each Party shall provide that an importer may make a claim for preferential treatment based on either

(a) a written or electronic certification by the importer, exporter, or producer, or (b) the importer’s knowledge that the good is an originating good, including

reasonable reliance on information in the importer’s possession that the good is an originating good.

Art. 4-17: Certification not required where the Customs value does not exceed $1500.

Art. 4-19: All necessary records to be maintained for five years.

Art. 4-16.4: Importer must have in its possession at the time the declaration is made, a written or electronic certification as described in Art. 4-15 if the certification forms basis for the claim.

Art. 4.16.5: If the Importer did not make claim at importation, the importer may, no later than one year after importation make a claim by presenting

written or electronic evidence.


CBP Implementing Instructions, November 8, 2012

A certification need not be made in a prescribed format provided that the certification is in written or electronic form, including the following elements: 1. Name, address, telephone, and e-mail of the importer; 2. Name, address, telephone, and e-mail of the exporter; 3. Name, address, telephone, and mail of the producer; 4. Description of the good; 5. Tariff classification (HTS) at least 6-digits; 6. Preference criteria (GN Note 35(b) or Annex 4.1) Indicate the product-specific rule in GN 35 (o) or Annex 4.1 7. Single shipment (Invoice Number) 8. Period that the blanket certification covers. 9. Authorized signature, company, title, fax, e-mail & date


CBP Implementing Instructions, November 8, 2012

10. Certification: I certify that the information on this document is true and accurate and I assume the responsibility for proving such representations. I understand that I am liable for any false statements or material omissions made on or in connection with this document;

I agree to maintain and present upon request, documentation necessary to support these representations.

The goods comply with all requirements for preferential tariff treatment specified for those goods in the United States-Panama Trade Promotion Agreement. This document consists of _____pages, including all attachments.

Signature, Company, Title, Phone No., Fax No., Email address, and Date.


Preference Criteria (Column 7)

NAFTA Criterion “A” - The good is wholly obtained or produced entirely in the territory of one of or both of the parties

Korea 6.1(a) Panama and Colombia 4.1(a) Chamber of Commerce (a)

NAFTA Criterion “B” - The good is produced in the territory of one or both of the parties and satisfies the tariff shift and/or regional value content.

Korea 6.1(b)(i) for tariff shift; 6.1(b)(ii) for RVC Panama and Colombia 4.1(b)(i) for tariff shift; 4.1(b)(ii) for RVC Chamber of Commerce (b)(i) for tariff shift; (b)(ii) for RVC

NAFTA Criterion “C” - The good is produced exclusively from originating materials, e.g., The producer has certificates of origination from all domestic suppliers

Korea 6.1(c) Panama and Colombia 4.1(c); Chamber of Commerce (c)



U.S./Panama Trade Promotion Agreement By Gerald J. McManus for further information please contact: [email protected]

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