U.S. Free Trade Agreements (FTAs) are in place to increase international trade. Since the 1930s, the U.S. has implemented trade policies and agreements aimed at reducing barriers to trade. Importers can take advantage of U.S.Free Trade Agreements when looking for ways to reduce import costs.
The Office of the United States Trade Representative (USTR) leads FreeTrade Agreement negotiations. FTAs are signed with a specific partner or as part of a collective of nations. The USTR works closely with the International Trade Administration (ITA) domestically and with the World Trade Organization (WTO) internationally.
Understand the benefits and limitations of the United States FTAs before importing to ensure your goods qualify for any and all related benefits.
Despite the name, a Free Trade Agreement does not mean all import regulations disappear. Importers should also be aware of the difference between a Free Trade Agreement and a free trade policy.
First and foremost, FTAs are formal and agreed upon contracts to reduce or eliminate import restrictions between signing nations. These formal contracts are not trade free-for-alls, so there is still regulation and possibly tariffs involved.
A country that has a free trade policy isn’t taking any kind of specific action to ensure free trade. They might simply have loose or few restrictions on trade. While that sounds nice, it also opens up a nation to significant risks.
Formal agreements can ensure products meet a standard, protect local economies, and keep out potentially dangerous imports.
FTAs negotiated by the USTR are usually characterized by the following standards.
The extent of these depends on the specifics of each negotiated FTA. Sometimes these agreements help U.S. exporters more than they help importers. Even so, the goal at the end of the day is to improve the economic growth of all countries involved.
As mentioned, many FTAs are designed to specifically help American investment and foreign trade. That said, the U.S. is a member of the WTO which has guidelines in place so that negotiations between members are mutually helpful.
There are two main benefits available to importers bringing goods into the U.S. under an FTA.
In the case of imports that can’t be entered duty-free, an importer can file for preferential tariff treatment. Once granted it can bring down a tariff rate to almost nothing. You simply need to take the extra steps to properly file for it.
As far as getting goods through CBP inspections, an import shipment from a country with free trade status will typically pass through quicker and with less scrutiny than a shipment from a non-free-trade country.
FTAs help establish trust between the countries. So long as the goods or services you’re trying to import don’t have HTS flags associated with them, the CBP inspection process is going to be quick.
When there is a reduced or duty-free status attached to an FTA, there are certain rules importers need to follow. The most common are rules of origin within a particular agreement. These rules set standards for defining where products are made.
They are necessary because so many products are now made with a combination of materials. A pair of shoes, for example, could use leather from Brazil, laces and inner linings from China, and be manufactured at a factory in Italy.
There are two classes of rules of origin.
These rules specify the exact conditions that must be met in order for products to qualify for free or reduced-duty treatment.
For importers, it also means that you don’t always have to work with an FTA trading partner to get some of the perks. Just working with countries who are members of the WTO with the U.S. grants you access to MFN status for many goods.
Of course, since some of those tariff breaks are informal at best, you need to be more careful about double-checking the status. Working with an experienced Customs Broker, especially if you are new to importing can help you avoid unexpected fees.
If you’re new to importing, check out our article Importing Tools for Beginners. We cover all of the basic information you need to begin importing goods.
The United States currently has 14 standing FTAs with 20 different countries. However, new agreements are always being considered and reviewed for future viability. As the needs of the U.S. and other countries change, agreements are created, removed, or adjusted.
The free trade agreement process has its origins in the 1934 Reciprocal Trade Agreements Act (RTAA) passed by president Theodore Roosevelt. Since then, foreign trade relations and FTAs fostered by the U.S. have continued to evolve.
The United States currently has FTAs with 20 countries. Not every agreement is with just one country. As mentioned, these countries are represented in 14 different FTAs.
Trade with these nations, both in imports and exports, represents a significant amount of total U.S. trade. According to estimates from the CBP, 25% of the merchandise available for purchase to American consumers comes from countries with FTAs.
These countries are:
Canada and Mexico are among the top five nations the U.S. imports from. Trade between the U.S. and its two closest neighbors has been steadily increasing. In fact, as of May 2022, both nations lag just behind China, the number one importing nation into the U.S.
|Nation||Monthly Import Value (in billions of USD)|
The drastic rise in shipping costs has created trade barriers between some of our more distant partners. Although overland routes have also gone up in price, Canada and Mexico are still significantly closer than Vietnam or India and provide importers with cost saving benefits.
At the same time, the application of Section 301 Tariffs on many goods produced in China has made trade from there very expensive. Add that to the increased shipping costs and delays due to port congestion. Trade with partners that can be reached by truck, or with a shorter ship voyage (Central and South America) are more appealing.
Let’s consider in more detail the FTAs that have benefits specifically for importers looking to trade more regionally.
The USMCA Free Trade Agreement replaced the longstanding North American Free Trade Agreement (NAFTA) in July 2020. Having been in place since 1994, it’s played a major role in trade between the three countries.
With the USMCA in place, importers can take advantage of significant tariff breaks and protections within several industries.
Some of the more popular provisions include:
These provisions are a small fragment of the greater agreement. If you plan on doing extensive business in either country, especially for those looking to invest in cross-border manufacturing, consult with an experienced Customs Broker for more information.
Since these countries are direct neighbors, importers looking to save on things like overseas shipping should examine the agreement in detail.
There are six different countries involved in the CAFTA-DR other than the U.S., with each nation being added as negotiations progressed.
The initial nations that signed in 2006 were:
The Dominican Republic and Costa Rica joined in 2007 and 2009 respectively. While neither of these nations is recognized as a major manufacturing hub, U.S. investment has made a difference in improving what is available.
Thanks to that, most goods and agricultural products from these nations enter the U.S. without needing to pay a duty or a merchandise processing fee (MPF). The agreement is being implemented in stages, so by 2025, even products that are currently still paying some kind of tariff are likely to become eligible for duty-free status.
Import values from these countries are on the rise as well. As of 2020, each nation, even El Salvador, was exporting over two billion worth of various goods into the U.S.
|Dominican Republic||$5.35 billion|
|Costa Rica||$5.19 billion|
|El Salvador||$2.01 billion|
Popular products for importers to look into, especially in certain high demand fields, include:
Thanks to the FTAs that were negotiated with these nations, importers can take advantage of increased rule of law. With rule of law, private economies have more room to thrive and measures for fighting corruption in the trade process improve.
This is good for foreign and domestic importers looking to expand their businesses and market share.
Even with an FTA in place, goods you import must still meet certain guidelines. These include the goods having been manufactured in the country that’s eligible for free trade status.
The requirements for ensuring duty-free entry or preferential tariff treatment of imports will depend on the commodity itself and which country it’s coming from.
Proper applications and forms must be filled out according to CBP guidelines. Any permissions required before you can import goods from a country, including those that are part of free trade agreements, need to be addressed before the process even begins.
While we strongly encourage importers to work with a customs broker, you may still wish to import products on your own. If you choose this route, you may want to read our article How to Clear U.S. Customs With Cargo.
The first step is providing adequate proof that the goods you’re shipping originate in the free-trade country that you’re importing from. As mentioned, the process will differ for each country and agreement.
However, in most cases, proper paperwork from the supplier and customs documentation will suffice. The most commonly required customs documentation from an FTA partner is a Certificate of Origin.
In short, a Certificate of Origin will usually convey the following information:
Depending on the country, the requirements for commodities will vary. Always double-check the specific provisions of the FTA by accessing the CBP data sheets or even consulting with local commerce departments.
The easiest and most foolproof way to check your import is covered under a free trade agreement is to consult with a Licensed Customs Broker. They can make sure you are using the correct template for the Certificate of Origin and that all required information is provided.
When the topic of free trade is discussed, fair trade often comes up. While related, these are two very different standards.
Free Trade refers to two or more countries that allow for trading between their countries cheaply and with few restrictions.
An FTA might contain provisions that set Fair Trade standards, especially with developing countries struggling with infrastructure development. Fair Trade standards go a long way towards encouraging local governments to uphold rule of law.
Fair Trade standards ensure that imported goods are not brought into a country for sale that involve theft, fraud, or inhumane working conditions.
Essentially, it’s a set of labor rules to protect the suppliers and workers of a nation, especially one that has a history of exploitation. The Free Trade vs Fair Trade discussion often comes into play within countries that have large agricultural and mass manufacturing economies.
For businesses that wish to import many specific types of goods for resale from a Fair Trade Country, you will need to get Fair Trade Certified. Fair Trade Certifications ensure that all fair trade practices and imports meet a certain standard to ensure that suppliers and sellers are not being exploited, cheated, or subjected to unfair or inhumane working conditions.
To get Fair Trade Certified in the United States, you must complete the following steps:
Make sure that any fair trade imports you organize are also in compliance with Free Trade Rules of Origin. These still apply even under Fair Trade regulations.
To make sure you are choosing nations and commodities focused on fair trade practices, you should also contact the World Fair Trade Organization (WFTO). The WFTO operates within a set of 10 specific guidelines to make sure products meet global fair trade standards.
For instances in which you cannot ship directly from one Free Trade country to another, you may be granted permission to import via a third party country, but only if you do so via a Customs Bond or other type of permit.
When filling out these permit applications, you must ensure that all information about the imported goods is absolutely, 100% correct. You’ll need the following:
Failure to provide this detailed information can result in you being denied the permit. If you begin the import process without waiting for permit approval, you could face significant fines and customs holds upon arrival at a U.S. port of entry.
Most economists will tell you there is no simple answer to this question. Even the best intentioned and drafted agreement can have unexpected results, both good and bad.
From a world economy perspective, free trade agreements not only work to strengthen economies and promote international trading, but they also work to strengthen diplomatic relationships between nations.
Free trade supporters point out that choice and economic freedom are given a chance to grow, both in the U.S. and through partner nations.
As the largest importer in the world, in terms of quantity and value, the U.S. provides a market for hundreds of different goods. For better or worse, the U.S. is largely a consumer-based society. Free trade means that people here in the states can get access to the variety they like at prices that continue to drive purchasing.
The positive consequences, like improved foreign relations, benefit not only the U.S. but the countries it chooses to trade with.
Specific benefits include:
When all parties involved are operating at optimum, the mutual benefits usually outweigh the negative parts. Even so, it’s worth recognizing the disadvantages so that you don’t get caught by surprise down the line.
While the advantages and benefits of free trade agreements are obvious, there are also some downsides. Unregulated free trade can actually do more harm than good to the economies of both countries.
As with any capitalist system, Free Trade promotes “survival of the fittest” mentality. Big companies can reap the greatest benefits and drive smaller, less marketable suppliers and businesses into going under.
Some of the more common disadvantages that creep into FTAs include:
It is possible to counteract these negative aspects if negotiations are done right. Provisions for IPR protection are usually a large part of formalized FTAs.
The application of antidumping and countervailing duties is used to discourage nations from practicing dumping as a way to flood markets. This protects local industries and their supporting workforces.
Even reduced tax revenue can be managed somewhat if the application of duty-free status is staggered over a few years and commodities. The extra time gives businesses and governments a chance to find solutions so they aren’t heavily reliant on tax revenue.
As far as outsourcing goes, this is where some financial experts argue that FTAs give larger, richer countries such as the United States too much power. Companies with the means to outsource are going to do so and there are few provisions that can prevent it.
The best way to combat the exploitative nature of mass outsourcing is, ironically, to invest in other countries in a way that raises their standard of living and encourages rule of law and fair trade. At the end of the day, it’s an economic double-edged sword.
Of course, there are also diplomatic negotiations that can sour an FTA. When diplomacy fails and countries find themselves at odds, Fair Trade Agreements between said nations are often the first thing on the chopping block. Trade sanctions can be imposed and any kind of free trade becomes impossible.
Examples of this in U.S. trade relations go back decades.
Politicians and economists alike go back and forth on the overall effects of these decisions, most of which are still impacting the U.S. economy. Whether it’s good or bad depends on who you ask.
If you’re ready to import products from a free-trade eligible country and need help, we’re here for you. USA Customs Clearance has Licensed Customs Brokers with years of knowledge and experience that we put to work for you.
We work directly with importers to clear your goods at the border and ensure they are safely imported without any issues. Not doing trade with an FTA nation? No problem. We facilitate trade and customs documentation from just about everywhere in the world.
Protect your business interest by getting help from the experts.
Call us today and ask about our New Importer Bundles to get you started right. Reach out to our team at (855) 912-0406 or schedule your 1-on-1 consultation online now.
Leave a Reply