ITC Reports on Trade Impact of Proposed Changes to NAFTA Rules of Origin: Chapters 1-37
The International Trade Commission on Dec. 19 released its report on the probable effects of proposed changes to the NAFTA rules of origin. The modifications were agreed upon in April 2012 by the NAFTA Free Trade Commission, which comprises representatives of the U.S., Canadian, and Mexican governments, and mark the fourth time the countries have negotiated such wide-ranging rules of origin amendments through the “Track IV” Process. The U.S. Trade Representative requested the ITC conduct the investigation in March (see 13031524).
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Of the proposed changes to 212 NAFTA rules, the ITC said only 20 would have a significant or substantial effect on U.S. imports and exports. Products covered by 24 of the rules already enter free of duty, and for the other 134 changes the covered products face an effective tariff of less than 1.5%. For the remaining 20 products, the ITC said the changes to NAFTA rules of origin would likely lead to an increase of either imports or exports of 6 percent or more.
This is the first part of a two-part series on the ITC’s report, covering changes to rules of origin for chapters 1-37 of the Harmonized Tariff Schedule. See a future edition of International Trade Today for the results of the ITC’s report for chapters 38 through 97.
2103.90: Sauces derived from fish and non-alcoholic preparations of yeast extract
This change would allow production of sauces, mixed condiments, and mixed seasonings in this subheading from non-originating ingredients also classified in chapter 21, like coffee extracts, soups and broth preparations, etc. The ITC said the proposed change could result in a significant (6-15%) increase in exports by lowering the effective duty on U.S. exports to NAFTA partners from its current level of 6 percent. The bump could be moderated by the saturation of the Mexican and Canadian markets for these sauces by U.S. exports.
Current
7A.(A) A change to mixed condiments or mixed seasonings of subheading 2103.90 from yeasts of subheadings 2102.10 or 2102.20 or any other chapter;
or
(B) A change to any other good of subheading 2103.90 from any other chapter.
Proposed
A change to subheading 2103.90 from any other subheading.
2903.19: Certain other saturated chlorinated derivatives of acyclic hydrocarbons
This proposed change would remove product exclusion and regional value content requirements for goods of this subheading that are made using non-originating acyclic and cyclic hydrocarbons. It would likely result in a significant (6-15%) increase in imports from NAFTA partners, albeit from a small base (less than $150,000 in 2012).
Current
5A. (A) A change to 1,2-dichloropropane (propylene dichloride) or dichlorobutanes of subheading 2903.19 from other saturated chlorinated derivatives of acyclic hydrocarbons of subheading 2903.19 or any other subheading, except from heading 2901 through 2902;
(B) A change to 1,2-dichloropropane (propylene dichloride) or dichlorobutanes of subheading 2903.19 from heading 2901 through 2902, whether or not there is also a change from other saturated chlorinated derivatives of acyclic hydrocarbons of subheading 2903.19 or any other subheading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used;
(C) A change to other saturated chlorinated derivatives of acyclic hydrocarbons of subheading 2903.19 from 1,2-dichloropropane (propylene dichloride) or dichlorobutanes of subheading 2903.19 or from any other subheading, except from headings 2901 through 2902; or
(D) A change to other saturated chlorinated derivatives of acyclic hydrocarbons of subheading 2903.19 from headings 2901 through 2902, whether or not there is also a change from 1,2-dichloropropane (propylene dichloride) or dichlorobutanes of subheading 2903.19 or from any other subheading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to 1,2-dichloropropane (propylene dichloride) or dichlorobutanes of subheading 2903.19 from other saturated chlorinated derivatives of acyclic hydrocarbons within that subheading or any other subheading;
A change to other saturated chlorinated derivatives of acyclic hydrocarbons of subheading 2903.19 from 1,2-dichloropropane (propylene dichloride) or dichlorobutanes within that subheading or any other subheading; or
A change to any other good of subheading 2903.19 from any other subheading.
2916.32: Benzoyl peroxide and benzoyl chloride
The current NAFTA rule does not allow benzoyl peroxide made from non-originating benzoyl chloride to be eligible for the NAFTA preferential rates of duty, and vice versa. The proposed modification is liberalizing because it removes the restriction on the conversion between benzoyl peroxide and benzoyl chloride. That change would likely result in a substantial (>15%) increase in imports from NAFTA countries, because over 99% of U.S. imports of this product were dutiable in 2012, and this change would give these imports preferential treatment.
Current
35A. A change to subheadings 2916.11 through 2916.39 from any other subheading, including another subheading within that group.
Proposed
A change to benzoyl peroxide of subheading 2916.32 from benzoyl chloride within that subheading or any other subheading;
A change to benzoyl chloride of subheading 2916.32 from benzoyl peroxide within that subheading or any other subheading; or
A change to any other good of subheading 2916.32 from within that subheading or any other subheading.
2918.21-2918.23: Salicylic acid and o-acetylsalicylic acid
The ITC said this proposed modification is liberalizing because it removes the product exclusion and the regional value content requirement for o-acetylsalicylic acid and other esters of salicylic acid made from non-originating salicylic acid. The proposed change would likely result in a significant (6-15%) increase in U.S. imports from NAFTA partners, because most imports of these products enter at an MFN duty rate of 6.5%.
Current
36C. A change to subheading 2918.21 from any other subheading.
37. (A) A change to subheadings 2918.22 through 2918.23 from any other subheading, including another subheading within that group, except from subheading 2918.21; or
(B) A change to subheadings 2918.22 through 2918.23 from subheading 2918.21, whether or not there is also a change from any other subheading, including another subheading within that group, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 2918.21 through 2918.23 from any other subheading, including another subheading within that group.
2922.11 -- 2922.21: Certain oxygen-function amino-compounds
The ITC said this proposed change is liberalizing because it removes several limitations on what non-originating inputs may be used in oxygen-function amino-compounds, including monethanolamine, dethanolamine, and triethanolamine and their salts. The modification would result in a significant (6-15%) increase in U.S. exports to NAFTA countries, because about half of current U.S. exports to Mexico are currently dutiable.
Current
47. (A) A change to subheadings 2922.11 through 2922.13 from any other heading, except from headings 2905 through 2921; or
(B) A change to subheadings 2922.11 through 2922.13 from any other subheading within heading 2922, including another subheading within that group, or headings 2905 through 2921, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
47A. (A) A change to subheadings 2922.14 through 2922.19 from any other heading, except from headings 2905 through 2921; or
(B) A change to subheadings 2922.14 through 2922.19 from any subheading outside that group within heading 2922 or headings 2905 through 2921, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
47B. (A) A change to subheading 2922.21 from any other heading, except from headings 2905 through 2921;
or
(B) A change to subheading 2922.21 from any other subheading within heading 2922, including another subheading within that group, or headings 2905 through 2921, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 2922.11 through 2922.21 from any other subheading, including another subheading within that group.
2924.11-2924.21: Acyclic amides and certain cyclic amides
This change is liberalizing because it removes the regional value content requirement for goods of this subheading made using non-originating cyclic carboxylic acid, and allows any subheading-level change to confer origin. The proposed change would likely result in a significant (6-15%) increase in U.S. imports from NAFTA partners, said the ITC.
Current
49. A change to subheadings 2924.11 through 2924.19 from any subheading outside that group.
50. (A) A change to subheading 2924.21 from any other subheading, except from subheading 2917.20; or
(B) A change to subheading 2924.21 from subheading 2917.20, whether or not there is also a change from any other subheading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 2924.11 through 2924.21 from any other subheading, including another subheading within that group.
3006.92: Waste pharmaceuticals
Because pharmaceutical products are usually classified in other subheadings in chapter 30, the current NAFTA rule requires waste pharmaceuticals to be wholly originating in North America or to be made with originating inputs classified in other chapters to get the preferential duty rate. By allowing allowing subheading-level changes to confer origin, this proposed change could result in a substantial (>15%) increase in U.S. exports to NAFTA countries, said the ITC.
Current
A change to subheading 3006.92 from any other chapter.
Proposed
A change to subheading 3006.92 from any other subheading.
3204.20-3204.90: Fluorescent brightening agents and luminophores
The change would allow fluorescent brightening agents and luminophores made from non-originating inputs classified in chapters 28 through 38 to receive preferential treatment only if they meet the regional value content requirement. The proposed change would liberalize the rule by allowing any subheading-level change to confer origin, and removing the regional value content requirement. That would likely result in a substantial (>15%) increase in U.S. imports from NAFTA partners, because MFN rates for these products can as high as 6.5%.
Current
6. (A) A change to subheadings 3204.20 through 3204.90 from any other chapter, except from chapter 28 through 38; or
(B) A change to subheadings 3204.20 through 3204.90 from any other subheading within chapter 28 through 38, including another subheading within that group, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 3204.20 through 3204.90 from any other subheading, including another subheading within that group.
3206.50: Inorganic products of a kind used as luminophores
The proposed change is liberalizing because it would allow any heading-level tariff change to confer origin, and would remove the regional value content except for certain inputs. That could result in a substantial (>15%) increase in U.S. imports from NAFTA partners, because the current MFN rate for U.S. imports of products under this subheading is 6.5%.
Current
8B. (A) A change to subheading 3206.50 from any other chapter, except from chapters 28 through 31 or 33 through 38; or
(B) A change to subheading 3206.50 from any other subheading within chapters 28 through 38, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 3206.50 from any other heading; or
A change to subheading 3206.50 from any other subheading within heading 32.06, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(a) 60 percent where the transaction value method is used, or
(b) 50 percent where the net cost method is used
3304.10-3305.90: Beauty or make-up preparations and preparations for hair
This proposed change could result in a significant (6-15%) increase in U.S. exports of these products to NAFTA countries, because they currently pay an effective tariff rate of 2.2% when exported to Mexico and Canada.
Current
9. (A) A change to subheadings 3304.10 through 3305.90 from any heading outside that group, except from headings 3306 through 3307; or
(B) A change to subheadings 3304.10 through 3305.90 from any other subheading within that group or headings 3306 through 3307, whether or not there is also a change from any heading outside that group, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Proposed
A change to subheading 3304.10 through 3305.90 from any other subheading, including another subheading within that group.