ITC Reports on Trade Impact of Proposed Changes to NAFTA Rules of Origin: Chapters 38-97
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 second part of a two-part series on the ITC’s report, covering changes to rules of origin for chapters 38-77 of the Harmonized Tariff Schedule. See 13121931 for the results of the ITC’s report for chapters 1 through 37.
3824.90: Chemical products ad preparations, not elsewhere specified or included
A proposed change to the rules of origin for this subheading would allow products made from mixtures of goods in chapters 28 to 38 without meeting regional value content requirements. This modification would, for example, allow mixtures of two inorganic chemical compounds to qualify for NAFTA treatment without meeting the regional value content requirement. The ITC said this would likely cause a significant increase (6-15%) in exports because it would lower the effective rate of duty on exports of some of these products to Mexico.
Current
30I. (A) A change to naphthenic acids, their water-insoluble salts or their esters of subheading 3824.90 from any other good of subheading 3824.90 or any other subheading;
(B) A change to any other good of subheading 3824.90 from any other chapter, except from chapters 28 through 37; or
(C) A change to any other good of subheading 3824.90 from naphthenic acids, their water-insoluble salts or their esters of subheading 3824.90, or any other subheading within chapters 28 through 38, except from subheadings 3824.71 through 3824.83, 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 naphthenic acids, their water-insoluble salts, or their esters of subheading 3824.90 from any other good within that subheading or any other subheading;
A change to any other good of subheading 3824.90 from any other subheading; or
No required change in tariff classification to any other good of subheading 3824.90, 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.
3901-3914: Polymers in primary forms; plastic resins; silicones; cellulose
This change would remove the regional value content requirement for these goods to qualify for NAFTA duty free treatment. That would lower the current 2.5% effective tariff rate on these goods for U.S. exports into Canada and Mexico, causing a significant (6-15%) increase in exports to NAFTA countries.
Current
1. A change to headings 3901 through 3920 from any other heading, including another heading within that group, 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.
Proposed
A change to heading 39.01 through 39.14 from any other heading, including another heading within that group.
4013-4015: Inner tubes; hygienic or pharmaceutical articles of rubber; and articles of apparel and accessories of rubber
Currently, these goods do not qualify for NAFTA treatment when made from other non-originating made-up articles of rubber in headings 4009 through 4017. By removing this prohibition, this change would lower the current 3% effective tariff on U.S. exports to NAFTA countries, causing a significant (6-15%) increase in U.S. exports to Canada and Mexico.
Current
8. A change to headings 4013 through 4015 from any other heading, except from headings 4009 through 4017.
Proposed
A change to heading 40.13 through 40.15 from any other heading, including another heading within that group.
7419.99: Other articles of copper, not otherwise specified
This change would allow goods to qualify if made from non-originating materials besides cloth, grill, netting, expanded metal, springs, or non-electric cooking apparatus. That would, for example, allow a copper terminal for electrical cables to use non-originating copper components and still qualify for NAFTA treatment. That would likely cause a significant increase in U.S. exports of the product to NAFTA partners, said the ITC. Most goods covered by this rule have MFN duty rates of 3 to 15 percent in Mexico and Canada.
Current
16. (A) A change to cloth (including endless bands), grill, netting or expanded metal of subheading 7419.99 from any other good of subheading 7419.99 or any other heading;
(B) A change to springs of subheading 7419.99 from any other good of subheading 7419.99 or any other heading;
(C) A change to non-electric cooking or heating apparatus of a kind used for domestic purposes and parts thereof of subheading 7419.99 from any other good of subheading 7419.99 or any other heading;
or
(D) A change to any other good of subheading 7419.99 from cloth (including endless bands), grill, netting, expanded metal, springs or non-electric cooking or heating apparatus of a kind used for domestic purposes and parts thereof of subheading 7419.99 or any other heading.
Proposed
A change to a good of subheading 7419.99 from any other good within that subheading or any other heading
8408.10: Diesel engines for marine propulsion
This proposed change would allow a wider-variety of inputs to be used in diesel engines, including conversion of other kinds of diesel engines, and have the resulting products still qualify for NAFTA treatment. That would likely result in a significant (6-15%) increase in U.S. imports from NAFTA partners. In 2012, about 75% of imports of marine diesel engines from NAFTA countries were dutiable, with about 99% of those coming in from Mexico.
Current
15. A change to headings 8407 through 8408 from any other heading, including another heading within that group, 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.
Proposed
A change to subheading 8408.10 from any other subheading.
8518.10-8518.30: Microphones and their stands; loudspeakers; and headphones and earphones
The proposed rule is liberalizing because it would allow these products to qualify for NAFTA treatment if they are made from any other article of commerce. The change would likely cause a significant (6-15%) increase in U.S. exports to NAFTA partners, which currently face an effective duty rate of 1.5%, said the ITC.
Current
65. (A) A change to subheadings 8518.10 through 8518.29 from any other heading; or
(B) A change to any of subheadings 8518.10 through 8518.29 from within that subheading or any other subheading within heading 8518, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 30 percent where the transaction value method is used, or
(2) 25 percent where the net cost method is used.
[TCRs 66 and 67 deleted.]
68. A change to tariff item 8518.30.10 from any other tariff item.
69. (A) A change to subheading 8518.30 from any other heading; or
(B) A change to subheading 8518.30 from subheadings 8518.10, 8518.29 or 8518.90, 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 a good of any of subheading 8518.10 through 8518.30 from any other good within that subheading or any other subheading, including another subheading within that group.
8519.20-8519.89: Sound recording and reproducing apparatus
This change eliminates the requirement that sound recording and reproducing apparatus -- including jukeboxes, record players, CD recorders and players, tape recorders and players, and telephone answering devices -- be made from North American printed circuit assemblies. It would likely result in a significant (9-15%) increase in U.S. exports to NAFTA partners, because it would allow more imports to avoid the current effective tariff rate of 2%.
Current
72. A change to subheadings 8519.20 through 8519.89 from any other subheading, including another subheading within that group, except from printed circuit assemblies (PCAs) of subheading 8522.90.
Proposed
A change to a good of any of subheading 8519.20 through 8519.89 from any other good within that subheading or any other subheading, including another subheading within that group.
9004.10: Sunglasses
This change would allow for sunglasses made from non-originating lenses of chapter 90 to qualify for NAFTA treatment. It would likely result in a significant (6-15%) increase in U.S. exports to NAFTA partners, because U.S. exports to Canada and Mexico currently pay an effective tariff of 3.5%.
Current
6. (A) A change to heading 9004 from any other chapter;
or
(B) A change to heading 9004 from any other heading within chapter 90, 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 9004.10 from any other subheading.
9503.00-9505.90: Various toys and games
Current
Under the current NAFTA rule, the use of non-originating inputs classified in chapter 95 in the manufacture of various toys and games, such as wheeled toys, dolls, and puzzles, does not confer origin, unless the final good meets the regional value content requirement. The proposed change would allow such goods to qualify for NAFTA treatment, and even allow goods to undergo no change in tariff classification so long as a regional value content requirement is met. That would likely cause a significant (6-15%) increase in U.S. exports of these goods, because they currently pay an effective tariff of 2.5%.
1. (A) A change to subheadings 9503.00 through 9505.90 from any other chapter; or
(B) A change to a good of any of subheadings 9503.00 through 9505.90 from within that subheading or any other subheading within chapter 95, 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 9503.00 through 9505.90 from any other subheading, including another subheading within that group; or
No required change in tariff classification to any of subheading 9503.00 through 9505.90, provided there is a regional value content of not less than:
(a) 45 percent where the transaction value method is used, or
(b) 35 percent where the net cost method is used.
9614: Smoking pipes and cigar or cigarette holders, and parts
Under the current rule, if non-originating smoking pipes and bowls, cigarette holders, or parts of such articles that are classified in heading 9614 are used to make another article in heading 9614, that article generally cannot claim origin. The proposed change would allow non-origin parts to be used and have the finished product still qualify for NAFTA treatment. That would cause a significant (6-15%) increase in imports from NAFTA partners, said the ITC.
Current
12. (A) A change to roughly shaped blocks of wood or root for the manufacture of pipes of heading 9614 from any other chapter;
(B) A change to pipes or pipe bowls of heading 9614 from roughly shaped blocks of wood or root for the manufacture of pipes of heading 9614 or any other heading; or
(C) A change to any other good of heading 9614 from any other heading.
Proposed
A change to a good of heading 96.14 from any other good within that heading or any other heading.