Thursday, October 13, 2011

Korea: Yes, I know

Panama and Colombia, too.

Here is an article from the Atlantic about the deals, focusing on Korea.

I feel as if I should have something insightful to say and that I should take a position on the economic impact these deals will have on the U.S. as a whole, on jobs in particular, and possibly on compliance professionals. The truth is, I am somewhat numb to trade deals.

Far and away, the trade agreement that gets the most commercial traction is the NAFTA. We are 17 years into NAFTA and every day (really, every day) I answer questions about how to do the documentation. That is because the rules are very complex. I am happy for the opportunity to help and I truly understand the complexities of the data gathering necessary for compliance. But I also know that adding additional trade deals adds exponentially to the compliance difficulties. For this, I blame the WTO's inability to get a comprehensive trade deal done during the Uruguay Round. As it is, the NAFTA was used as a model for that agreement and for the TRIPS agreement that followed. But, without comprehensive (meaning global) trade liberalization, the U.S. and other countries have fallen into the somewhat random chaos of bilateral and multilateral regional deals and topic-specific agreements (e.g., the new anti-counterfeiting agreement).

The problem with the trade deals is that each one of them is intended to promote trade within their region. That means that the NAFTA is intended to encourage trade between the North American neighbors. As a result, NAFTA goods may not qualify for duty-free export to Australia because of excessive Canadian or Mexican content. Goods I can certify under the U.S.-Chile FTA may not qualify under the agreements with Singapore, Bahrain, or Morocco. And, the paper work and records for each are similar but distinct. If a company tries to qualify goods under both the U.S.-Central America-Dominican Republic Agreement and the NAFTA, it will likely need to gather two sets of origin certifications from suppliers because the rules of origin for the materials used to make the finished goods differ.

With all due respect, I suspect the agreements with Colombia and Panama will add little to the burden on most compliance professionals. Certain industries and certain companies will feel a big impact, but overall the impact will be small. That is not necessarily the case with Korea, which is a major economy with a lot of trade. According to USTR figures, the Korea agreement will open up Korea to $10 billion in exports and all greater American access to Korea's $560 billion services industries. That is significant.

I remain fairly convinced that these deals are a net positive for the economy while recognizing that individual companies and workers may be hurt. That is troubling and, unfortunately, makes for the most obvious kind of media coverage and the most compelling stories. In the long term, the best approach is to scrap these deals in favor of a global approach to trade that lets countries benefit from their comparative advantages while preventing the so-called race to the bottom. Of course, that is much easier said than done, which is exactly why we are now getting three new trade deals.

So, to my compliance professional colleagues out there, here is your interim Korea toolbox:

Final text
Rules of origin (in which you will see tariff shifts and RVC calculations based on the build-up and build-down methodologies)
Tariff elimination schedule (See Schedule 2-B at the end)

There will be no specific Certificate or Origin for Korea, but here are the required data elements:
(a) the name of the certifying person, including as necessary contact or other identifying information;
(b) the importer of the good (if known);
(c) the exporter of the good (if different from the producer);
(d) the producer of the good (if known);
(e) tariff classification under the Harmonized System and a description of the good;
(f) information demonstrating that the good is originating;
(g) date of the certification; and
(h) in the case of a blanket certification issued as set out in paragraph 4(b), the period that the certification covers. 
Importers will be able to self-certify or to rely on a written or electronic certification from the exporter or producer. Exporters may rely on the producer's reasonable written or electronic certification or on the exporter's knowledge that the goods are originating.Verification may be focused on the importer, exporter, or producer and there are special rules of verification relating to textiles and apparel.

Feel free to ask specific questions, which I may answer. I will follow up with more interesting details about the KORUS agreement as they arise.

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