Shipping Solutions Newsletter

By Sue Senger email | bio

On January 1, 2005, U.S. Trade Representative Robert B. Zoellick announced that the U.S.-Australia Free Trade Agreement (FTA) entered into force. The agreement is the first FTA between the U.S. and a developed country since the U.S.-Canada Free Trade Agreement in 1988.

More than 99% of U.S.-manufactured goods exported to Australia have immediately become duty free. Manufactured goods account for 93% of U.S. exports to Australia.

Zoellick stated: “I am also pleased that U.S. workers, businesses, farmers and consumers will now begin to enjoy the wide-ranging benefits of this landmark agreement. This is a 21st Century, state-of-the-art agreement that reflects the modern globalized economy.... [It] will strengthen U.S.-Australian economic ties and has the potential to increase trade between our countries by billions of dollars.”

The U.S.-Australian Trade Agreement has many similarities to the NAFTA. It includes a duty phase-out schedule, Annex 2-B, and eligibility requirements found in the Chapter 5 Rules of Origin. There are also special provisions for apparel and textiles.

Exporters should review the treaty’s table of contents prior to shipment. The entire treaty can be viewed online at the U.S. Department of Commerce’s Trade Compliance Center.

Here are some basic definitions under the U.S.-Australia Free Trade Agreement:

Article 5.1: Rules Determining Eligibility

Exporter (Seller)—The person or company supplying the good for export. This may or may not be the producer.

Harmonized System—This is the six-digit classification number used by Customs worldwide. Determining eligibility of your product is based on this number. See my article, “The Role of the Harmonized System in NAFTA.”

Non-originating—A material or good that does not qualify as eligible.

Originating—A material or good that qualifies as eligible under the rules of origin, set out in Chapter 5.

Producer—The person or company that manufacturers the good.

Regional Value Content Formula—When specified in Annex 5-A, an eligibility test considering value of non-originating materials. There are two types: Build-down method and the build-up method.

Tariff Shift—The difference in Harmonized system classification between the good and its non-originating materials.

Vendor—The person or company that supplies materials to the producer.

Duty Phase Out (See Annex 2-B)

Depending on the product, the duty phase out schedule is:

A. Immediate elimination on January 1, 2005.

B. Duty removal in four equal stages (25% each year); duty free January 1 of year four.

C. Duty removal in eight equal stages (12.5% each year); duty free January 1 of year eight.

D. Duty removal in 10 equal stages (10% each year); duty free January 1 of year 10.

Eligibility Requirements can be found in Chapter 5 of the agreement. As with the NAFTA, the U.S.-Australia Free Trade Agreement includes criterion A, B, C and D.

Criterion A is a good wholly obtained or produced entirely in the territory of one or both of the parties (Australia or US). Examples of these goods are:

Mineral goods extracted.
Vegetable goods harvested.
Live animals born and raised.
Goods obtained from hunting, trapping or fishing.
Marine life taken from the sea by vessels registered or recorded with a party and flying its flag.

Criterion B is a good entirely in the territory on one or both parties where:

Each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in Annex 5-A, or
The good otherwise satisfies an applicable regional value content requirement, or
The good meets any other requirements specified in Annex 5-A.

Tariff shift—The good satisfies a tariff shift requirement as specified in Annex 5-A.

Regional Value Content—The good satisfies one of the two regional value content tests found in Annex 5-A using the build-down or the build-up method described above. When calculating the regional value content, you must remember these definitions:

AV is the adjusted value of the good, which is the price less the cost of freight, insurance, packing, import duties, and related services to get it from the exporting country to the importing country.
VNM is the value of non-originating materials that are acquired and used by the producer in the production of the good. VNM does not include the material that is self-produced.
VOM is the value or originating materials that are acquired or self-produced and used by the producer in the production of the good.

Criterion C is a good produced entirely in the territory of one or both parties exclusively from originating materials.

Criterion D is a good that otherwise qualifies as an originating good under Chapter 5.

Note: Apparel and Textiles can be found in Chapter 4.

Certification

There is no official document for the U.S.-Australia Free Trade Treaty. Article 5.12 of the treaty states:

An importer may make a claim for preferential treatment under this Agreement based on the importer’s knowledge or on information in the importer’s possession that the good qualifies as an originating good.
Each party may require that an importer be prepared to submit, on request, a statement setting forth the reasons that the good qualifies as an originating good, including pertinent cost and manufacturing information. The statement need not be in a prescribed format and may be submitted electronically, where feasible.

Record Keeping

Records are to be kept for five years from the date of importation. These must include records and supporting documentation related to the origin of the goods including:

Purchase, cost, value of, and payment for the good.
The purchase cost, value of, and payment for all materials including indirect materials used in the production of the good.
The production of the good in the form in which it was exported.

U.S. Free Trade Agreements

As of January 1, 2005, the United States has entered free trade agreements with Israel, Canada, Mexico, Jordan, Chile, Singapore, and Australia. The U.S. has finalized free trade agreements with the DR-CAFTA (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua), Morocco and Bahrain and is waiting congressional approval. Although these agreements require additional detail and paperwork, they also provide opportunities for U.S. importers and exporters.

Top of Page

Finding a Bank for a Back-To-Back Letter of Credit May Be Difficult

By Chris Lidberg email | bio

If you ever want to send a chill down the spine of your banker in the United States, just mention the phrase “back-to-back letters of credit.”

In a typical letter of credit (LC) arrangement, the buyer instructs their bank to issue an LC to the seller. There may be times, however, when a broker is acting as a buying or selling agent or middleman on behalf of the buyer or the seller. In this case, the broker may not want one of the parties to know that the other exists in order to protect their place in any future transactions between the two parties.

Therefore, the buyer instructs their bank to issue an LC to the broker. The broker then must be able to provide an LC to the seller. In order to do this, the broker wants the bank to accept the letter of credit provided by the buyer as collateral to enable them to issue a second letter of credit to the seller. The broker will argue that the proceeds from the first letter of credit can be used to fund the second letter of credit that the broker is trying to get issued.

Most banks in the U.S. will refuse to issue an LC under these circumstances for a number of reasons. First, most banks require that the applicant—in this case the broker—have a line of credit in place. Holding a letter of credit to be used as collateral probably wouldn’t be enough. The bank is going to want to see more, such as a current balance sheet, a record of earnings for three or more years, cash flow projections, a business plan, and a credit rating. The list could go on and on.

Second, the bank won’t want to rely on another LC as their source of funding. The risk is just too high. When documents are presented against the LC that the buyer applied for, discrepancies could very likely be found. Once a discrepancy is found, there is a chance that payment could be refused. If this happens and then compliant documents are presented against the second LC that the broker wants issued, the bank is now in a position where they must make payment, but they don’t have a source for funding that payment. Banks don’t like to find themselves in a position like this.

Third, timing could be an issue. It’s very likely that the seller would present documents against the LC that the broker is trying to get issued before documents are presented against the LC that the buyer issued. Using the one LC as a source of funding for the other could definitely require some type of interim financing, which takes us back to the line of credit issue.

Of course the best course of action is to check with your bank to find out what their policy is regarding back-to-back letters of credit. Just don’t be surprised if they don’t have an appetite for the business.

Top of Page

Thousands of successful exporters are using Shipping Solutions to complete their export documents faster, easier and less expensively than ever before. Why aren't you?

If you're too busy trying to complete your export documents by hand to spend some time reviewing the Shipping Solutions Professional export documentation and compliance software yourself, let us do it for you! Sign up for one of our free online demos and let us give you a one-hour overview of the software.

We'll take you step-by-step through the process of completing your export forms, filing your SEDs electronically through AES, and checking your exports against the various government restricted parties lists and export regulations to make sure your shipments are in compliance, and you—and your company—stay out of trouble.

These free online demos are available on Tuesday's at 1:00 Central Time. All you need is an Internet connection to watch the demo and a phone to listen in and ask questions about the software. It's the perfect opportunity to get your first view of Shipping Solutions or to convince your coworkers and your boss that Shipping Solutions is the perfect solution for your company.

See why Shipping Solutions is America's #1 export software. Sign up for the free online demo today!

Top of Page