Shipping Solutions News
  February 2006
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In This Month's Newsletter:

U.S. and Morocco Free Trade Agreement

When is a Letter of Credit Amendment not an Amendment?

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U.S. and Morocco Free Trade Agreement

By Sue Senger email | bio

On December 22, 2005, President Bush issued a proclamation adjusting tariffs on imports from Morocco and authorizing the U.S. Secretary of Commerce to take actions to support the implementation of the pact.

Signed in June 2004, the U.S.-Morocco Free Trade Agreement (FTA) will immediately eliminate import tariffs on more than 95 percent of bilateral trade in consumer and industrial products, with a gradual reduction of remaining tariffs over a nine-year period. For a limited number of products, tariffs will be phased out over a period of up to 15 years.

This agreement is designed to expand markets for American farmers, ranchers and businesses and provide greater choices for consumers. The full agreement can be viewed at the U.S. Trade Representative’s website.

Morocco will provide immediate duty-free access to 92% of Moroccan non-agricultural, non-textile imports from the United States, including imports of many goods of significant commercial interest to the U.S. Most U.S. exports of civil aircraft, capital intensive machinery, chemicals, construction, and medical equipment will enjoy immediate duty-free access upon entry into force of the agreement.

The FTA creates substantial market access opportunities for U.S. service providers in the telecommunications, banking, insurance, environmental services and e-commerce sectors among others. The agreement also requires Morocco to provide a high level of intellectual property rights protection consistent with U.S. law, including state-of-the-art protections for trademarks and digital copyrights, as well as expanded protection for patents and product approval information.

To determine when your product can enter Morocco duty free:

  1. Classify your product using the appropriate Harmonized Tariff Schedule Number (HTS).
  2. Using this number, check the Moroccan tariff schedule to determine when the duties on your product will be reduced. The U.S.-Morocco FTA tariff schedules code each line item with a letter indicating the staging at which the current tariff for each item is reduced and ultimately eliminated.

The schedules also note the base rate of Customs duty, which is used to determine the starting point and interim rate at each stage of reduction for an item. For purposes of eliminating duties, interim stage rates are rounded down, at least to the nearest tenth of a percentage point. For importing goods from Morocco to the United States, check the U.S. tariff schedule.

Staging Categories

Except as otherwise noted in the headnotes section to each tariff schedule, the codes are generally defined as follows:

Category A: Goods will be duty-free immediately upon the date that the FTA enters into force.

Category B: Duties will be eliminated in two equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year two.

Category C: Duties will be eliminated in five equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year five.

Category D: Duties will be reduced by 50% immediately upon the date that the FTA enters into force. Beginning January 1 of year two, duties will be eliminated in five equal annual stages and shall be duty-free effective January 1 of year six.

Category E: Duties will be eliminated in eight equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year eight.

Category F: Duties will be eliminated in nine equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year nine.

Category G: Duties will be eliminated in 10 equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year 10.

Category H: Duties will be eliminated in 10 stages beginning on the date that the FTA enters into force. On January 1 of year one, duties will be reduced by three percent of the base rate and by an additional three percent January 1 of years two, three, and four. Beginning on January 1 of year five, duties will be eliminated in six equal annual stages and products shall be duty-free effective January 1 of year 10.

Category I: Duties will be eliminated in 12 equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year 12.

Category J: Duties will be eliminated in 15 equal annual stages beginning on the date that the FTA enters into force and shall be duty-free effective January 1 of year 15.

Category K: Duties will remain at base rate during years one through six. On January 1 of year seven, duties will be reduced by 5.6% of the base rate. Duties will be reduced an additional 5.6% of the base rate on January 1 of years eight through 12. On January 1 of year 13, duties will be reduced by an additional 11.1% of the base rate. Duties will be reduced an additional 11.1%of the base rate on January 1 of years 14 through 18. Goods will become duty free on January 1 of year 18.

Category L: Goods already receiving duty-free treatment shall continue to receive duty-free treatment under the FTA.

There are some additional categories for products going to Morocco. If the staging category for your product is not listed above, go to the general notes for the tariff schedule for Morocco for additional staging categories for products going from the United States to Morocco.

Here are two sample calculations for exports to Morocco:

Tomato puree (HS 2002.90.9011): According to the Morocco tariff schedule, this product has been designated Category G staging with a base rate of 50%. The duty for the product will be reduced in 10 equal annual stages. Therefore, the product's duty is 46% the first year of the agreement. The duty will lower 4% on January 1 of each new year until it becomes duty free January 1 of year 10 of the agreement.

Footwear incorporating a protective metal toe-cap, (HS 6401.10): According to the Morocco tariff schedule, this product has been designated Category F with a base rate of 50%. Beginning on the first day of the agreement, the duty will be reduced on a yearly basis in nine equal stages. Thus, the first year of the agreement the duty will be 44.4%; in year two, 38.8%; year three, 33.2%; etc., until the product becomes duty free on January 1 of year 9.

Originating Goods

Except as otherwise provided in Chapters Five (Rules of Origin) and Four (Textiles and Apparel), each party shall provide that a good is an originating good (and therefore qualifies for preferential treatment under the FTA) where it is imported directly from the territory of one Party into the territory of the other Party, and

  1. it is a good wholly the growth, product or manufacture of one or both of the parties;
  2. for goods other than those covered by the rules in Annex 4-A or Annex 5-A, the good is a new or different article of commerce that has been grown, produced or manufactured in the territory of one or both of the parties; and the sum of
    • the value of materials produced in the territory of one or both of the parties, plus
    • the direct costs of processing operations performed in the territory of one or both of the parties is not less than 35% of the appraised value of the good at the time it is imported into the territory of a party; or
  3. for goods covered by the rules in Annex 4-A or Annex 5-A, the good has satisfied the requirements specified in that Annex.

For all products not covered by annex 4-A or 5-A, in order to qualify as an originating good, the U.S. and or Moroccan content must make up at least 35 percent of the value of the good.

Documentation Requirements

The importer, not the exporter, is required to make a claim of preferential tariff treatment under the U.S.-Morocco Free Trade Agreement on the basis that the good is U.S. or Moroccan originating. However, both the importer and the exporter need supporting documentation to back-up any claims of preferential treatment under the U.S.-Morocco FTA.

The text of the Agreements states the following:

Each Party shall provide that whenever an importer makes a claim for preferential tariff treatment for a good, the importer:

(a) shall be deemed to have certified that the good qualifies for preferential tariff treatment; and

(b) shall submit to the customs authority of the importing party, on request, a signed declaration setting forth all pertinent information concerning the growth, production or manufacture of the good. Each party may require that the declaration contain at least the following details:

(i) a description of the good, quantity, numbers and invoice numbers and bills of lading;

(ii) a description of the operations performed in the growth, production or manufacture of the good in the territory of one or both of the parties and, where applicable, identification of the direct costs of processing operations;

(iii) a description of any materials used in the growth, production or manufacture of the good that are wholly the growth, product, or manufacture of one or both of the parties, and a statement as to the value of such materials;

(iv) a description of the operations performed on, and a statement as to the origin and value of, any materials used in the good that are claimed to have been sufficiently processed in the territory of one or both of the parties so as to be materials produced in the territory of one or both of the parties, or are claimed to have undergone an applicable change in tariff classification specified in Annex 4-A or Annex 5-A; and

(v) a description of the origin and value of any foreign materials used in the good that are not claimed to have been substantially transformed in the territory of one or both of the parties, or are not claimed to have undergone an applicable change in tariff classification specified in Annex 4-A or Annex 5-A.

The importing party should request a declaration only when that Party has reason to question the accuracy of a deemed certification referred to in subparagraph (a), when that party's risk assessment procedures indicate that verification of an entry is appropriate, or when the party conducts a random verification. The importer shall retain the information necessary to prepare the declaration for five years from the date of importation of the good.

For shipments to Morocco, exporters are required to provide, in original form, a commercial invoice, an airway bill, and a packing list. Exporters should be aware that commercial invoices for all shipments from the United States must bear a notarized affidavit:

I, (name, title, and name of company), hereby swear that the prices stated in this invoice are the current export market prices for the merchandise described, that the products being shipped are of U.S. origin, and that they have been manufactured in the United States. I accept full responsibility for any inaccuracies therein. (Signature)

If the products shipped contain any foreign components, the country of origin and percentage of foreign content in the goods must be indicated on the invoice.

A Growing Number of Free Trade Agreements

The U.S. is aggressively working to open markets globally, regionally, and bilaterally and to expand American opportunities in overseas markets.

In the past six years, the U.S. has completed Free Trade Agreements with 13 countries—Chile, Singapore, Australia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Morocco, Bahrain, Oman and Peru.

Negotiations are under way with ten more countries: Colombia, Ecuador, the United Arab Emirates, Panama, Thailand, and the five nations of the Southern African Customs Union (SACU).

New and pending FTA partners, taken together, would constitute America’s third largest export market and the sixth largest economy in the world.


When is a Letter of Credit Amendment not an Amendment?

By Chris Lidberg email | bio

Once a letter of credit (LC) is issued and the beneficiary has had a chance to review the document, the need for an amendment may become apparent. Or perhaps the applicant realizes they made an error when they completed the application after the letter of credit has already been issued. Whatever the circumstances may be, it isn’t unusual for someone involved in a transaction to need to amend an existing letter of credit.

The applicant is always the party that contacts the issuing bank to request the amendment. Typically the issuing bank grants the request of their customer and issues the amendment. So far it’s a pretty typical transaction.

Keep in mind most letters of credit are irrevocable, meaning that no change can be made to the LC without the agreement of all parties. When an amendment is made, the beneficiary has the right to either accept or reject the amendment in its entirety. However, nowhere is it stipulated just how long the beneficiary has to make this decision.

Let’s imagine that the amendment appears to restrain the beneficiary. For example, the amendment might reduce the dollar value of the LC, shorten the life of the LC by adding an expiration date, or change the tenor of the LC from a sight draft to a time draft with no mention of who would pick up the expense of accepting or discounting the draft.

The issuing bank needs to track these types of amendments to determine if the beneficiary has either accepted or rejected the change. If the beneficiary accepts the amendment, it can change the liability the applicant has with the LC.

If, for example, the amendment is trying to reduce the value of the LC and the beneficiary accepts the amendment, the issuing bank can reduce the exposure booked against the applicant’s line of credit. Until the issuing bank hears from the beneficiary, however, they can’t assume that the beneficiary will agree, and the bank must keep the full value of the LC booked against the applicant’s line of credit.

In order to speed up this process, the issuing bank may be tempted to add a clause to their amendment indicating that the beneficiary has a certain timeframe to either accept or reject the amendment. If the bank doesn’t hear from the beneficiary during the stipulated timeframe, it will automatically assume the beneficiary has agreed to the amendment.

From the issuing bank’s perspective, this arrangement is nice and tidy, as they can adjust their customer’s liability for the LC at the end of the timeframe without having to do any follow up if they haven’t heard from the beneficiary.

Unfortunately for the issuing bank and the applicant, this practice is seen as trying to change the nature of the irrevocable letter of credit, and may even be contrary to the laws in the country of the beneficiary. As a result the practice is strongly discouraged.

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