In today’s interconnected global economy, trade agreements play a pivotal role in shaping the way businesses operate across borders. These agreements are designed to reduce barriers, foster economic cooperation, and create opportunities for companies to expand their reach. Whether you’re a seasoned importer or just beginning to explore international markets, understanding the various trade agreements is essential for optimizing your supply chain and staying competitive.
This blog will provide an overview of key trade agreements, explaining their significance, benefits, and how they impact global trade.
Quick Links
- United States-Mexico-Canada Agreement
- Generalized System of Preferences
- Korea-U.S. Free Trade Agreement
- Australia-U.S. Free Trade Agreement
- Peru Trade Promotion Agreement
- Colombia Trade Promotion Agreement
- U.S.-Singapore Free Trade Agreement
- Trans-Pacific Partnership
- Bilateral Investment Treaties
1. United States-Mexico-Canada Agreement (USMCA)
The United States-Mexico-Canada Agreement (USMCA) replaced NAFTA and helps manufacturers in Mexico and Canada when they export goods to the U.S. It focuses on things like tariffs (taxes on imports), rules for where products are made, and intellectual property protections.
Key Benefits of the USMCA:
- Lower or no tariffs on qualifying products.
- Special treatment for items that follow the rules on where they’re made.
- Easier access to U.S. markets for different products.
Products Covered by the USMCA:
Agricultural Products:
- Dairy: U.S. dairy producers can sell more milk, cheese, and butter in Canada.
- Poultry: More U.S. chicken and turkey can be sold in Canada and Mexico.
- Beef and Pork: Lower tariffs on U.S. beef and pork in Canada and Mexico.
- Grains and Cereals: U.S. wheat, corn, and other cereals have lower or no tariffs.
- Fruits and Vegetables: U.S. fruits and vegetables face fewer taxes when sold in Canada and Mexico.
Industrial Goods:
- Cars and Car Parts: 75% of a car’s parts must be made in North America to avoid tariffs.
- Machinery and Equipment: Lower or no tariffs on things like construction equipment.
- Chemicals: U.S. chemical products can move between the three countries without tariffs.
- Pharmaceuticals: Medical devices and medicines can be traded duty-free.
Textiles and Apparel:
- Rules for Making Clothes: Clothes made in the U.S., Canada, or Mexico can be traded tariff-free if the materials come from these countries.
- Duty-Free Access: Textiles and clothing that follow the rules don’t have to pay tariffs.
Consumer Goods:
- Electronics: No tariffs on items like computers and phones.
- Household Goods: Furniture, appliances, and home décor can be sold with reduced or no tariffs.
- Jewelry and Watches: U.S. exports of these items don’t have tariffs in Canada and Mexico.
Food and Drinks:
- Wine and Spirits: U.S. wine and liquor can be sold more easily in Canada and Mexico.
- Processed Foods: Snacks and packaged goods have reduced or no tariffs.
Important USMCA Updates:
- Rules for Cars: 75% of a car’s parts must come from North America, which is higher than the old requirement of 62.5%.
- Labor and Environment: Stronger labor rights and environmental rules are in place.
- Digital Trade: The agreement helps digital businesses by removing customs duties on digital products and improving online trade.
- Intellectual Property: It increases protections for things like patents and copyrights.
The USMCA creates many opportunities for businesses to trade goods between the U.S., Canada, and Mexico, making it easier for companies to export their products without high taxes.
2. Generalized System of Preferences (GSP)
Overview:
The Generalized System of Preferences (GSP) allows certain products from developing countries to enter the U.S. market without paying tariffs. This helps reduce costs for businesses that import goods from these countries.
Key Benefits of the GSP:
- Products from eligible developing countries can enter the U.S. duty-free.
- This lowers the cost of importing goods from qualifying countries.
Eligibility for GSP:
- Countries must be designated as eligible for GSP.
- Specific products must also be included in the program to qualify for duty-free entry.
What Products are Eligible?
- Agricultural Products: Fresh and processed foods, fruits, vegetables, and grains.
- Textiles and Apparel: Only certain non-sensitive textile items, meaning fabrics like cotton and wool are not eligible.
- Industrial Goods: Machinery, electronics, and chemicals.
- Jewelry: Both precious and non-precious metal jewelry.
- Handicrafts: Hand-made goods like carpets and woven items.
- Minerals and Metals: Certain minerals, ores, and metal products.
- Wood Products: Non-sensitive items like furniture and wood décor.
In total, over 3,500 products can qualify for GSP benefits based on their classification under the Harmonized Tariff Schedule (HTS).
Which Countries are Eligible for GSP? The GSP program benefits countries classified as developing or least-developed by the U.S. Trade Representative.
- Developing Countries:
- India, Indonesia, Thailand, Philippines, South Africa, and more.
- Least-Developed Countries (LDCs):
- Bangladesh, Nepal, Cambodia, Haiti, Afghanistan, and others.
Important Notes:
- GSP eligibility can change based on things like trade agreements, economic progress, or human rights concerns.
- Some countries may “graduate” from the program once they become more economically competitive.
Exceptions:
- Certain products, like textiles and steel, are not eligible for GSP benefits.
- Countries can lose their GSP status if they no longer meet the requirements.
For more detailed information on the Generalized System of Preferences, visit the U.S. Customs and Border Protection website.
3. U.S.-Korea Free Trade Agreement (KORUS)
The Korea-U.S. Free Trade Agreement (KORUS FTA) helps South Korean manufacturers by removing or reducing tariffs on goods they export to the U.S. It also makes it easier to trade services and invest between the two countries.
Key Benefits of KORUS:
- Eliminates tariffs on many products.
- Increases market access for South Korean goods in the U.S.
- Improves trade in services and investment opportunities.
Products with Tariffs Eliminated or Reduced Under KORUS:
Industrial Goods:
- Automotive: U.S. tariffs on South Korean cars and trucks were gradually phased out.
- Machinery and Equipment: Industrial machinery, electronics, and semiconductors now enjoy zero tariffs.
- Chemicals and Plastics: Many chemical and plastic products have reduced or no tariffs.
Agricultural Products:
- Beef and Pork: U.S. beef and pork exports to South Korea benefit from phased-out tariffs, making them more competitive.
- Fruits and Vegetables: No tariffs on apples, cherries, grapes, and some processed fruit products.
- Grains: U.S. wheat, corn, and soybeans now have zero tariffs.
- Dairy: U.S. dairy products like cheese and whey have seen tariff reductions or eliminations.
Textiles and Apparel:
- Tariffs on clothing and shoes have been significantly reduced, especially if they meet the “yarn-forward” rule of origin, which requires the yarn and fabric to be made in the U.S. or Korea.
Pharmaceuticals and Medical Equipment:
- U.S. medical devices and pharmaceuticals exported to South Korea now have lower duties.
Visit the Commodity Status Report from U.S. Customs and Border Protection to see the current status of products and tariffs.
The Australia-U.S. Free Trade Agreement (AUSFTA) makes it easier for the U.S. and Australia to trade by reducing or eliminating tariffs on many goods. It also improves market access for both countries and covers important areas like intellectual property and services.
Key Benefits of AUSFTA:
- Most goods traded between the U.S. and Australia are now tariff-free.
- Australian manufacturers gain better access to U.S. markets.
- The agreement also addresses trade in services and intellectual property rights.
Products with Tariffs Eliminated or Reduced Under AUSFTA:
Agricultural Products:
- Beef: U.S. tariffs on Australian beef were gradually phased out, but there are safeguards in place for sensitive products.
- Dairy: U.S. dairy exports like cheese and whey have tariff-free access to Australia. However, some Australian dairy exports to the U.S. still face quotas.
- Lamb and Mutton: Australian lamb and mutton enjoy duty-free exports to the U.S.
- Horticultural Products: Fresh fruits and vegetables, like citrus and grapes, are now tariff-free between the U.S. and Australia.
- Wine: U.S. tariffs on Australian wine were eliminated, boosting trade between the two countries.
- Processed Foods: Products like cereals, sauces, and baked goods have seen their tariffs reduced or removed.
Industrial Goods:
- Automobiles: U.S. tariffs on Australian cars were eliminated.
- Machinery and Equipment: Most industrial machinery and equipment traded between the U.S. and Australia are now duty-free.
- Pharmaceuticals: Tariffs on pharmaceutical products were eliminated to facilitate smoother trade.
- Textiles and Apparel: Tariffs on U.S. textile and apparel exports to Australia were removed, provided they meet specific rules of origin.
Technology and Electronics:
- Computers and Electronics: U.S. exports of computers, semiconductors, and related products benefit from zero tariffs under AUSFTA.
Key Exemptions and Considerations:
- Safeguards for Sensitive Agricultural Products: Some sensitive products, like beef, sugar, and dairy, have quotas or tariff-rate quotas (TRQs) in place to limit duty-free imports. For example, Australian sugar exports to the U.S. are still restricted despite overall tariff reductions.
- Phased Tariff Reductions: Some goods, especially agricultural items, had gradual tariff reductions instead of immediate eliminations, allowing industries time to adjust.
- Rules of Origin: To qualify for tariff benefits, goods must meet certain rules of origin. This means a specific percentage of the product’s value must come from materials or labor from either Australia or the U.S.
- Textile and Apparel Exemptions: For some textiles and apparel, the “yarn-forward” rule applies, meaning production must start with the spinning of the yarn. If this rule isn’t met, the product may not qualify for tariff preferences.
Detailed schedules outlining tariff reductions and product-specific rules can be found here.
The Peru Trade Promotion Agreement (PTPA) is designed to enhance trade and economic relations between the U.S. and Peru by reducing tariffs and improving market access. The agreement also includes important provisions for environmental protection and labor rights, while boosting trade in goods, services, and investments.
Key Benefits:
- Reduction or elimination of tariffs on many goods traded between the U.S. and Peru.
- Improved market access for Peruvian exports to the U.S.
- Strong protections for environmental resources and labor rights.
Goods with Tariffs Eliminated or Reduced Under PTPA:
Agricultural Products:
- Grains: U.S. exports of corn, wheat, and other grains to Peru enjoy immediate tariff elimination.
- Dairy Products: U.S. dairy exports, such as cheese, milk powder, and whey, benefit from phased-out tariffs.
- Beef and Pork: U.S. beef and pork exports to Peru are duty-free.
- Fruits and Vegetables: U.S. exports of fruits like apples and pears, along with both fresh and processed vegetables, enjoy zero tariffs.
- Processed Foods: Products like snack foods and cereals face no tariffs.
- Sugar and Sweeteners: While some Peruvian sugar exports are subject to tariff-rate quotas (TRQs), market access has been significantly improved under the agreement.
Industrial Goods:
- Automobiles: U.S. exports of cars, trucks, and automotive parts enjoy duty-free access in Peru.
- Machinery and Equipment: Industrial machinery, construction vehicles, and other equipment benefit from zero tariffs.
- Pharmaceuticals and Medical Devices: U.S. exports of pharmaceuticals and medical devices to Peru are duty-free.
- Chemicals and Plastics: U.S. chemical and plastic products now have zero tariffs when exported to Peru.
Textiles and Apparel:
- U.S. textiles and apparel are eligible for immediate duty-free access, provided they meet the rules of origin, such as the yarn-forward rule (production beginning with yarn spinning in either the U.S. or Peru).
Consumer Goods:
- Electronics: U.S. exports of electronics, such as computers and telecommunications equipment, enjoy zero tariffs.
- Household Goods: Household appliances, furniture, and other consumer goods from the U.S. have duty-free access to the Peruvian market.
Exclusions and Special Provisions:
- Agricultural Safeguards:
- Sensitive Agricultural Products: Some products, like rice, sugar, and dairy, are subject to safeguard measures and tariff-rate quotas (TRQs) to protect domestic industries.
- TRQs: For products like sugar, Peru faces TRQs that limit the amount of duty-free exports to the U.S. Exports exceeding the quota are subject to tariffs.
- Phase-Out Periods:
- Some tariffs on products like chicken leg quarters and certain dairy items are being phased out gradually over a period of up to 17 years.
- Rules of Origin:
- To qualify for tariff reductions or eliminations, products must meet specific rules of origin to ensure that a substantial portion of the goods’ value comes from materials or labor in the U.S. or Peru. The yarn-forward rule applies to textiles.
Exceptions:
- Sensitive Products: Some sensitive products, such as sugar and rice, are excluded from full tariff elimination and may be subject to quotas or extended phase-out periods.
- Apparel: Apparel that does not meet the yarn-forward rule may not be eligible for duty-free treatment under the PTPA.
Environmental and Labor Provisions: The PTPA contains strong protections for the environment and labor rights, ensuring that trade benefits do not undermine environmental standards or worker protections. These provisions promote responsible and sustainable trade practices between the U.S. and Peru.
The Colombia Trade Promotion Agreement (CTPA) is designed to foster trade between the U.S. and Colombia by reducing trade barriers. It grants preferential tariff treatment for qualifying Colombian goods and improves market access for Colombian manufacturers. The agreement also strengthens intellectual property protections.
Key Benefits:
- Provides preferential tariff treatment for Colombian exports to the U.S.
- Improves access for Colombian manufacturers to U.S. markets.
- Strengthens intellectual property protections for both countries.
Qualifying Goods Under the CTPA:
Agricultural Products:
- Coffee: Colombia’s iconic export enjoys tariff-free access to the U.S.
- Flowers: As a leading exporter of cut flowers, Colombia benefits from duty-free access to the U.S. market.
- Sugar: While Colombian sugar exports are subject to tariff-rate quotas (TRQs), certain quantities can enter the U.S. duty-free under specific conditions.
- Fresh Fruits and Vegetables: Bananas, avocados, and other tropical fruits from Colombia enjoy tariff-free or reduced tariff access to the U.S.
- Meat Products: U.S. tariffs on beef, pork, and poultry are eliminated or reduced for exports to Colombia, and certain Colombian meat products enjoy similar benefits.
- Dairy: Some Colombian dairy exports, such as milk and cheese, are tariff-free, while U.S. dairy products enjoy phased tariff reductions.
Textiles and Apparel:
- Colombian Textiles and Apparel: These qualify for duty-free entry to the U.S. if they meet the agreement’s rules of origin, such as the yarn-forward rule (requiring yarn production in the U.S. or Colombia).
- Footwear: Leather shoes and other footwear from Colombia enjoy tariff-free access to the U.S.
Industrial Goods:
- Automotive Parts and Vehicles: U.S. tariffs on Colombian automotive exports, including parts and vehicles, are being gradually eliminated.
- Machinery and Equipment: Colombian exports of industrial machinery and electrical equipment benefit from tariff elimination.
- Chemicals: U.S. chemical exports to Colombia are duty-free, and many Colombian chemical products receive preferential access to the U.S. market.
- Pharmaceuticals and Medical Equipment: Both Colombian and U.S. pharmaceutical products enjoy tariff elimination, provided they meet the required standards and rules of origin.
Consumer Goods:
- Electronics: Colombian exports of consumer electronics, including computers and telecommunications equipment, benefit from tariff eliminations.
- Household Goods: Furniture, home decor, and appliances from Colombia have tariffs reduced or eliminated under the CTPA.
- Jewelry: Colombian jewelry and accessories enjoy duty-free access to the U.S. market.
Processed Foods and Beverages:
- Processed Agricultural Goods: Products like sauces, baked goods, and processed fruits and vegetables are tariff-free under the agreement.
- Alcohol: Colombian exports of rum and other spirits benefit from reduced or eliminated tariffs.
Exclusions and Special Provisions:
- Sensitive Agricultural Products:
- Sugar: Colombia’s sugar exports are subject to a TRQ, meaning only a specific volume can enter the U.S. duty-free. Exports exceeding this quota face higher tariffs.
- Dairy: Some dairy products have extended phase-out periods for tariff elimination, which may take years to fully eliminate tariffs.
- Safeguards for Sensitive Goods:
- Safeguard mechanisms are in place for products like beef, chicken, and rice to protect domestic industries from potential surges in imports.
- Rules of Origin:
- Goods must meet specific rules of origin to qualify for tariff benefits under the CTPA. For textiles and apparel, the yarn-forward rule applies, requiring yarn production to start in the U.S. or Colombia.
- Phase-Out Schedules:
- While many tariffs were eliminated immediately, others are being phased out over time. For instance, some U.S. tariffs on Colombian agricultural products are being gradually reduced, with full elimination occurring after a transition period.
Environmental and Labor Standards: The CTPA includes strong provisions to ensure that trade benefits do not come at the expense of environmental or labor protections. Colombia is required to enforce its existing labor and environmental laws in exchange for the trade benefits provided by the agreement.
The USSFTA facilitates trade between the U.S. and Singapore by eliminating tariffs and promoting economic cooperation. The agreement strengthens market access for manufacturers from both countries and includes provisions for trade in services and investment.
Key Benefits:
- Eliminates tariffs on most goods traded between the U.S. and Singapore.
- Enhances market access for Singaporean and U.S. manufacturers.
- Includes provisions for services trade, investment, and intellectual property protections.
Goods with Tariffs Eliminated or Reduced Under USSFTA:
Industrial Goods:
- Electronics: Singapore, a key electronics manufacturing hub, benefits from duty-free access for consumer electronics such as computers, telecommunications equipment, and semiconductors.
- Machinery and Equipment: Industrial machinery like manufacturing and construction equipment from both the U.S. and Singapore are tariff-free.
- Automotive Products: U.S. automobiles and automotive parts exported to Singapore enjoy duty-free access.
- Chemicals: U.S. chemical exports to Singapore, including petrochemicals and pharmaceuticals, receive duty-free treatment.
- Medical Devices: U.S. medical devices and diagnostic equipment benefit from tariff eliminations.
Agricultural Products:
Although Singapore is not a major agricultural producer, the U.S. exports a variety of agricultural goods to the country, all of which benefit from tariff eliminations:
- Dairy: U.S. dairy products, including milk, cheese, and butter, are tariff-free.
- Fruits and Vegetables: U.S. exports of apples, oranges, grapes, and fresh/frozen vegetables face no tariffs.
- Meat: U.S. beef, pork, and poultry enjoy tariff-free entry into Singapore.
- Grains and Cereals: U.S. wheat, corn, and rice are duty-free under the agreement.
- Processed Foods: Processed food products such as snacks, sauces, and beverages from the U.S. also benefit from duty-free access.
Textiles and Apparel:
Tariffs are eliminated on textile and apparel products that meet the rules of origin requirements, ensuring that production occurs within the U.S. or Singapore. For example, products made from yarn or fabric originating in either country qualify for tariff eliminations.
Consumer Goods:
- Footwear: U.S. footwear exports to Singapore benefit from tariff-free access.
- Jewelry and Precious Metals: Jewelry, including gold and silver items, from the U.S. are duty-free in Singapore.
- Furniture: U.S.-made furniture and home furnishings also enjoy tariff eliminations.
Information Technology (IT) Products:
Both the U.S. and Singapore are signatories to the Information Technology Agreement (ITA), and the USSFTA builds on this by eliminating tariffs on a wide array of IT products such as computer hardware, software, and telecommunications devices.
Rules of Origin:
To qualify for tariff benefits under the USSFTA, goods must meet specific rules of origin, meaning a significant portion of the product’s value must come from the U.S. or Singapore, or the product must undergo substantial transformation in one of the two countries.
Exclusions and Special Provisions:
Phase-Out Periods:
While many tariffs were eliminated immediately upon the agreement’s implementation, certain sensitive goods underwent a gradual phase-out period before tariffs were fully eliminated.
Safeguards and Quotas:
Safeguard mechanisms are in place to protect domestic industries from sudden surges in imports. For agricultural products, temporary tariffs may be imposed in the case of market disruption.
Intellectual Property Protection:
The USSFTA contains strong provisions for protecting intellectual property, including patents, copyrights, and trademarks, ensuring comprehensive protection for businesses in both countries.
Environmental and Labor Standards:
The agreement includes commitments to uphold labor rights and environmental protections, ensuring that trade benefits are not achieved at the expense of workers’ rights or environmental sustainability.
8. Trans-Pacific Partnership (CPTPP)
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a multilateral trade agreement that emerged as a successor to the original Trans-Pacific Partnership (TPP) after the U.S. withdrew. The “Comprehensive and Progressive” designation was added to reflect the inclusion of additional provisions, particularly in areas like labor rights and environmental protections, which aim to address broader social concerns. The CPTPP maintains many of the core goals of the TPP, such as reducing trade barriers and fostering economic cooperation among its member countries, while also focusing on these progressive elements.
Key Benefits:
- Preferential Market Access: Provides member countries with preferential access to each other’s markets, facilitating trade in goods and services.
- Tariff Reductions: Reduces or eliminates tariffs on a wide range of products, improving trade relations across the Asia-Pacific region.
- Intellectual Property Protections: Strengthens protections for patents, trademarks, and copyrights, fostering innovation and economic growth.
- Labor Standards: Includes commitments to uphold labor rights, ensuring safe working conditions and fair wages for workers in member countries.
- Environmental Protections: Promotes sustainable trade practices and encourages members to enforce environmental standards.
Countries Under the CPTPP:
- Australia
- Brunei
- Canada
- Chile
- Japan
- Malaysia
- Mexico
- New Zealand
- Peru
- Singapore
- Vietnam
These member countries span the Asia-Pacific region and represent a diverse range of economies, from developed nations like Japan and Canada to emerging markets like Vietnam and Peru.
9. Bilateral Investment Treaties (BITs)
Bilateral Investment Treaties (BITs) between the U.S. and other countries are agreements designed to protect and promote investments by establishing clear legal frameworks for investors. These treaties make it easier for foreign manufacturers and investors to operate in the U.S. while benefiting from trade agreements.
Key Benefits:
- Protection of Foreign Investments: BITs ensure that foreign investments are protected from unfair treatment, such as expropriation without compensation, discriminatory regulations, or arbitrary actions by the host government.
- Dispute Resolution Mechanisms: The treaties provide mechanisms for resolving disputes between foreign investors and the host country, typically through international arbitration, ensuring fair treatment and legal recourse.
- Improvement of Investment Climate: BITs create a more stable and predictable environment for foreign investments, boosting investor confidence and enhancing trade relations between the U.S. and its partner countries.
Navigating the complexities of international trade requires a solid understanding of the agreements that govern it. By familiarizing yourself with these key trade agreements, you can better position your business to leverage the benefits they offer. Whether it’s reducing tariffs, gaining access to new markets, or ensuring compliance with regulations, knowing the ins and outs of these agreements can be a game-changer for your global strategy.
As the global trade landscape continues to evolve, staying informed about these agreements is crucial. At Sourcify, we’re here to help you make sense of it all and ensure your business thrives in the ever-changing world of international trade.