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TARIFF AND CUSTOMS LAWS
Tariff System: The U.S. tariff system is the Harmonized Tariff
Schedule of the United States. Officially adopted January 1, 1989, this system
is based on the Harmonized Commodity Description and Coding System of the
Customs Cooperation Council, an intergovernmental organization based in
Brussels. Known as the Harmonized System (HS), this tariff system is used by all
major trading countries.
Most U.S. tariffs are ad valorem -- the tariff is designated as a percent of
the value of the imported good. U.S. ad valorem rates range from less than 1
percent to nearly 40 percent, with textiles and footwear imports most often
subject to the higher duties. Most ad valorem tariffs are in the 2 to 7 percent
range, with the average tariff being around 4 percent.
Some imports, generally agricultural products and other less processed goods,
are subject to a "specific tariff," which is a certain charge for a certain
quantity. Some products are subject to compound tariffs, a combination of ad
valorem and specific levies. Still other products, such as sugar, are subject to
tariff-rate quotas -- a higher tariff rate is applied to the imported good after
a specified quantity of the item has entered the United States during the year
at a lower prevailing rate. A small number of mostly special cases are subject
to other kinds of levies.
Most Favored Nation Status: Nearly all U.S. trading partners have
"Most Favored Nation" (MFN) trading status. The goods from all MFN-designated
countries are subject to the same tariffs when they enter the United States.
When the United States reduces, eliminates or otherwise changes a tariff, that
change is applied equally to all MFN status countries. Imports from the few
countries that do not have MFN status face significantly higher tariffs.
When the United States joined the General Agreement on Tariffs and Trade
(GATT) at its founding in 1948, it agreed to extend MFN status to all other
signatories. The status was also extended to certain countries that did not join
the GATT. In 1951, the Congress directed President Harry Truman to revoke MFN
status from the Soviet Union and all other Communist countries. As implemented
at the time, this exclusion was applied to all then-Communist countries except
Yugoslavia. For the Cold War period, most Communist countries were either denied
MFN or had to meet certain conditions to be granted the status.
At present, the United States extends MFN status to all members of the WTO
and most other countries. Nations excluded from MFN, as of May 1997, include
Afghanistan, Cuba, Laos, North Korea, Vietnam, and Serbia/Montenegro. Countries
seeking MFN status must fulfill two basic conditions: 1) compliance with the
Jackson-Vanik provisions of the Trade Act of 1974 requiring a presidential
determination that the country neither denies or impedes the right or
opportunity of its citizens to emigrate; 2) reaching a bilateral commercial
agreement with the United States. The conditions for Serbia/Montenegro to
qualify for MFN may differ. Congressional action denied MFN status to
Serbia/Montenegro in reaction to the armed conflict and human rights abuses
after the breakup of the former Yugoslavia.
A few countries must get an annual presidential waiver or extension of a
waiver to continue their MFN status. By far the most important country requiring
this annual waiver extension is China, which has become one of the biggest
exporters to the United States.
By July 3 of each year, the president must extend an annual waiver for China
from the Jackson-Vanik freedom-of-emigration provisions. The waiver for China
has been in effect since 1980. Every year since 1989, legislation has been
introduced in Congress to disapprove the president's waiver. The legislation has
sought to tie China's MFN renewal to meeting certain human rights conditions
that go beyond freedom of emigration. Through 1996, all attempts to deny China
MFN status have failed.
While Libya, Iran, and Iraq have MFN status, trade with these three
countries has been embargoed by other U.S. laws.
Special Unilateral Programs: There are several laws that extend
preferential tariff treatment on some products on a unilateral, non-reciprocal
basis to qualifying developing countries. These programs include:
Generalized System of Preferences (GSP), a program that grants tariff
exemptions for more than 4,450 products from around 150 developing countries
and territories. The GSP law provides for annual reviews of eligible articles
and countries. Limits are placed on tariff exemptions for certain products if
shipments rise above a certain dollar level. GSP benefits may also be
restricted if the country maintains barriers to U.S. exports, denies
intellectual property protection, or fails to abide by
internationally-recognized workers rights. The current GSP law expired on May
31, 1997. When GSP was last extended in August 1996, after having been expired
for more than a year, tariff exemptions were restored retroactively.
Caribbean Basin Initiative (CBI), which provides for tariff exemptions or
reductions for most products from 24 participating countries in Central
America and the Caribbean region. The CBI trade preferences are not subject to
annual reviews. Countries can lose their CBI benefits under certain
circumstances.
Andean Trade Preference Act (ATPA), which grants tariff preferences to
certain products from Bolivia, Colombia, Ecuador, and Peru. This program
expires in December 2001.
Countries with which the United States has trade agreements that reduce
tariffs and other trade barriers, such as NAFTA and the U.S.-Israel Free Trade
Area Agreement, are covered in another part of trade law that concerns
reciprocal trading agreements.
Special Tariff Preferences: The United States grants an important
tariff preference to goods entering the country that are made from parts
fabricated in the United States. The provision of the law is HTS heading 9802
under the new Harmonized System -- previously known as Section 807 under the old
Tariff System of the United States. Under this arrangement, the tariff is levied
only on the foreign value added of the product. No duty is applied to the
U.S.-made parts. This arrangement, known as "production sharing," is widely used
for products ranging from motor vehicles to semiconductors to apparel sewn
abroad with cloth made in the United States. In 1996, about 8.5 percent of total
U.S. imports entered under the provisions of HTS heading 9802.
Customs Valuation, Other Regulations: The United States accepts the
WTO Agreement on Customs Valuation as the basis for the U.S. law on customs
valuation, the process for determining the value of an import in order to apply
the ad valorem duty.
By adhering to the agreement, the United States uses the rules under the WTO
Dispute Settlement Understanding to handle disputes.
Current U.S. law establishes the "transaction value" as the main basis for
determining the value of imported merchandise. Generally, transaction value is
the price actually paid or payable for the goods, with additions for certain
items not included in that price. If this first valuation method cannot be used,
the law stipulates that secondary valuation bases be used. In order, these are:
1) the transaction value of identical or similar merchandise; 2) deductive
value; 3) computed value.
U.S. Customs laws also requires that the origin of products be clearly and
truthfully explained. This is particularly important for products that seek
entry under the unilateral tariff exemptions programs of GSP, CBI, and ATPA. For
products to be eligible for the tariff concessions of these three programs, at
least 35 percent of the direct cost of producing the good must have taken place
in the beneficiary country.
There are special "country of origin" provisions for NAFTA.
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