Highlights of the DR-CAFTA Implementation Bill (Part III)

A Presidential Proclamation must still be issued to amend the tariff schedule for DR-CAFTA, etc. (USTR sources have previously stated that the DR-CAFTA can enter into force for the U.S. and one or more subject countries that have approved it; the U.S. does not have to wait for all subject countries to approve the agreement. In addition, press sources have indicated that the DR-CAFTA has been approved by Guatemala, El Salvador and Honduras, but has not been approved by Costa Rica, Dominican Republic and Nicaragua, and that Nicaragua and the Dominican Republic are expected to approve the agreement within 60 days, but Costa Rica might take 1 - 2 years to approve it.)

This is Part III of a multi-part series of summaries of the Act which will highlight the provisions of the bill, beginning to end. Part III focuses on the Act's provisions regarding the imposition of additional duties on certain agricultural safeguard goods and the DR-CAFTA rules of origin.

(See ITT's Online Archives or 08/04/05 and 08/10/05 news, 05080405 and 05081015, for Parts I and II respectively.)

Conversion to ad valorem rates. For the tariff modifications provided for in the DR-CAFTA (e.g. those proclaimed and those affecting GSP and CBERA status, and other tariff modifications necessary or appropriate to proclaim in order to maintain the general level of concessions provided by the DR-CAFTA), the President may substitute for any good that has a specific or compound base rate of duty in the Schedule of the U.S. to Annex 3.3 of the Agreement, an ad valorem rate that the President determines to be equivalent to the base rate.

Assessment of additional duties on certain agricultural safeguard goods.In addition to any DR-CAFTA duty proclaimed, the Secretary of the Treasury shall assess a duty on an agricultural safeguard good (listed in the Schedule of the U.S. to Annex 3.15 of the Agreement) of a DR-CAFTA country imported into the U.S. in a calendar year if the Secretary determines that prior to such importation, imports into the U.S. in that calendar year from such country exceeds 130 percent of the volume that is set out for the safeguard good in the corresponding year in the table for that country in Appendix I of the General Notes to the Schedule of the U.S. to Annex 3.3 of the Agreement, with Year 1 in that table corresponding to the calendar year in which the DR-CAFTA enters into force.

The assessment of such additional duty shall cease to apply to the subject good on the date on which duty-free treatment must be provided to that good.

Calculation of additional duties on certain agricultural safeguard goods. For a agricultural safeguard good classified in HTS 1202.10.80, 1202.20.80, 2008.11.15, 2008.11.35, or 2008.11.60, in years 1-5, the additional duty would be an amount equal to the excess of the applicable NTR (MFN) rate of duty over the scheduled rate of duty; for years 6-10, an amount equal to 75% of this excess, and in years 11-14, an amount equal to 50% of the excess.

For any other agricultural safeguard good - the additional duty would be in years 1 - 14, an amount equal to the excess of the applicable NTR (MFN) rate of duty over the scheduled rate of duty; for years 15-17, an amount equal to 75% of this excess, and in years 18-19, an amount equal to 50% of the excess.

Rules of origin - Originating goods.For purposes of the DR-CAFTA and the Act, a good is an originating good (except as otherwise provided) if it is:

1. wholly obtained or produced entirely in one or more DR-CAFTA countries;
2. produced entirely in one or more DR-CAFTA countries and (i) each of the nonoriginating materials used in the production undergoes an applicable change in tariff classification as specified in Annex 4.1 of the Agreement; or (ii) the good otherwise satisfies any applicable regional value-content or other requirements specified in Annex 4.1 of the Agreement, and satisfies all other applicable requirements of this section; or
3. the good is produced entirely in the territory of one or more of the CAFTA-DR countries, exclusively from materials described in 1) or 2).

Regional Value-Content.The provisions on regional value content (which is calculated on the basis of the build-down method or the build-up method) include:

a special rule for certain automotive goods;

instructions on the valuation of materials for regional value-content, also applicable to de minimis amounts on nonoriginating goods (i.e., (i) adjusted value if imported by the producer of the good; (ii) valuation pursuant to GATT, as set forth in regulations, if acquired in the territory in which the good is produced; or (iii) valuation based on the sum of expenses and profits for a material that is self-produced);

further adjustments to the value of materials, either as additions to value for originating material, or deductions to value for nonoriginating material, for: freight, insurance, packing, duties, taxes, customs brokerage fees, etc.;

accumulation instructions regarding originating materials used in production of goods of another DR-CAFTA country;

instructions regarding multiple producers;

etc.

De minimis amounts of nonoriginating materials. In general, a good that does not undergo a change in tariff classification pursuant to Annex 4.1 of the Agreement is an originating good if:

the value of all nonoriginating materials (that are used in the production of the good and do not undergo the applicable change in tariff classification) does not exceed 10 percent of the adjusted value of the good;

the good meets all other applicable requirements of this section; and

the value of such nonoriginating materials is included in the value of nonoriginating materials for any applicable regional value-content requirement for the good.

Exceptions to above de minimis rule. Among others, exceptions to this de minimis rule are provided for :

a nonorginating material provided for in chapter 4, or a nonoriginating dairy preparation containing over 10% by weight milk solids of subheadings 1901.90 or 2106.90 that is used in the production of a good provided for in chapter 4.

a nonorginating material provided for in chapter 4 or a nonoriginating dairy preparation containing over 10% by weight milk solids of subheading 1901.90 used in the production of certain infant preparations, mixes and doughs, beverages containing milk, animal feeds, etc.

a nonorginating material provided for in heading 0805, or any of subheadings 2009.11 through 2009.39, that is used in the production of a good provided for in any of subheadings 2009.11 through 2009.39, or in certain fruit or vegetable juice of any single fruit or vegetable of subheading 2106.90 or 2202.90.

a nonoriginating material provided for in heading 0901 or 2101 that is used in the production of a good provided for in these headings.

a nonoriginating material provided for in heading 1006 that is used in the production of a good provided for in heading 1102 or 1103 or subheading 1904.90.

a nonorginating material provided for in chapter 15 that is used in the production of a good provided for in that chapter.

a nonoriginating material provided for in heading 1701 that is used in the production of a good provided for in headings 1701 - 1703,

a nonoriginating material provided for in Chapter 17 that is used in the production of a good provided for in subheading 1806.10.

except as provided above and Annex 4.1 of the DR-CAFTA, a nonoriginating material used in the production of a good provided for in any of Chapters 1-24, unless the nonorginating material is provided for in a different subheading than the good for which origin is being determined under this section.

DR-CAFTA is sometimes referred to as CAFTA-DR or CAFTA. It is also referred to in this summary as the Agreement.

H.R. 3045 available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h3045enr.txt.pdf.

Statement of Administrative Action available at http://www.ustr.gov/assets/Trade_Agreements/Bilateral/CAFTA/Transmittal/asset_upload_file816_7815.pdf.

Copy of final text of DR-CAFTA, as posted to USTR website, at http://www.ustr.gov/Trade_Agreements/Bilateral/CAFTA/CAFTA-DR_Final_Texts/Section_Index.html