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Alert

Korea - US Free Trade Agreement Takes Effect

Mitchell Silberberg & Knupp International Trade Alert

March 2012

by Susan Kohn Ross

On Thursday, March 15, 2012, the US-Korea Free Trade Agreement was implemented in both the U.S. and Korea. While the agreement has generally gone by the acronym KORUS, documentation from Customs and Border Protection (CBP) refers to it as the UKFTA. The final text of the agreement can be found at US - Korea FTA Final Text. Implementation was triggered by Presidential Proclamation 87873 issued on March 6, 2012. Interim regulations were published in the Federal Register on March 19, 2012. See KORUS Interim Regulations.

In a March 12, 2012 memorandum, CBP’s Headquarters provided the needed guidance to its staff and the trade community about claims filing under this free trade agreement at CBP Guidance re KORUS. The updated system programming is not expected to be completed until March 21, but claims can nonetheless already be filed.

As with all the other free trade agreements to which the U.S. is a party, certain rules of origin must be met and proper supporting documentation must be in hand making clear how the good qualifies for the FTA benefits being claimed. The KORUS provisions are in General Note 33 of the Harmonized Tariff. A good must be shipped directly from one country to the other. Any stops in a location other than the U.S. or Korea for anything other than unloading, reloading, or other processes needed to preserve the condition of the good will disqualify the shipment from KORUS benefits. If you use non-U.S. or non-Korean components or raw materials in making your goods, there is a de minimis provision of ten (10%) percent of the value, and for textiles the rule is ten (10%) percent by weight. For textiles and apparel, in general, qualifying goods must be yarn forward, meaning the yarn was made in either the U.S. or Korea. For the yarn itself to qualify, the fiber must made in the U.S. or Korea. There are, of course, exceptions and special rules, some for commodities and others for specific circumstances. As with all the other FTAs to which the U.S. is a signatory, KORUS-eligible goods are exempt from the merchandise processing fee.

Each shipment must also be accompanied by a certificate of origin. While there is no specific form to use, traders are reminded that the contents of the certificate of origin should contain the following: the name and address of the importer, exporter, and producer; a description of the good; its tariff classification; the preference criteria relied on (based on your rule of origin analysis); if not a blanket certificate, the commercial invoice number; if a blanket certificate, identification of the effective period, not to exceed 12 months; and it must be signed.

The certificate of origin must also include the following language:
 

I certify that:

The information on this document is true and accurate and I assume the responsibility for proving such representations. I understand that I am liable for any false statements or material omissions made on or in connection with this document;

I agree to maintain and present upon request documentation necessary to support these representations;

The goods comply with all requirements for preferential tariff treatment specified for those goods in the United States-Korea Free Trade Agreement; and

This document consists of ___ pages, including all attachments.
 

The signature line follows and must include the signature, title, and company name, along with the person’s telephone, fax, and email address. Make sure the title of the person signing denotes job responsibilities sufficient for him/her to have the necessary knowledge to be able to provide a proper certification. A title such as “shipping clerk” would not be valid for these purposes. The signatory should be an officer, director, or manager, and some inquiry beyond title may be in order to verify his/her personal knowledge of these matters. Does the Sales Manager really know about raw materials sourcing? Who may be better qualified and more appropriate to sign on behalf of the company?

A tool is available to further assist American traders and was set up by the U.S. Trade Representative’s office. The Free Trade Agreements Tariff Tool is available at USTR FTA Tariff Tool.

International traders are reminded the customs authorities in both countries have the right to verify any claims made. Given the frequency with which investigations of claims involving other FTAs are being pursued, and penalties for unsupported claims are being imposed, it is reasonable to expect the same level of scrutiny will be applied to KORUS claims. Those planning to make KORUS claims are encouraged to include any additional documentation relative to the particular goods you are shipping to accurately and comprehensively support such claims.

Late-Filing Consequences Going Up

CBP has apparently decided that, if you file your petition late, the late-filing penalty should be increased for liquidated damages claims. The surety industry has publicized the likely penalties. Under the old formula, the late-filing penalty was based on the mitigated damages amount. In the new formula, it will be based on the amount of the original liquidated-damages assessment. Further, if the petition is more than 180 days late, it will be rejected and the original assessment will stand. CBP is currently discussing this change with the trade, but it may be only a matter of time before the new formulas are published as official mitigation guidelines.

FDA Update

Recently, management at the Los Angeles-area FDA office discussed a number of items in briefing the local trade community. Of note was a comment about close ties with the Los Angeles City Attorney and the Orange County District Attorney, as opposed to the Department of Justice (Justice). There is no doubt FDA works closely with Justice, but many of the current prosecutions are being pursued by local, not federal, prosecutors. This is likely the result of a combination of factors. For example, Justice is short-staffed and overwhelmed with more traditional cases (e.g., money laundering, drug-related crimes, burglary, etc.). In addition, there is a real interest on the part of local politicians to protect the public. These comments by FDA’s staff puts traders on notice that prosecutions are no longer limited to the “big” cases traditionally handled by Justice, but rather will include all sorts of cases now being pursued by local authorities.

If you have any questions regarding this alert, please contact the author.


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