Frequently Asked Questions Related to Regional Trade Agreements

1. What is a Regional Trade Agreement (RTA)?

A Regional Trade Agreement is an agreement undertaken by countries located within a defined geographic area whereby the participating countries align themselves with each other for the purpose of achieving a pre-determined form of economic integration.

2. What forms of economic integration are Regional Trade Agreements most commonly designed to achieve?

Free trade areas, customs unions, common markets and economic unions.

3. What is a free trade area?

A free trade area eliminates barriers to trade in goods between or among its members, but the members retain all of their preexisting tariffs and other trade barriers in their trade relations with third countries. The North American Free Trade Agreement (NAFTA) is an example of a free trade area.

4. What is a customs union?

A customs union eliminates barriers to trade in goods between or among its members and adopts a common external tariff that all members of the customs union apply to trade from countries outside the union. The Andean Group comprised of Bolivia, Colombia, Ecuador, Peru, and Venezuela, is an example of a customs union.

5. What is a common market?

A common market eliminates all barriers to trade in goods among the members and adopts a common external tariff. Additionally, a common market also permits the free movement of goods, services, people, and capital within the market. The Southern Common Market (MERCOSUR) is an example of a common market.

6. What is an economic union?

An economic union eliminates all barriers to trade in goods among the members, adopts a common external tariff, permits the free movement of goods, services, people, and capital within the market and provides for common monetary policy, a common fiscal policy and a common currency for its members. The European Union (EU) is an example of an economic union.

7. What is the North American Free Trade Agreement (NAFTA)?

NAFTA is a free trade agreement that comprises Canada, the U.S. and Mexico. The objectives of the Agreement are to eliminate barriers to trade, promote conditions of fair competition, increase investment opportunities, provide protection for intellectual property rights and establish procedures for the resolution of disputes.

8. What is Mercosur?

Mercosur (or in Portuguese, Mercosul) is a regional trade agreement subscribed to by Argentina, Brazil, Paraguay and Uruguay. Originally formed as a customs union, the treaty calls for transformation to a common market by the year 2006.

9. What is the European Union (EU)?

The European Union, formerly known as the European Economic Community or the Common Market, is an economic union currently subscribed to by 25 member countries; namely: Austria Belgium Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxemburg Malta Poland Portugal Slovakia Slovenia Spain Sweden The Netherlands United Kingdom

10. What is the Asia-Pacific Economic Cooperation Forum (APEC)?

The Asia-Pacific Economic Cooperation (APEC) is a 21-member organization to discuss liberalization and facilitation of trade and investment and economic cooperation. Formed in 1989 as an informal forum for dialogue, APEC has taken steps in recent years to institutionalize its functions. Current member countries of APEC are: Australia Brunei Darussalam Canada Chile People's Republic of China Hong Kong Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Papua New Guinea Peru Republic of the Philippines Russia Singapore Chinese Taipei (Taiwan) Thailand United States of America Vietnam

11. What is ASEAN?

ASEAN is the Association of Southeast Asian Nationals (ASEAN). ASEAN’s main objectives are “to accelerate economic growth, social progress and cultural development” and “to promote active collaboration and mutual assistance on matters of common interest in the economic, social, cultural, technical, scientific and administrative fields.” ASEAN membership is currently comprised of Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

12. What is the World Trade Organization (WTO)?

The World Trade Organization (WTO) is the successor organization to the General Agreement on Tariffs and Trade (GATT), the fountainhead of international trade law. As of May 2005, the WTO was comprised of 148 countries.

13. What is the Organization of American States (OAS)?

The Organization of American States (OAS) is the world's oldest regional organization, dating back to 1889. The OAS currently has 35 Member States and has granted Permanent Observer status to 37 States, as well as the European Union. OAS describes its basic purposes as follows: to strengthen the peace and security of the continent; to promote and consolidate representative democracy, with due respect for the principle of nonintervention to prevent possible causes of difficulties and to ensure the pacific settlement of disputes that may arise among the Member States; to provide for common action on the part of those States in the event of aggression; to seek the solution of political, juridical and economic problems that my arise among them; to promote, by cooperative action, their economic, social and cultural development, and to achieve an effective limitation of conventional weapons that will make it possible to devote the largest amount of resources to the economic and social development of the Member States. In recent years, the OAS adopted a new agenda, which includes the establishment of a Free Trade Area of the Americas, in which it hopes to progressively eliminate barriers to trade and investment.

14. What is the Free Trade Area of the Americas (FTAA)?

The Free Trade Area of the Americas (FTAA) was launched by U.S. President George H. W. Bush in 1990 as a proposal to integrate the economies of the countries in the Western Hemisphere. All independent countries in North, South and Central America and the Caribbean except for Cuba are involved in the FTAA. They are follows: Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Bolivia, Brazil, Canada, Chile, Columbia, Costa Rica, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago, United States, Uruguay, Venezuela. The goal of the FTAA is a free trade area stretching from Alaska to Tierra del Fuego by 2005.

15. What is the Organization for Economic Cooperation and Development (OECD)?

The Organization of Economic Cooperation and Development is an international organization of the industrialized, market-economy countries. At OECD, representatives from Member countries meet to exchange information and harmonize policy with a view to maximizing growth within Member countries and assisting non-Member countries develop more rapidly. OECD membership is currently comprised of 29 members as follows: Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Korea Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Spain Sweden Switzerland Turkey United Kingdom United States

16. What is the Caribbean Basin Initiative (CBI)?

Caribbean Basin Initiative (CBI) is a U.S. trade program providing for the duty-free entry into the United States of merchandise from designated beneficiary countries or territories in the Caribbean Basin. The purpose of the program is to increase economic and trade preferences for twenty-eight states of the Caribbean region. The 23 countries include Antigua and Barbuda, the Bahamas, Barbados, Belize, the British Virgin islands, Costa Rica, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Honduras, Jamaica, Montserrat, the Netherlands Antilles, Nicaragua, Panama, St. Christopher-Nevis, St. Lucia, St. Vincent and the Grenadines, Trinidad and Tobago.

17. What is the Andean Trade Preference Act (ATPA)?

The Andean Trade Preference Act is a U.S. trade program, which authorizes preferential trade benefits for the four Andean nations of Bolivia, Colombia, Ecuador, and Venezuela.

18. What does the phrase "normal trade relations" mean?

Formerly referred to as most favored nation status, normal trade relations is a designation of a non-discriminatory trade policy commitment on the part of one country to extend to another country the lowest tariff rates it applies to any other country. All contracting parties to the General Agreement on Tariffs and Trade (GATT) undertake to apply such treatment to one another under Article I of the treaty.

19. What is the Generalized System of Preferences (GSP)?

As is stated in resolution 21(ii) taken at the UNCTAD II conference in New Delhi in 1968, "the objectives of the generalized, non-reciprocal, non-discriminatory system of preferences in favor of the developing countries, including special measures in favor of the least advanced among the developing countries, should be: To increase their export earnings; To promote their industrialization; To accelerate their rates of economic growth. Under GSP schemes of preference-giving counties, selected products originating in developing countries are granted reduced or zero tariff rates over the MFN rates. The least developed countries (LDCs) receive special and preferential treatment for a wider coverage of products and deeper tariff cuts.

20. What is a common external tariff?

A common external tariff provides for a uniform rate of duty on third-country imports, regardless of the port of entry.

21. What does the phrase "national treatment obligation" mean?

National treatment obligation is a nondiscrimination obligation imposed at the national level. Once imports have entered a country's territory, (1) internal taxes must be applied equally to imports and the like domestic product, and (2) national regulations must not treat imports "less favorably" than similar domestic goods.

22. What are non-tariff barriers to trade?

Non-tariff barriers are import quotas or other quantitative restrictions, non-automatic import licensing, customs surcharges or other fees and charges, customs procedures, export subsidies, unreasonable standards or standards setting procedures, government procurement restrictions, inadequate intellectual property protection and investment restrictions that deny or make market access excessively difficult for goods or services of foreign origin.

23. What are rules of origin?

Specific provisions, developed from principles established by national legislation or international agreements ("origin criteria"), applied by a country to determine the origin of goods.

24. What is the purpose of rules of origin?

The purpose of any rule of origin is to determine the country of origin of an imported good. Put simply, "[a] rule of origin is a criterion that is used to determine the 'nationality' of a product or producer.

25. What forms do rules of origin take?

Rules of origin can be non-preferential or preferential.

26. What are non-preferential rules of origin?

Non-preferential rules of origin are origin rules typically specified in trade agreements and intended to apply to imported goods that are excluded from the application of preferential trade benefits, such as entry without restriction, punitive duty treatment, duty-free treatment or lower duty.

27. Into what categories can preferential rules of origin generally be divided?

Preferential rules of origin can generally be divided into five separate categories: (a) goods wholly obtained; (b) goods substantially transformed; (c) goods which undergo prescribed tariff shifts; (d) prescribed percentage values added to goods; and (e) any combination of the preceding categories.

28. What is "substantial transformation"?

A "substantial transformation" determines the country of origin of a product. This occurs when, after the last substantial manufacturing or processing, the commodity has its essential character.

29. Why is it important to apply origin rules correctly?

An erroneous application of the country of origin rules under a specific trade agreement can have disastrous consequences for the parties involved in the transaction. For example, merchandise marked with the incorrect country of origin may be subject to seizure of an assessment of supplemental marking duties. The Customs Service of a given country may also impose substantial monetary or criminal penalties against the importer if Customs suspects that the importer purposefully obscured, removed, or altered the country of origin mark. Finally, in the U.S., for example, the Trademark Act of 1946 prohibits the importation of articles of foreign origin, which display a name, or mark intended to persuade the public to believe that an imported product was manufactured in the United States or in "any foreign country or locality other than the country of locality in which it was in fact manufactured". An article imported in violation of this statute may be detained, seized, or forfeited.

30. What is a certificate of origin?

A certificate of origin is a specific document identifying the goods. The authority or body empowered to issue it certifies expressly that the goods to which the certificate relates originate in a specific country. This certificate may also include a declaration by the manufacturer, producer, supplier, exporter or other competent person.

31. What is an origin-marking rule?

The origin marking rule requires a marking to be placed on a product for the purpose of informing the purchaser of the product of its origin.

32. What is an EU directive?

An EU directive is a directive to member states of the European Union to change their laws conform to the EU directive. Required changes must be enacted within a period of 18 months.