Background
The U.S.-Panama Trade Promotion Agreement Implementation Act ("the Act," Pub. L. No. 112-43, 125 Stat. 497) was signed into law on October 21, 2011. The Act allowed for the Agreement to take effect on or after January 1, 2012, with the actual implementation date to be determined by the President. Sections 201 and 203 of the Act authorize the President to proclaim the tariff modifications and provide the rules of origin for preferential tariff treatment with respect to goods provided for in the Agreement. The text of the Agreement is posted on the U.S. Trade Representative's website at the following URL: Final Text
The President issued Proclamation 8894 implementing the U.S. - Panama Trade Promotion Agreement (PATPA) on October 29, 2012, for goods entered, or withdrawn from warehouse for consumption, on or after October 31, 2012. The Proclamation incorporated, by reference, Publication 4349 of the United States International Trade Commission (USITC). Annex I of Publication 4349 amends the Harmonized Tariff Schedule of the United States (HTSUS) by adding a new General Note 35 (GN 35) containing specific information regarding the PATPA and a new Subchapter XXI to Chapter 99 to provide for temporary tariff rate quotas (TRQs) implemented by the PATPA. In addition, new provisions have been added to Subchapter XXII to Chapter 98. Annex II of Publication 4349 amends the HTSUS to provide for immediate and staged tariff reductions. It has been posted to the USITC website at the following URL: Modifications to the Harmonized Tariff Schedule
The Agreement provides for the immediate or staged elimination of duties and barriers to bilateral trade in goods and services originating in the United States and/or Panama.
This memorandum provides guidance with respect to preferential tariff claims under the PATPA.
Title 19, Code of Federal Regulations (CFR), is being amended to implement the Agreement and the Act.
Originating Good
An originating good is one that meets the general and/or product specific rules of origin set forth in GN 35 and all other requirements of the agreement.
Rules of Origin
Section 203 of the PATPA Implementation Act specifies the rules of origin used to determine if a good qualifies for preferential tariff treatment or "originates" under the Agreement. The HTSUS has been amended to include GN 35, both the general and specific rules of origin, definitions, and other related provisions.
In general terms, under the PATPA a good is originating when:
- The good is wholly obtained or produced entirely in the territory of the Parties (Panama, the United States or both);
- The good is produced entirely in the territory of one or more of the Parties and
- each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in GN 35(o); or
- the good otherwise satisfies any applicable regional value content (RVC) requirements specified in GN 35(b); and
- satisfies all other applicable requirements of this note and of applicable regulations; or
- the good is produced entirely in the territory of one or more of the Parties exclusively from originating materials.
Transit and Transshipment
Goods that undergo further production outside the territory of Panama or the United States, other than unloading, reloading or other processes to preserve the condition of the good or to transport the good to the territory of Panama or the United States, or goods that do not stay under customs control in the territory of a non-Party, will not be considered originating. [GN 35(c)(iii)]
Panamanian Free Zone Monitoring Program
Panama shall maintain its existing program of monitoring the importation, exportation, processing, and manipulation of goods in Panamanian free zones. If the U.S. has a reasonable suspicion that a good for which an importer in the U.S. has made a claim for preferential tariff treatment under another free trade agreement to which the U.S. is a party has undergone further processing or operations in a Panamanian free zone, other than unloading, reloading, or any other operation necessary to preserve the good in good condition or transport it to the territory of the U.S., then the U.S. may request in writing that Panama: make available all records identified in the written request that relate to whether the good or an identical good, as defined in Article 4.23 (Definitions), was imported into, exported from, or processed or manipulated in a free zone; or conduct a visit to a free zone to verify whether such a good was imported into, exported from, or processed or manipulated in the free zone. (Agreement Article 5.11)
Regional Value Content (RVC) Calculation Methods
For most goods that are subject to an RVC requirement, the Agreement provides for two calculation methods: (1) the build-up method based on the value of originating materials; and (2) the build-down method, based on the value of non-originating materials. [GN 35(g)] For certain automotive goods, the net cost method, based on the production costs, may be used. [GN 35(h)]
De Minimis
The PATPA has a 10 percent de minimis provision for most goods [GN 35(e)], with separate provisions for textiles in GN 35(d)(ii) and non-textiles in GN 35(e)(ii). Under the non-textile de minimis rule, a good containing a non-originating material that does not undergo the tariff classification change specified in GN 35(o) may still originate if the value of all such non-originating materials does not exceed 10 percent of the adjusted value of the good. When performing an RVC computation, the value of de minimis materials is included in the total value of the non-originating materials.
Interpretation of Rules of Origin
General Note 35(n), Interpretation of Rules of Origin, addresses the following:
- References to weights for goods of chapters 1 - 24 are dry weights.
- Any change in tariff classification requirement applies only to non-originating materials.
- Agricultural goods of chapters 6-14 grown with a party shall be treated as originating even if grown from seed, bulb, rootstock, cuttings, grafts, shoots, buds or other live parts of plants imported from a non-party.
- Goods of chapters 27 - 40 can originate by undergoing a "chemical reaction" within a territory of a Party, with exceptions.
- Goods of chapters 28 - 40 can originate by undergoing certain purification operations within a territory of a Party, with exceptions.
- Goods of chapters 30, 31 or 33 through 40 can originate by undergoing certain blending or dispersing operations within a territory of a Party, with exceptions.
- Goods of chapters 28 - 38 can originate if they become "standards materials" within a territory of a Party.
- Goods of chapters 28 - 39 can originate if they are the result of the isolation or separation of isomers from mixtures within a territory of a Party.
- Goods of chapters 28 - 38 that undergo a classification change as a result of the separation of a material from a man-made mixture shall not originate unless the isolated material underwent a chemical reaction within a territory of a Party.
PATPA Eligibility for Textiles and Apparel
Textiles and apparel products may qualify as originating under PATPA if they meet the requirements as specified in the Agreement. The duty rates for these goods will be identified in the "special" column.
Below is a summary of the types of processes required for some of the more basic products in order for them to be considered eligible for PATPA. There are exceptions even to these requirements, depending on the specific type of product it is. For more specific information, refer to Annex I of USITC Publication 4349 or GN 35 to the HTS. It should be noted that for apparel in Chapters 61 & 62 and made-up textile articles in Chapter 63 only the component that determines the essential character for classification must meet the tariff shift rules. [See rule 2 of Chapters 61, 62 and rule 1 of Chapter 63 found in GN 35 (o)]
- Yarn - generally, fiber must originate in Panama or the United States to qualify for preferential tariff treatment.
- Fabric - generally, yarn must originate in Panama or the United States to qualify for preferential tariff treatment. Cotton and man-made knit fabric are under fiber forward rules, meaning the fiber must originate in Panama or the United States to qualify for preferential treatment.
- Apparel - generally, yarn must originate in Panama or the United States to qualify for preferential tariff treatment.
De Minimis (Textiles)
A textile or wearing apparel good that is not an originating good because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set out in Annex I of USITC Publication 4349 or GN 35 (o), shall nonetheless be considered to be an originating good if the total weight of all such fibers or yarns in that component is not more than 10 percent of the total weight of that component. [GN 35 (d)(ii)(A)]
Elastomeric Yarns
Notwithstanding the preceding paragraph regarding de minimis, a good containing elastomeric yarns in the component of the good that determines the tariff classification of the good shall be considered to be an originating good only if such yarns are wholly formed in the territory of a Party. [See GN 35 (d)(ii)]
Certain Nylon Filament Yarn
Textile or apparel goods may contain, in the component that determines the classification of the good, specified nylon filament yarn (other than elastomeric yarn described above) from Israel, Canada or Mexico, without regard to the de minimis limitation. The nylon filament yarn is classified in HTS numbers:
5402.11.30, 5402.11.60, 5402.19.30, 5402.19.60, 5402.31.30, 5402.31.60, 5402.32.30, 5402.32.60, 5402.45.10, 5402.45.90, 5402.51.00 or 5402.61.00 (See GN 35 (d)(ii)(B)).
Visible Linings
Fabric used for visible linings in certain apparel, such as suits, coats and skirts, must be formed and finished in either the United States or Panama. [See rule 1 of Chapters 61 & 62 found in GN 35 (o).]
Narrow Elastomeric Fabric of Subheadings 5806.20 or 6002
Despite the fact that only the component that determines the classification of the good must meet the tariff shift rule, if apparel contains a narrow elastomeric fabric of subheadings 5806.20 or 6002, such fabric must be formed and finished in the United States or Panama. [See rule 3 of Chapters 61 & 62 found in GN 35 (o).]
Sewing Thread
Sewing thread of headings 5204, 5401, or 5508 contained in originating goods in Chapters 61, 62 or 63 must be formed and finished in the United States or Panama. [See rule 4 of Chapters 61 & 62; rule 2 of Chapter 63 found in GN 35 (o).]
Pocket Bag Fabric
If a good of Chapter 61 or 62 contains a pocket or pockets, the pocket bag fabric must be formed and finished in the territory of Panama, the United States, or both, from yarn wholly formed in Panama, the United States, or both. [See rule 5 of Chapters 61 & 62 found in GN 35 (o).]
Short Supply
Fibers, yarns or fabrics not available in commercial quantities in a timely manner among the Parties are listed in Chapter 98, subchapter XXII, U.S. Note 40. Importers making a short supply claim must use HTS number 9822.09.62 for textile and apparel goods in Chapters 42, 50 through 63 and 94. Importers are cautioned to check any updates on the Office of Textile and Apparel (OTEXA) website for the most recent list of allowable short supply inputs at the following URL: OTEXA
Handloomed, Handmade and Folklore Goods
The Panama TPA provides for duty-free treatment for certain Guayabera-style dresses and shirts. The features of these traditional folklore garments classified under HTS headings 6204, 6205, 6206 must match the specifications spelled out under HTS number 9822.09.63, and must be cut and sewn or otherwise assembled in the United States or Panama.
A folklore agreement must be negotiated between the two Parties before goods may be eligible for this provision covering additional handloomed, handmade or folklore goods. Once the U.S. and Panama have negotiated a folklore agreement, goods can be entered under HTS number 9822.09.35 in addition to their Chapter 1-97 number. To date, there has been no mutual agreement; a Textile Book Transmittal (TBT) will be issued if an agreement is reached.
Preferential Treatment for Socks
Initially, duty-free treatment for socks is limited to certain socks, baby socks and booties made from U.S. yarns, knit-to-shape in the U.S., and assembled in Panama with U.S. sewing thread. The eligible goods are baby socks and booties classified under HTS numbers 6111.20.6050, 6111.30.5050, 6111.90.5050, and socks classified under HTS numbers 6115.91 through 6115.99 provided the good is sewn or otherwise assembled in Panama with thread wholly formed and finished in the United States from components knit-to-shape in the United States from yarns wholly formed and finished in the United States. Such goods can be entered under HTS number 9822.09.65 in addition to their Chapter 61 number.
Baby socks, booties and socks which otherwise meet the tariff shift rule under GN 35 (o) classified under HTS numbers 6111.20.60, 6111.30.50, 6111.90.50 and 6115.91 through 6115.99, which requires origin-restricted inputs such as yarn and sewing thread to be from the United States OR Panama, qualify for preferential rates of duty (not duty-free) as specified by Annex IIB of USITC Publication 4349. Such baby socks, booties or socks can be entered under HTS numbers 9919.61.01 through 9919.61.12 in addition to their Chapter 61 number.
Apparel and Made-Ups from U.S. Fabric Cut in Panama
There is a special provision for goods of Chapter 61, 62 or 63 that are assembled from fabric wholly formed in the U.S. or components that are knit to shape in the U.S. that are cut in the U.S. or in Panama, or both, to pay the normal trade relations (NTR) rate of duty on only the value added in Panama. Sewing thread to assemble the good must be wholly formed in the U.S. to qualify for this provision. Such goods can be entered under HTS number 9822.09.61 in addition to their Chapter 61, 62 or 63.
Treatment of Sets
Notwithstanding the rules of origin set forth in GN 35 (o), goods classified under General Rule of Interpretation (GRI) 3 of the HTSUS as goods put up in sets for retail sale shall not be regarded as originating goods unless each of the goods in the set is an originating good or the total value of the non-originating goods in the set does not exceed 10 percent of the entered value of the set per GN 35 (d)(iv)(B) for textile or apparel goods or 15 percent of the entered value of the good per GN 35 (e)(i) for non-textile goods.
Quota
For PATPA agricultural products subject to quantitative limits, the required 98 or 99 HTS number and the appropriate chapter 1-97 HTS number must be identified on the CBP form 7501. The PATPA agricultural quotas are covered by HTS numbers 9822.09.17, 9822.09.18, 9822.09.20, 9822.09.22, 99.19.02.01, 9919.02.02, 9919.04.10, 9919.04.11, 9919.04.12, 9919.04.40, 9919.04.41, 9919.04.50, 9919.04.51-58, 9919.21.10, and 9919.21.11.
The application of agricultural tariff rate quotas for the PATPA is addressed in separate instructions in the form of a quota book transmittal (QBTs) issued by the Headquarters Quota Branch. These instructions include the quota period, procedures for quota openings, restraint limits, applicable HTS numbers, and any special processing instructions. The instructions are available on the CBP website on the "Quota Enforcement and Administration" page (see "Programs and Administration"). In addition to QBTs, there is also a link to the Commodity Status Report. This weekly report lists the fill rates for the tariff rate quotas.
Immediate and Staged Duty Rate Reductions
The list of HTSUS tariff lines that are eligible for immediate duty free treatment, as well as those subject to staged tariff rate reductions, can be found in Annex II, Section A and Section B, respectively, of USITC Publication 4349. Dutiable tariff lines that are eligible for a PATPA claim indicate "PA" in the Special column of the HTSUS.
Merchandise Processing Fees (MPF) Exemption
The PATPA provides the MPF exemption on originating goods.
Preference may be claimed on unconditionally free tariff lines to obtain the MPF exemption, even though "PA" will not be listed in the Special column of the HTSUS. Unconditionally free goods with a PATPA claim are subject to the same certification, verification and other requirements as dutiable goods.
Correction of a False or Unsupported PATPA Claim
An importer who has made a false or unsupported preference claim must submit a correction within 30 days of discovery and pay all duties and merchandise processing fees (MPF). Penalties will not be assessed when the importer promptly and voluntarily makes a corrected claim and pays any duties owed.
Certification and Other Information Requirements
The importer may make a claim for preferential tariff treatment based on a written or electronic certification issued by the exporter or producer, or based on the importer's knowledge, including a reasonable reliance on information in his possession. The importer must submit, upon request by CBP, the certification and other information substantiating the preference claim. The importer is responsible for providing the substantiating documentation to CBP upon request, including information provided to CBP directly by the exporter or producer.
The certification need not be in a prescribed format, may be submitted electronically, and may cover a single importation or multiple importations of identical goods within a maximum 12-month period. The certification must include the data elements specified in Attachment A. The certification may be submitted in English or Spanish. If submitted in Spanish, CBP may request an English translation.
Upon request, the importer must submit the certification that formed the basis of the claim. If the claim is based on importer knowledge, the importer may submit its own certification. Irrespective of the source of the information submitted to CBP, the importer is responsible for exercising reasonable care and for the accuracy of all documentation submitted to CBP.
Importers are required to maintain all certifications and records related to the importation for five years from the date of importation.
Analysis and Certification when No Tariff Change Rule of Origin Exists
Manufacturers, exporters and importers are advised that the PATPA tariff change rules (TCRs) were negotiated using the 2002 Harmonized Tariff Schedule (HTS). Goods assigned new classification numbers in 2007 or 2012, to correspond to World Customs Organization approved modifications, will not find corresponding TCRs in GN 35(o).
- Until revised TCRs are published, manufacturers of affected goods should classify both the good and its materials in accordance with the 2002 HTSUS when performing the TCR analysis.
- Until revised TCRs are published, the certification of affected goods should indicate both the current HTSUS number and the corresponding 2002 HTSUS number used to perform the TCR analysis.
Verification by CBP
Under the PATPA, the importer is responsible for substantiating the validity of a preference claim irrespective of whether it is based on an exporter or producer certification, or importer knowledge. CBP will initiate a verification via a CBP Form 28, Request for Information, to the importer.
Upon request, the importer shall provide the certification (Attachment A) and documentation supporting the certification. Importers should be prepared to substantiate the originating status of the goods with documentation either directly, in the case of a claim based on importer knowledge, or indirectly through the exporter and/or producer when an exporter or producer CO forms the basis of the claim. Documentation includes but is not limited to the following:
- An explanation how the good meets the GN 35(b) rule of origin including the GN 35(o) TCR, where applicable;
- A description of the manufacturing process including flow charts, diagrams, specifications and other supporting documents, as necessary;
- For each material relied upon to meet the rule, the HTS classification, cost and whether the material is originating or non-originating (however, cost data is usually not required unless the good is subject to an RVC or de minimis calculation);
- The basis upon which an originating material is considered originating; in the absence of such information, it will be treated as a non-originating material;
- Purchase orders and proof of payment to substantiate claimed values;
- Documentation pertaining to the use of any inventory management methods, indirect materials, and the existence of any assists; and
- Other documentation, as needed to demonstrate that the good meets the applicable rule of origin.
The importer is responsible for ensuring that sufficient substantiating documentation is provided to CBP upon request.
The exporter or producer may provide this documentation directly to CBP to protect its confidentiality. Subsequent to the initial contact with the importer, CBP may, at its discretion, communicate directly with the exporter or producer.
CBP may verify the originating status of a good by means of a verification visit to the exporter or producer in accordance with procedures established by the Parties.
Issuing a Determination
If the importer provides CBP with sufficient information to demonstrate that the goods originate, CBP will notify the importer of the positive determination via a CBP Form 29, Notice of Action, taken. The CBP Form 29 will include the HTSUS number, description of the good, and the rule of origin, as well as the legal authority/regulation.
If the importer fails to adequately substantiate the claim, CBP will issue a negative determination via a CBP Form 29, Proposed. The notice shall state why the documentation was insufficient or the good otherwise does not originate and allow an additional 20 days for the submission of documentation prior to the issuance of a CBP Form 29, Taken, and rate advancing the good.
Impact of a Negative Determination on a Blanket Certification
The issuance of a negative determination for a good on a blanket certification may result in the denial of preference on all identical goods covered by that blanket.
Repeated False or Unsupported Claims (Pattern of Conduct)
Where verification or other information reveals a pattern of false or unsupported preference claims by an importer, exporter, or producer, CBP may suspend preferential treatment on identical goods covered by subsequent statements, declarations, or certifications until CBP determines that such representations are in conformity with GN 35.
Protest Rights
Importers or other interested parties may file a protest to contest a negative origin determination pursuant to 19 U.S.C 1514, within 180 days of liquidation. If approved, the protest will provide the importer with a refund of duties and/or MPF.
Entry into Force
Importers may claim PATPA preference on originating goods entered or withdrawn from warehouse on or after October 31, 2012.
Making a Preference Claim
A claim for preferential tariff treatment may be made at the time of entry summary by prefacing the HTSUS number of the applicable good on CBP Form 7501 with the Special Program Indicator (SPI) "PA".
Post-Importation Claims
The importer may make a post-importation claim, in accordance with 19 USC 1520(d) and the corresponding regulations, once promulgated, for preferential treatment under the PATPA, within one year after importation. The importer shall submit a claim in writing to the port of entry, to include:
- A written declaration stating that the good was an originating good at the time of importation and setting forth the number and date of the entry or entries covering the good;
- A copy of a certification prepared in accordance with the implementation instructions contained in Attachment A, if a certification forms the basis for the claim, or other information demonstrating that the good qualifies for preferential tariff treatment;
- A written statement indicating whether the importer of the good provided a copy of the entry summary or equivalent documentation to any other person. If such documentation was so provided, the statement must identify each recipient by name, CBP identification number, and address, and must specify the date on which the documentation was provided; and
- A written statement indicating whether or not any person has filed a protest relating to the good under any provision of law; and if any such protest has been filed, the statement must identify the protest by number and date.
If CBP finds that the certification is illegible or defective, or that the post-importation claim otherwise does not comply with the requirements, the post-importation claim will be rejected with a statement specifying the deficiencies. CBP will process the resubmission of a post-importation claim as long as all deficiencies have been cured prior to the expiration of the one-year-from-importation period.
CBP reserves the right to verify the originating status of the goods and to deny preference where the claim was inadequately substantiated or the goods otherwise failed to meet the terms of the PATPA.
Loss of GSP, CBERA, and CBTPA Benefits
Upon implementation of the PATPA, goods of Panama will immediately lose benefits under the Generalized System of Preferences (GSP), the Caribbean Basin Economic Recovery Act (CBERA), and the Caribbean Basin Trade and Partnership Act (CBTPA).
Action
Copies of this memorandum should be made available to Port Directors, Assistant Port Directors, Import and Entry Specialists, CBP Officers, Brokers, Importers and other interested parties.
Additional information is available at:
- Panama Trade Promotion Agreement Page
- Quota notices (QBTs)
- By searching "Panama" or "PATPA" and selecting the Panama Trade Promotion Agreement Smart Link.
Questions regarding non-textile provisions of the PATPA should be directed to FTA@cbp.dhs.gov.
Questions regarding textile and apparel provisions under the PATPA should be directed to Textile Policy and Operations Point of Contact.
Questions regarding quota issues should be directed to Quota Branch Point of Contact.
Attachment A
Attachment A: Data Elements for US - Panama TPA Certification