Free Trade Agreements
Treaties that lower or eliminate duties — if a product meets the agreement's rules of origin.
A free trade agreement (FTA) is a treaty between two or more countries that lowers or eliminates duties on goods meeting the agreement's preferential rules of origin. FTAs are an importer's primary tool for reducing landed duty — but only when the product actually qualifies. Qualifying is a structured exercise that depends on the value chain behind the product, not just where it was last assembled.
USMCA as the canonical example
The U.S.-Mexico-Canada Agreement (USMCA) replaced NAFTA on July 1, 2020. It is one of the most heavily used FTAs by U.S. importers and is a good example of how a modern FTA works. To qualify for USMCA treatment, a product must be one of the following:
- Wholly obtained in the USMCA territory.
- Produced in the territory exclusively from originating materials.
- Produced in the territory and meeting a tariff shift requirement, a regional value content threshold, or a specific-process rule defined by the agreement.
To claim USMCA treatment at entry, the importer relies on a certification of origin. USMCA does not require a standard form, but it requires nine specific data elements describing the importer, exporter, producer, product, HS classification, and the basis on which the product qualifies. The certification is the document an auditor will ask for.
Tariff shift, regional value content, and de minimis
Three mechanics show up repeatedly across FTAs. They are worth understanding in the abstract because the same patterns recur across USMCA, KORUS, and many other agreements.
- Tariff shift. A rule-of-origin test that asks whether the non-originating inputs to a product fall under a different HS classification than the finished product. The shift in classification stands as evidence that meaningful work happened inside the agreement region.
- Regional value content (RVC). An FTA test that measures what percentage of a product's value comes from inputs and processing inside the agreement region. Different agreements use different calculation methods (build-up, build-down, net cost); the threshold percentage also varies.
- De minimis. A rule that lets a small percentage of non-originating materials be ignored when applying the rules of origin — an exception that prevents trivial inputs from disqualifying an otherwise-originating good. USMCA sets the de minimis at 10% of the adjusted value of the good for most categories.
How you'll see this in Altana
- FTA-qualification workspaces run against the catalog and use the product's BOM and upstream value chain to evaluate tariff shift, regional value content, and de minimis tests for each candidate FTA.
- Where Altana suggests qualification, the surface includes the inputs that produced the suggestion — which BOM rows contributed, which tier shifted classifications, what the RVC calculation looks like — so the determination is auditable.
- Certification-of-origin generation packages the required data elements once you confirm qualification.
- Specific FTA rules and current rate schedules are maintained by the issuing customs authority. Altana surfaces the qualification logic; for the live rate or rule text, consult the relevant authority.
Key terms
- Free trade agreement (FTA)
- A treaty between two or more countries that lowers or eliminates duties on goods meeting the agreement's rules of origin.
- USMCA
- The U.S.-Mexico-Canada Agreement that replaced NAFTA on July 1, 2020. Qualification requires wholly-obtained status, exclusively originating production, or a tariff shift / regional value content / specific-process rule, with a nine-element certification of origin.
- Tariff shift
- A rule-of-origin test that asks whether the non-originating inputs to a product fall under a different HS classification than the finished product. Evidence that meaningful work happened inside the agreement region.
- Regional value content (RVC)
- An FTA test that measures what percentage of a product's value comes from inputs and processing inside the agreement region. Different agreements use different calculation methods and thresholds.
- De minimis (FTA)
- A rule that lets a small percentage of non-originating materials be ignored when applying the rules of origin. USMCA sets this at 10% of the adjusted value of the good for most categories.
- Certification of origin
- The document an importer relies on to claim preferential FTA treatment. Under USMCA, no standard form is required, but nine specific data elements must be provided.