CE CE Free Trade Agreements & Preferential Programs 2 — Questions and Answers
Question 1: Under USMCA, what is 'regional value content' (RVC) and how is it calculated?
- The percentage of a product's value that must originate in the USMCA region, calculated using either the transaction value or net cost method (Correct answer)
- The total revenue generated from USMCA trade
- The percentage of workers employed in North America
- The ratio of U.S. content to total product weight
Correct answer: The percentage of a product's value that must originate in the USMCA region, calculated using either the transaction value or net cost method
RVC requires that a specified percentage of a product's value come from North America; it can be calculated using the transaction value method or the net cost method depending on the product.
Question 2: What is the African Growth and Opportunity Act (AGOA) and how does it affect U.S. exporters?
- A U.S. law granting eligible sub-Saharan African countries duty-free access to the U.S. market, not directly a benefit for U.S. exporters but creates commercial relationships (Correct answer)
- A U.S. export subsidy program targeting African markets
- A bilateral FTA between the U.S. and the African Union
- A loan program for U.S. companies investing in Africa
Correct answer: A U.S. law granting eligible sub-Saharan African countries duty-free access to the U.S. market, not directly a benefit for U.S. exporters but creates commercial relationships
AGOA extends duty-free access to the U.S. for eligible African nations; while primarily benefiting African exporters, it fosters trade relationships and may include reciprocal market access benefits for U.S. exporters.
Question 3: What is 'cumulation' in FTA rules of origin and how can it benefit exporters?
- It allows producers to count inputs from other FTA partner countries toward the origin content requirement, making it easier to qualify for preferences (Correct answer)
- It permits accumulating multiple shipments to reach a tariff threshold
- It is a method of averaging tariff rates across multiple product codes
- It allows combining export quota allocations from different years
Correct answer: It allows producers to count inputs from other FTA partner countries toward the origin content requirement, making it easier to qualify for preferences
Cumulation allows a product to incorporate materials or processing from multiple FTA partner countries and still count toward the origin threshold, giving manufacturers more sourcing flexibility.
Question 4: What is the U.S.-Korea Free Trade Agreement (KORUS FTA) and which sectors benefit most for U.S. exporters?
- A bilateral FTA between the U.S. and South Korea eliminating most tariffs; U.S. agricultural, automotive, and manufactured goods exporters benefit significantly (Correct answer)
- A technology sharing agreement focused on semiconductor manufacturing
- A joint defense spending arrangement reducing military procurement costs
- A cultural exchange program promoting U.S. educational exports
Correct answer: A bilateral FTA between the U.S. and South Korea eliminating most tariffs; U.S. agricultural, automotive, and manufactured goods exporters benefit significantly
KORUS FTA (effective 2012) eliminated tariffs on most U.S. goods entering South Korea, with significant gains for agricultural products, automotive parts, and industrial machinery exporters.
Question 5: What is 'tariff engineering' and is it legal under U.S. trade law?
- Legally modifying a product's design or composition to achieve a lower tariff classification; it is legal if the changes are genuine (Correct answer)
- Fraudulently mislabeling goods to avoid tariffs; it is illegal
- Negotiating tariff reductions through lobbying; it is legal if disclosed
- Splitting shipments to stay under de minimis thresholds; it is conditionally legal
Correct answer: Legally modifying a product's design or composition to achieve a lower tariff classification; it is legal if the changes are genuine
Tariff engineering—making genuine product modifications to achieve a more favorable tariff classification—is a legal tax planning strategy, provided the changes are real and not merely cosmetic fraud.
Question 6: What is the purpose of the U.S.-Israel Free Trade Agreement, and what makes it historically significant?
- It was the first FTA the United States ever signed (1985), and it eliminates tariffs on virtually all goods traded between the two countries (Correct answer)
- It is the largest FTA by trade volume in U.S. history
- It covers services but not goods
- It was the first FTA to include environmental and labor chapters
Correct answer: It was the first FTA the United States ever signed (1985), and it eliminates tariffs on virtually all goods traded between the two countries
The U.S.-Israel FTA, signed in 1985, was the first free trade agreement in U.S. history, establishing the template for subsequent U.S. trade agreements.
CE CE Free Trade Agreements & Preferential Programs 2
Under USMCA, what is 'regional value content' (RVC) and how is it calculated?