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Duty savings from US free trade agreements are largely ignored, says study

DULLES, Virginia - 03/25/05 - A significant majority of US exporters are not taking full advantage of the duty savings associated with new preferential free trade programs such as the US-Australia Free Trade Agreement, according to the results of a study conducted recently by global trade researcher Vastera Inc.

The preferential trade agreement between the US and Australia, for example, became effective the first of this year, yet in researching approximately 60 US companies that export goods to that particular country, the company found that, in some cases, millions of dollars worth of duty savings remain unclaimed.

"Participation in preferential trade programs such as the US-Australia Free Trade Agreement can generate significant duty savings if done properly," said Tim Davenport, president and CEO, of the Virginia-based research company.
 
One company cited in the study - a global manufacturer that outsourced its duty minimization program - "will obtain a benefit of over $3 million dollars annually by leveraging outsourced expertise to certify its exports against the rules of origin and properly qualify" for the US-Australia Free Trade Agreement.

"The complexity associated with understanding and leveraging free trade agreements is beyond of the scope of many companies because they either lack the expertise, resources, technology, or all of the above to do it efficiently and cost-effectively," said Adrian Gonzalez, director of the Logistics Executive Council at the ARC Advisory Group, a manufacturing, logistics, and supply chain solutions firm headquartered in Dedham, Massachusetts.
 
According to the Vastera study, the reasons cited by companies for not taking better advantage of new free trade agreements center on three primary reasons - the sheer number of free trade agreements, bandwidth, and the lack of in-house expertise.

More than 300 trade programs exist around the world, and more are in various stages of development, the study said.

The US, alone, is currently working to open markets globally in the Doha WTO negotiations; regionally through the Asia Pacific Economic Cooperation (APEC) and the Free Trade Area of the Americas (FTAA) negotiations; and bilaterally, with free trade agreements.
 
In addition, the Bush Administration has completed free trade pacts with 12 countries - Jordan, Chile, Singapore, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Australia, Morocco, and Bahrain.

At the same time, negotiations are under way or about to begin with 12 more countries - Panama, Colombia, Peru, Ecuador, Thailand, the five nations of the Southern African Customs Union (SACU), the UAE, and Oman.

The first US bilateral free trade agreement was forged with Israel and went into effect in September, 1985.

New and pending FTA partners, taken together, would constitute America's third largest export market and the sixth largest economy in the world.

The US-Australia Free Trade Agreement, for instance, went into effect in January of this year, while the new Mexico-Japan trade program is expected to take effect in April.

According to PIERS - the Journal of Commerce's Port Import Export Reporting Service - the top US exports to Australia include paper products, tires, hardware, automotive parts, and lawn mowers and garden equipment. The country is also a leading market for machinery, computers and electronic products, and chemicals.

Each of the 50 US states exports to Australia, with the country ranking among the top 25 export destinations for 48 of the 50 states. The leading states exporting to Australia are California, Washington, Illinois, Texas, Michigan, New York, Ohio, Pennsylvania, and Florida, PIERS said.

"Some companies are still struggling to maximize fully older programs like NAFTA and are unable to keep up with the growing number of programs being enacted," the Vastera paper said.

In many cases, it said, "the logistics or global trade departments at many US companies are too stretched to handle the complexity and detail associated with participation in numerous free trade programs. The infrastructure and support to leverage these programs simply does not exist."

Global trade management is "a niche market that requires experts with deep knowledge. Many companies do not have the in-house experience required to manage such programs effectively," the study concluded.

For more information on the free trade agreement duty study, visit www.vastera.com/

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