What are Free Trade Agreements?
Free Trade Agreements (FTAs) are International treaties that reduce barriers to trade and investment. They are special agreements between 2 countries that act to reduce or eliminate the import tariffs (import duty fees) that are paid on imported goods. Import tariffs are charges that are payable when goods are imported into a country, but when the country of import and the country of export have a Free Trade Agreement in place then this agreement reduces or eliminates the import duty fees payable in the country of import.
Why do Free Trade Agreements Exist?
FTAs exist primarly to increase two-way trade between the countries. FTAs benefit both nations involved as it encourages importers to source and purchase their products from exporters in the country the FTA is held. The Importers’ costs are reduced which makes the exporter’s products more competitive and appealing to buyers in the country where the FTA exists. They also help with overcoming some internal barriers which impede the trade of goods and services between countries and they also encourage increased investment and cooperation.
Here is a list of Countries with bilateral Free-Trade agreements:
What is a Certificate of Origin?
A Certificate of Origin (COO) is a certified document that states the country of origin in which the goods were produced. When a FTA is in place the importer will request that the Exporter provides a signed and stamped COO so that the importer can pass it onto their customs clearance agent. The customs agent will use this COO to reduce or eliminate the import duties payable on imported products.
How does a Certificate of Origin reduce the amount of import duties?
See below example of how using a Certificate of Origin can reduce or eliminate the import duties. As an example:
- $13,000 of products is shipped to the importer
- The importer will have to pay all associated import costs, including seafreight charges, local port handling/customs charges, import duties and import taxes etc.
- If the country of export and country of import do not have a current Free Trade Agreement then the importer will have to pay import duties on these goods (in this example, 5% of the product value).
- However, if the 2 countries do have a Free Trade Agreement in place AND the exporter provides a Certificate of Origin to the importer, the importer will pay less import duty, or even pay no import duty at all (Duty Free, 0%).
Where can I get a Certificate of Origin?
You can create your own declaration of origin document, or you can get a Certified Certificate of Origin from the local Chamber of Commerce. The Chamber can sign and stamp your Certificate of Origin for a set fee.