Rules of origin decide US duty benefits

MUSCAT, SEPT 29
Omani manufacturers seeking duty-free access to the United States must comply with detailed rules of origin under the two countries’ free trade agreement (FTA), even as some additional US tariffs remain payable.
Emmee Haun, Managing Director of the Oman Trade Office US, said qualifying Omani products enter the US free of normal customs duties and are exempt from the 0.3464-per-cent merchandise processing fee charged at US ports and airports.
“Is this free trade agreement still in effect? Yes, it is,” Haun told a session at the Oman Chamber of Commerce and Industry. Despite recently introduced tariffs and other trade measures, “the FTA has remained untouched”, she said.
The agreement was signed in 2006 and entered into force in 2009. It has no expiry date, and all scheduled duty reductions were completed within 10 years.
Oman is among 20 countries that have free trade agreements with the US, giving qualifying exporters a competitive advantage, Haun said.
However, FTA eligibility does not exempt goods from all additional US tariffs. Some qualifying products remain subject to a 12.5-per-cent levy imposed under Section 301 of US trade law unless they appear on an exceptions list.
Haun said the rules of origin were the agreement’s most important but most complicated provisions.
Goods may qualify if they are produced entirely in Oman using Omani or US materials. These could include fish caught in Omani waters, locally extracted minerals or domestically grown agricultural products.
Most manufacturers, however, must qualify under a second route. Imported inputs must undergo sufficient transformation in Oman to create a new product, as demonstrated by a change in its Harmonised System classification.
The value of Omani or US materials, together with direct processing costs, must also represent at least 35 per cent of the product’s appraised value. This is based on the invoice price charged to the US customer, excluding shipping costs.
Materials imported from third countries do not count towards the 35-per-cent threshold. A nail manufacturer using steel imported from India, for example, could not include the steel’s value in the calculation.
Eligible direct costs include labour, depreciation, research and development, inspection and packaging. Production-related energy costs may also be included for energy-intensive industries.
Profit, administrative salaries, sales and marketing expenses and insurance costs cannot be counted.
Goods may be transhipped through another country on their way to the US but cannot be repackaged or undergo further processing that adds value, Haun said.
She advised exporters to maintain updated records in case US Customs and Border Protection challenges their FTA claims.
Textiles are covered by separate provisions and generally follow a yarn-forward rule rather than the 35-per-cent test. Manufacturers that do not use qualifying Omani yarn are unlikely to receive the agreement’s duty benefits.
Haun said exporters should first identify the correct 10-digit code under the US Harmonized Tariff Schedule, which determines the normal duty rate, tariff exemptions and exposure to trade remedies.
Companies may also request binding advance rulings from US Customs and Border Protection. Previous rulings are publicly available, including one recently secured by an Omani company for frankincense.