By  on February 14, 2006

WASHINGTON — Beneath the bigger issues of international cohesion, lower prices and lost jobs, free trade agreements are complex pacts filled with legal nuances and details that can translate into big opportunities or major threats.

Understanding those fine points is vital if importers are going to take advantage of reduced duty rates provided by the trade deals.

"As the patchwork of these free trade agreements comes together, the most important element is the rule of origin," said Natalie Hanson, vice president of International Development Systems, a trade consulting firm here.

The rule of origin dictates where the raw materials can come from for goods to be eligible for duty-free treatment. The standard is yarn forward, which means the yarn used in the imports must come from one of the countries in the agreement.

However, even agreements with similar rules of origin can be quite different in practice, given the varying exceptions baked into each deal.

Trade preference levels, which often allow quantities of some raw materials to come from countries outside the accord, are one kind of important and frequent exception.

"Of what we have right now, the most liberal rule of origin is the one used for the Israel and Jordan free trade agreements," said Hanson. "That rule does away with the need for a tariff preference level."

It is the U.S. Trade Representative's office that hammers out these details and signs a treaty that gets presented to Congress for approval. Once Congress signs off on the pact and the President gives his OK, the countries often have to make some final tweaks, such as adjusting certain laws, before the agreement is implemented.

The number of agreements has expanded significantly under the Bush administration, which this month said it would begin talks for an FTA with South Korea. With two-way trade of about $70 billion a year, an agreement would be the largest since the North American FTA.

Agreements already exist with Australia, Chile, Israel, Jordan, Morocco and Singapore, as well as the North American Free Trade Agreement with Mexico and Canada. Here's a primer to the agreements in the works, put together by WWD and International Development Systems.

  • Andean Trade Promotion Agreement
    Peru, Colombia and Ecuador
    Talks wrapped up with Peru in December 2005 and are ongoing with Colombia and Ecuador.
    Rule of Origin: Yarn forward (for Peru)
    Trade Preference Level: No (for Peru)
    Total apparel and textile imports: $1.5 billion (for region)

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