United States: President Obama Signs Into Law Free Trade Agreements With Panama, Colombia, And South Korea; Increase In Merchandise Processing Fees

On Friday, Oct. 22, 2011, President Barack Obama signed into law the long-awaited Free Trade Agreements (FTAs) with Panama, Colombia, and South Korea. As expected, the implementing language of the U.S.—South Korea FTA also includes a general increase in the Merchandise Processing Fees (MPF) for all formal entry imports. While all of these bills have now become law in the U.S., the FTAs must now proceed to the implementation stage where the partner countries will negotiate and attempt to meet the obligations laid out in the agreements before the FTAs take effect.

Increased Merchandise Processing Fees

The South Korea FTA implementing bill contains the operative provisions for the increase in MPF. These MPF provisions override those provisions contained in the Trade Adjustment Act and Generalized System of Preferences bill. As a result, MPF will retroactively increase from the current rate of 0.21 percent to 0.3464 percent effective Oct. 1, 2011 and will stay at that rate until June 30, 2021. The $25 minimum and $485 maximum fee limits were not changed and still apply to formal entries.

CBP will likely issue bills soon for the retroactive payments of the adjusted MPF on products imported after Oct. 1, 2011. The agency is not expected to bill any difference in the MPF rate that is less than $20. CBP has stated that it will give the trade a one week notice before it starts enforcing the higher MPF on its Automated Commercial System (ACS) or Automated Commercial Environment (ACE).

Implementation of the FTAs: Now We Wait

Upon passage of the FTAs, the U.S. Trade Representative (USTR) will begin monitoring and negotiating with the partner countries to ensure that the laws of those countries comport with the requirements of the respective FTA. USTR Ron Kirk recently released the following statement: "USTR has already started the work necessary to bring these agreements into force as soon as possible. We're eager for American businesses and workers to begin reaping the benefits of these hard-won agreements. We know that more exports of made-in-America goods and services flowing to consumers in Korea, Colombia, and Panama can support tens of thousands more jobs here at home. Supporting more American jobs with responsible trade policy has always been our goal."

While the USTR and U.S. manufacturers are eager for the FTAs to be implemented, the enthusiasm among partner countries to finalize the agreements varies.

The Colombian and Panamanian legislatures have ratified their respective agreements, but both countries are now in the process of working to meet the obligations of the agreements during the implementation stage. Panama appears closest to finalizing implementation as the country has been working on agreement goals for some time. Colombia, too, has already met several obligations required by the FTA, but continues to look for progress of its Labor Action Plan before implementing the FTA.

In South Korea, the process looks like it may be more drawn out. There is a strong desire on the part of the ruling Grand National Party (GNP) to implement this legislation, which has been part of the party platform for years. The GNP has a majority in the National Assembly and could unilaterally pass the treaty. However, with parliamentary and presidential elections next year, such a move is politically risky, so the GNP and the government have been negotiating with the opposition parties to reach a compromise. Nevertheless, opposition lawmakers have fiercely opposed the deal. They have demanded various remedies and compensations for companies and individuals in industries that could be negatively impacted by the FTA, like agriculture. Talks between the GNP and opposition parties remain deadlocked, so it is unclear when the deal will be put to the main floor for a vote.

Drinker Biddle & Reath is monitoring each of these FTAs closely and will provide updates as these agreements progress through the implementation stage or as the prospects of implementation change.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.