Understanding Trade Agreements and How They Reduce Your Costs

What Are Trade Agreements?

Trade agreements are deals between countries or groups of countries that reduce barriers to trade — primarily by lowering or eliminating customs duties. If your products qualify under a relevant trade agreement, you could pay significantly less duty than the standard rate.

Types of Agreements

Free Trade Agreements (FTAs)

Bilateral or regional agreements that eliminate or reduce tariffs between participating countries. Examples include:

• USMCA / CUSMA — United States, Mexico, Canada
• EU–Japan EPA — European Union and Japan
• UK–Australia FTA — United Kingdom and Australia
• CPTPP — 11 Pacific Rim countries including Canada, Japan, and Australia
• RCEP — 15 Asia-Pacific nations including China, Japan, South Korea, and ASEAN members

Generalised System of Preferences (GSP)

Programs offered by developed countries that give preferential (reduced or zero) duty rates to imports from developing countries. The specific countries covered and products eligible vary by program.

Customs Unions

Groups of countries that eliminate tariffs between members and apply a common external tariff. The EU's Customs Union is the most well-known example.

How to Qualify for Preferential Rates

Having an FTA between the exporting and importing countries isn't enough on its own. Your product must meet rules of origin requirements:

Wholly Obtained

Products entirely grown, extracted, or manufactured in the qualifying country (e.g., agricultural products, minerals, fish).

Sufficient Transformation

Manufactured products must undergo "sufficient processing" in the qualifying country. This is determined by:

• Change of tariff classification — the finished product's HS code differs from its raw materials
• Value-added threshold — a minimum percentage of the product's value was added in the qualifying country
• Specific processing rules — certain operations that must be performed in the qualifying country

Practical Steps

1. Identify Applicable Agreements

Check which trade agreements exist between your importing country and the country where your products are manufactured.

2. Check Product Eligibility

Not all products are covered by every agreement. Look up your specific HS code in the agreement's tariff schedule.

3. Verify Origin Rules

Confirm your product meets the rules of origin. Your supplier may need to provide documentation of the manufacturing process and materials sourcing.

4. Obtain the Required Documentation

Most agreements require specific certificates of origin:

• EUR.1 — for many EU agreements
• Form A — for GSP preferences
• Self-certification — some modern agreements allow exporters to self-declare origin

5. Present Documentation at Import

Provide the certificate of origin to your customs broker when importing. Without proper documentation, you'll pay the full standard duty rate.

Common Pitfalls

• Assuming qualification — just because a product ships from a qualifying country doesn't mean it was manufactured there
• Missing documentation — claiming preferential rates without the correct certificate of origin can lead to penalties
• Transshipment issues — goods routed through a third country may lose preferential status
• Product exclusions — some sensitive products are excluded from FTA coverage

Is It Worth Investigating?

If the difference between the standard duty rate and the preferential rate is more than 2–3%, it's almost certainly worth investigating. On a $50,000 shipment, even a 3% duty reduction saves $1,500 — more than enough to justify the time spent on documentation.