Trade Groups Call for Customs Improvements, Tussle Over Rules of Origin in Japan FTA Negotiations

Trade groups called for improvements to Japanese customs procedures as part of any U.S.-Japan Free Trade Agreement, including enhanced cooperation between CBP and Japan Customs to combat fraud, in comments submitted to the Office of the U.S. Trade Representative on negotiating objectives for the potential trade deal. Commenters generally supported an increase in the Japanese de minimis level, but as was the case in prior trade agreement negotiations, disagreed on rules of origin, particularly for textiles.

The agreement should address “Japan’s customs processing, which is both complex and time consuming,” the National Association of Manufacturers said. It should include “facilitative customs procedures” to speed legitimate goods across borders and provide predictability and transparency to regulations, rulings, and border operations,” the American Apparel and Footwear Association said.

Customs provisions should ensure proper enforcement, but should treat trusted traders as partners, the AAFA said. “We would support simplification of the agreement by reducing the need for harmonized tariff system codes at the 10‐digit level, allowing instead for claims to be made at the 6‐digit level where possible,” the trade group said. “The agreement should not require direct export, and instead permit interim storage locations, which is consistent with global supply chains,” AAFA said. It “should include simple drawback rules that permit substitution drawback claims and facilitate returns (for repairs and reprocessing).”

In negotiations, the U.S. should push Japan to separate “the physical release of goods from the duty and tax collection process,” the Express Association of America said. “Trusted traders should be able to calculate and pay duties and taxes after the physical release of the goods. The optimum approach is to allow periodic (at least monthly) payments of these fees as opposed to doing so on a transaction-by-transaction basis,” it said.

The customs chapter of the recent U.S.-Mexico-Canada Agreement should serve as a model for any agreement with Japan, the EAA said. The express association also called on the U.S. to push Japan to end its preferential treatment of Japan Post over private express delivery services, including for entry procedures and advance data transmission, and prohibit subsidization of Japan Post’s express delivery service with revenue from its postal services.

Several trade associations said Japan should have to increase its de minimis level. “We think it critical for the Administration to push Japan to increase its current de minimis at 10000 JPY (around $87) up to $800 in order to make it worthwhile for consumers to take advantage of e-commerce in light of the logistics costs of shipping goods between the U.S. and Japan,” said the American Association of Exporters and Importers, in comments echoed by the EAA and the AAFA. EAA also called for the U.S. to push Japan to not require tariff schedule numbers on imports entering under the higher de minimis.

AAEI and the Duty Drawback Coalition asked that no new drawback or duty deferral restrictions be embedded in the new agreement. “AAEI was certainly disappointed at the language in the USMCA that continued to restrict drawback for exports to NAFTA countries,” it said. “We request that the Administration use the language in the Trans-Pacific Partnership as a model for duty drawback.”

AAEI also called for the U.S. to avoid imposing restrictive rules of origin, which not only make it more difficult to import into the U.S. but also make it hard for U.S. exporters to ship to Japan. “Rather, we recommend that the Administration build on the most recent trade agreements to develop ROOs for the U.S.-Japan trade agreement,” AAEI said. The trade group also highlighted industries in Japan that are currently closed to U.S. exports or have high regulatory barriers, including the agriculture, automotive, medical device and pharmaceutical sectors.

But in what would be a departure from recent FTAs, several trade groups representing textile and apparel importers said that yarn-forward rules of origin should not be used throughout the textile and apparel sector. “The yarn-forward Rule of Origin for apparel products in old U.S. trade agreements is more restrictive than the rule of origin for any other manufactured product -- an anomaly that has no place in a 21st century trade agreement,” the U.S. Fashion Industry Association said. “A true 21st century agreement with Japan should contain a flexible Rule of Origin for the majority of products and impose a restrictive yarn-forward Rule of Origin only on those U.S.-manufactured products that need special protection,” it said, in comments echoed by the AAFA.

Instead, rules of origin for apparel should be based on either a simple tariff shift to Chapters 61 and 62 from any other heading, or alternatively on a regional value content rule with a 35 percent threshold, USFIA said.

The National Council of Textile Organizations argued to the contrary, in joint comments submitted alongside the Narrow Fabrics Institute and U.S. Industrial Fabrics Institute. “Weak origin rules that convey benefits for minimal or final step processing transfer lucrative benefits to parties outside the signatory countries,” which often comes at the “direct expense of manufacturers and workers,” the NCTO said. “The U.S. textile industry is a staunch supporter of a yarn-forward origin rule in any preferential arrangement the United States seeks to implement. The yarn-forward rule is a straightforward, logical mechanism that has been proven to be highly successful throughout the U.S. duty preference and free trade agreement structure,” the NCTO said.