U.S. TARIFF EXEMPTIONS

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TARIFF TREATMENT OF IMPORTS FROM THE FREELY ASSOCIATED
STATES UNDER PUBLIC LAW 99-239


The Compact of Free Association originally applied Headnote 3(a), now General Note 3(a) (iv)of the Harmonized Tariff Schedule, to the freely associated states, but Public Law 99-239,section 401(a), substituted a liberalized version of the generalized system of preferences (GSP).The changes were based on concessions given to the Caribbean countries under the Caribbean Basin Initiative (CBI).

Section 401(a) of PL. 99-239 rewrites section 242 of the Compact and specifies the conditions under which articles from the Federated States of Micronesia and the Marshall Islands can enter the United States exempt from duty. Similar treatment is provided to Palau under its Compact. The cost of materials produced in the beneficiary country plus direct costs of processing in the beneficiary country must be at least 35 percent of the appraised value of the eligible article. U.S. produced materials up to 15 percent of the value of the article may bes ubstituted for the local value added requirement.

The Compact law provides that all articles are deemed eligible except the following: watches and clocks, acrylic buttons, textiles and apparel subject to textile agreements, and footwear and other leather goods excluded by law from GSP eligibility. Canned tuna in water, which is excluded from the CBI, is duty-free under the Compact, but only up to 10 percent of annual U.S. consumption.


TARIFF TREATMENT of IMPORTS - U.S. INSULAR AREAS
HARMONIZED TARIFF SCHEDULE
GENERAL NOTE 3(a)(iv)

1. General Note 3(a)(iv) of the Harmonized Tariff Schedule extends duty-free treatment to the products of U.S. insular areas ("insular possessions").

2. Eligible U.S. insular areas are the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

3. Virtually all products are eligible for entry under General Note 3(a)(iv). (Watches are provided duty-free treatment under Schedule 7, Support E, Headnote 6 of the Tariff Schedules.)

4. Eligible products must satisfy certain foreign content criteria in order to qualify for duty-free treatment.

A. No product may contain foreign materials in excess of 70 percent of  its total appraised value.
B. Certain products which are excluded from preferential treatment under the Caribbean Basin Initiative (such as textile and apparel articles, footwear and petroleum products) may not contain foreign materials in excess of 50 percent of the total appraised value.

5. All products must satisfy certain rules of origin in order to qualify for duty-free treatment.

A. A product of an insular area must be manufactured or produced in an insular area, either wholly from insular area materials or from imported materials which are substantially transformed in the insular area.
B. A substantial transformation occurs when a new and different article   is produced, having a distinctive name, character, and use. Specific rules of origin are applicable to some garments.
C. A certificate of origin must accompany entry of all products under General Note 3(a)(iv).

 6. U.S. insular areas are not subject to the U.S. textile quota program.