Study guide
7.4 Other Free Trade Agreements and Preference Programs
U.S. Customs Broker License Examination CBLE
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1 Chapter 1: Exam Logistics, Eligibility, and Professional Governance
1.1 CBLE Examination Format, Scoring, and Category Structure 1.2 Eligibility Requirements, Application Procedures, and License Issuance 1.3 Triennial Status Reporting and Continuing Education Requirements 1.4 Statutory Fees, Application Vetting, and Appeals of Adverse Decisions
2 Chapter 2: Harmonized Tariff Schedule Classification Principles
2.1 HTSUS Structure, Legal Hierarchy, and Chapter Notes 2.2 General Rules of Interpretation 1 through 4 2.3 GRIs 5 and 6 and Classification Doctrines 2.4 Chapter 98 Special Classification Provisions 2.5 CBP Rulings, CROSS, and Classification Research (19 CFR Part 177) 2.6 Textile and Apparel Classification (Section XI)
3 Chapter 3: Customs Valuation and Appraisement
3.1 The Valuation Hierarchy and Price Actually Paid or Payable 3.2 Statutory Additions and Exclusions from Transaction Value 3.3 Related-Party Transactions and First Sale for Export 3.4 Alternative Valuation Methods: Deductive, Computed, and Fallback 3.5 Allowances for Shortage, Damage, Casualty, and Abandonment (19 CFR Part 158) 3.6 The Rate of Duty Date and the Entered Value Declaration
4 Chapter 4: Right to Make Entry, Documentation, and Entry Procedures
4.1 Right to Make Entry and Customs Power of Attorney 4.2 Entry Filing, Immediate Delivery, and CBP Form 3461 4.3 Entry Summary, CBP Form 7501, and Automated Commercial Environment 4.4 Entry Types, Informal Entry, and In-Bond Transit 4.5 Commercial Invoice and Entry Documentation Requirements (19 CFR Part 141, Subpart F) 4.6 Importer of Record Numbers, CBP Form 5106, and Schedule D Port Codes 4.7 The Practical Exercise: Working a 7501, an Invoice, and a 5106 Under Time Pressure 4.8 Examination, Detention, Conditional Release, and Redelivery
5 Chapter 5: Customs Bonds and Revenue Protection
5.1 Customs Bond Structure, Parties, and Legal Obligations 5.2 Continuous vs. Single Transaction Bonds and Activity Codes 5.3 Bond Formula Calculations, Sufficiency, and Breach
6 Chapter 6: Liquidation, Protests, and Post-Summary Adjustments
6.1 Liquidation Process, Bulletin Notice, and Statutory Deemed Liquidation 6.2 Administrative Protests and Judicial Review 6.3 Post Summary Corrections and Reconciliation
7 Chapter 7: Country of Origin, Marking Rules, and Trade Agreements
7.1 Substantial Transformation and Origin Determination 7.2 Country of Origin Marking and Exceptions 7.3 United States-Mexico-Canada Agreement (USMCA) 7.4 Other Free Trade Agreements and Preference Programs
8 Chapter 8: Customs Duties, Taxes, User Fees, and Trade Remedies
8.1 Duty Calculations: Ad Valorem, Specific, Compound, and Column Rates 8.2 Customs User Fees: Merchandise Processing Fee and Harbor Maintenance Fee 8.3 Trade Remedy Measures: Antidumping, Countervailing, Section 301, and Section 232
9 Chapter 9: Customs Broker Licensure, Operations, and Compliance
9.1 Broker Licensing, National Permits, and Office Supervision 9.2 Responsible Supervision and Control 9.3 Broker Duties, Diligence, Funds Handling, and Prohibited Relations 9.4 Recordkeeping, Customs Audits, and Disciplinary Sanctions 9.5 "Customs Business" Defined and Unlicensed Practice 9.6 Change Notifications and Broker Employee Reporting (19 CFR 111.28(b), 111.30)
10 Chapter 10: Special Regimes, Drawback, Enforcement, and Partner Government Agencies
10.1 Foreign Trade Zones and Customs Bonded Warehouses 10.2 Duty Drawback: Manufacturing and Unused Merchandise 10.3 Customs Enforcement, Section 1592 Penalties, and Prior Disclosure 10.4 Partner Government Agencies and Border Security Compliance 10.5 Intellectual Property Rights Border Enforcement (19 CFR Part 133)
11 Chapter 11: Quota Administration and the Rotating Specialty Category
11.1 Absolute and Tariff-Rate Quotas: Definitions, Establishment, and Administration 11.2 Quota Priority, the Opening Moment, and Prorating 11.3 Quota Interactions: Foreign Trade Zones, Warehouses, Visas, and Bonds
7.4 Other Free Trade Agreements and Preference Programs
Key Takeaways Explain This Topic AI
GSP authorization expired on December 31, 2020 and has not been reauthorized as of September 2026; the SPIs and General Note 4 remain printed in the HTSUS, but a GSP claim does not currently confer duty-free entry.
Free Trade Agreements and preference programs are identified in HTSUS Column 1 'Special' sub-column by Special Program Indicators (SPIs) such as 'A' or 'A*' (GSP), 'S' (USMCA), 'P' (CAFTA-DR), 'KR' (KORUS), 'AU' (Australia), 'CL' (Chile), 'CO' (Colombia), 'SG' (Singapore), and 'IL' (Israel).
Direct importation is a mandatory statutory requirement across all trade preference programs; cargo transshipped through intermediate non-party countries must remain under customs custody and undergo no operations other than unloading, reloading, or preservation.
When GSP is authorized, Competitive Need Limitations terminate duty-free eligibility for a specific beneficiary country's product if imports exceed an annually adjusted dollar ceiling or 50% of total U.S. imports of that tariff line; the excluded countries are listed in General Note 4(d) and the line carries the SPI 'A*'.
During the lapse, importers pay Column 1 General duties while still transmitting the GSP SPI prefix on the entry summary, so that CBP can automate refunds if Congress reauthorizes the program retroactively.
Last updated: September 2026
7.4 Other Free Trade Agreements and Preference Programs
Core Regulatory Tenet: GSP authorization has been lapsed since December 31, 2020 and is not currently reauthorized ; when authorized, GSP under General Note 4 and 19 U.S.C. § 2461 requires 35% direct cost of processing plus BDC materials | Direct importation is mandatory across all FTAs (goods transshipped must remain under customs supervision without entering commerce) | Special Program Indicators (SPIs) in Column 1 Special designate treaty claims | Competitive Need Limitations (CNLs) revoke GSP on specific commodities (SPI 'A*') | Retroactive duty recovery during GSP lapses requires entering goods with SPI 'A'.
The Architecture of U.S. Trade Preferences
Beyond the USMCA, the United States participates in a comprehensive network of reciprocal Free Trade Agreements (FTAs) and non-reciprocal Unilateral Trade Preference Programs . In the Harmonized Tariff Schedule of the United States (HTSUS), these programs are codified across the General Notes and reflected on tariff lines in the Column 1 'Special' sub-column via two-letter or symbol Special Program Indicators (SPIs) .
Customs compliance professionals must distinguish between two fundamental treaty architectures:
Unilateral Trade Preference Programs: Authorized by Congress to promote economic development in developing regions. These programs are non-reciprocal (the foreign country does not grant duty-free access to U.S. exports). Major programs include:
Generalized System of Preferences (GSP): Authorized under Title V of the Trade Act of 1974 (19 U.S.C. § 2461 et seq., HTSUS General Note 4);
African Growth and Opportunity Act (AGOA): HTSUS General Note 16, SPI "D" ;
Caribbean Basin Economic Recovery Act (CBERA / CBTPA): HTSUS General Note 7, SPI "E" or "E*" .
Reciprocal Bilateral and Regional Free Trade Agreements: Binding international treaties where the United States and partner nations grant mutual preferential tariff concessions based upon negotiated rules of origin, including CAFTA-DR, KORUS, Colombia, Chile, Australia, Singapore, and Israel.
Generalized System of Preferences (GSP): General Note 4
CURRENT STATUS — GSP IS LAPSED. GSP authorization expired on December 31, 2020 and, as of September 2026, Congress has not reauthorized it. Renewal bills have advanced in successive Congresses — H.R. 4276, the Generalized System of Preferences Reauthorization Act of the 119th Congress, cleared the House Ways and Means Committee in late 2025 and would reauthorize the program through December 31, 2030 with a retroactive refund of duties paid on GSP-eligible entries from January 1, 2021 — but none has been enacted. Goods that would otherwise be GSP-eligible are currently dutiable at Column 1 General rates.
This matters in two directions on the exam. The substantive GSP rules remain printed in General Note 4 and in 19 CFR 10.171–10.178 of the designated CFR edition, so a question asking whether an article satisfies the 35% rule is answerable exactly as written. But a question asking what duty is owed today on a qualifying article from a beneficiary country has a different answer than the same question asked in 2019: full Column 1 General duty, with the SPI still transmitted to preserve a future refund.
Congress has historically renewed GSP retroactively to the expiration date and refunded duties paid during the lapse without interest. CBP accordingly instructs filers to keep flagging eligible entries with the GSP SPI so refunds can be automated if reauthorization occurs.
The Generalized System of Preferences (GSP) is the oldest and largest U.S. trade preference program. Enacted under Title V of the Trade Act of 1974, GSP grants duty-free entry to thousands of products from designated Beneficiary Developing Countries (BDCs) and Least-Developed Beneficiary Developing Countries (LBDCs) .
Special Program Indicators for GSP
In the HTSUS Column 1 Special sub-column, GSP eligibility is indicated by three distinct SPI codes:
"A" : Eligible for all designated Beneficiary Developing Countries (BDCs).
"A*" : One or more specific BDCs are excluded from duty-free eligibility for that specific 8-digit tariff line. General Note 4(d) lists the excluded countries for each tariff line.
"A+" : Eligible only for designated Least-Developed Beneficiary Developing Countries (LBDCs) listed in General Note 4(b)(i).
The 35% Value-Added Requirement (19 CFR 10.176 & 10.178)
Under General Note 4(c) and 19 CFR 10.176 , an article qualifies for GSP duty-free treatment only if:
- It is wholly the growth, product, or manufacture of a BDC; or
- It has been substantially transformed into a new and different article of commerce in the BDC; AND
The sum of the following costs equals or exceeds at least 35% of the appraised customs value of the merchandise upon entry into the United States: GSP 35% Formula = ( Cost of BDC Materials + Direct Costs of Processing Appraised Customs Value ) × 100 ≥ 35 percent \text{GSP 35\% Formula} = \left( \frac{\text{Cost of BDC Materials} + \text{Direct Costs of Processing}}{\text{Appraised Customs Value}} \right) \times 100 \ge 35 \text{ percent} GSP 35% Formula = ( Appraised Customs Value Cost of BDC Materials + Direct Costs of Processing ) × 100 ≥ 35 percent
Includible vs. Excludible Costs under 19 CFR 10.178
The CBLE frequently tests whether candidates can distinguish between costs that count toward the 35% threshold and costs that are legally excluded:
Costs Includible in 35% Direct Cost Costs EXCLUDED from 35% Calculation
Direct labor costs: Wages, fringe benefits, and production supervisory labor directly involved in fabrication. General business expenses and overhead: Administrative salaries, executive compensation, legal and accounting fees.
Direct tooling and equipment: Dies, molds, tooling depreciation, and machinery maintenance used in production. Sales and advertising: Commercial marketing, advertising campaigns, and sales force salaries.
Direct production inspection: Quality control, testing, and engineering directly associated with production. Seller's commercial profit: Markups and profit margins accruing to the foreign manufacturer or exporter.
BDC-origin materials: Cost of raw materials produced or substantially transformed within the BDC. Non-originating foreign materials: Components imported into the BDC without substantial transformation.
Competitive Need Limitations (CNLs) and Statutory Lapses
Competitive Need Limitations (CNLs): Under 19 U.S.C. § 2464(c), GSP duty-free treatment for a specific article from a specific beneficiary country terminates if U.S. imports of that article exceed either (1) an annually adjusted dollar value ceiling , or (2) 50 percent or more of total U.S. imports of that article from all sources during a calendar year. A country that breaches a CNL is placed on the General Note 4(d) exclusion list and the tariff line carries the SPI "A*" . Because the program has been lapsed since the end of 2020, the CNL determinations and the General Note 4(d) list have not been refreshed through the annual review cycle.
Lapse Filing Practice: During the lapse, goods are entered at Column 1 General rates with estimated duties deposited, while the filer still transmits the GSP SPI in ACE. That flag allows CBP to automate refunds if Congress reauthorizes retroactively, without requiring each importer to file a protest or a post-entry claim.
Major Bilateral and Regional Free Trade Agreements
The United States maintains reciprocal Free Trade Agreements across the globe, each governed by its own General Note in the HTSUS:
1. CAFTA-DR (General Note 29 / SPI "P" or "P+" )
The Dominican Republic-Central America-United States Free Trade Agreement encompasses the United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. Origin is based upon product-specific tariff shift and RVC rules. In the textile and apparel sector, CAFTA-DR enforces the strict Yarn-Forward Rule , which requires that all yarn spinning, fabric weaving/knitting, and final garment assembly occur within the CAFTA-DR territory for the article to qualify as originating. General Note 29(e) includes a 10% de minimis rule by weight for non-originating fibers.
2. KORUS: U.S.-Korea Free Trade Agreement (General Note 33 / SPI "KR" )
KORUS eliminated tariffs on the vast majority of industrial and consumer merchandise between the U.S. and South Korea. Origin rules rely on tariff shift requirements and RVC calculations utilizing the Build-Down Method (analogous to the Transaction Value method) or the Build-Up Method (where RVC is calculated based solely on originating materials as a percentage of value): Build-Up RVC = ( VOM AV ) × 100 \text{Build-Up RVC} = \left( \frac{\text{VOM}}{\text{AV}} \right) \times 100 Build-Up RVC = ( AV VOM ) × 100
Where VOM is the value of originating materials and AV is the adjusted value. KORUS certifications may be issued by importer, exporter, or producer, and CBP conducts rigorous verification reviews through electronic communications under 19 CFR Part 10 Subpart R.
3. Colombia, Peru, and Chile FTAs
Colombia Trade Promotion Agreement (General Note 34 / SPI "CO" ): Comprehensive duty-free access for industrial products, coupled with strict agricultural safeguards and environmental verification mechanisms.
Peru Trade Promotion Agreement (General Note 32 / SPI "PE" ): Reciprocal duty elimination modeled on the Colombia agreement.
U.S.-Chile Free Trade Agreement (General Note 26 / SPI "CL" ): Phased tariff elimination that established 100% duty-free trade across all bilateral tariff lines.
4. Australia and Singapore FTAs
Australia FTA (General Note 28 / SPI "AU" ): Duty-free trade in manufactured goods, with unique agricultural Tariff-Rate Quotas (TRQs) for beef and dairy.
Singapore FTA (General Note 25 / SPI "SG" ): Pioneer agreement featuring the Integrated Sourcing Initiative (ISI) under General Note 25(m), allowing designated medical and high-tech electronic components manufactured in non-party countries (such as Indonesia or Malaysia) to be treated as originating materials when shipped through Singapore.
5. U.S.-Israel Free Trade Agreement (General Note 8 / SPI "IL" )
Signed in 1985 as the first U.S. free trade agreement, the Israel FTA requires goods to be wholly obtained or substantially transformed in Israel, with a 35% value-added requirement . Notably, under General Note 8(b), up to 15% of the 35% requirement (equal to 15% of the appraised value) may consist of materials produced in the United States, effectively reducing the Israeli local content requirement to 20%.
Special Program Indicators (SPI) Decryption Table
HTSUS General Note Trade Agreement / Preference Program Primary SPI Symbol Key Origin Standard / Mechanism
General Note 4 Generalized System of Preferences (GSP) — lapsed since 12/31/2020 A , A* , A+ Wholly obtained or substantial transformation + 35% BDC direct cost. Not currently conferring duty-free entry.
General Note 8 U.S.-Israel Free Trade Agreement IL Substantial transformation + 35% value-added (up to 15% U.S. content).
General Note 11 USMCA (United States-Mexico-Canada) S , S+ Criteria A–D; Annex 4-B tariff shift; RVC (75% auto); LVC.
General Note 16 African Growth and Opportunity Act (AGOA) D 35% direct cost; duty-free textile provisions for qualifying nations.
General Note 25 U.S.-Singapore Free Trade Agreement SG Tariff shift / RVC; Integrated Sourcing Initiative (ISI).
General Note 26 U.S.-Chile Free Trade Agreement CL Product-specific tariff shift and RVC rules.
General Note 28 U.S.-Australia Free Trade Agreement AU Product-specific tariff shift and RVC; agricultural TRQs.
General Note 29 CAFTA-DR (Central America / Dom. Rep.) P , P+ Tariff shift / RVC; strict Yarn-Forward rule for textiles; 10% de minimis.
General Note 32 U.S.-Peru Trade Promotion Agreement PE Product-specific tariff shift and RVC rules.
General Note 33 U.S.-Korea Free Trade Agreement (KORUS) KR Tariff shift; Build-Down (TV) or Build-Up RVC methods.
General Note 34 U.S.-Colombia Trade Promotion Agreement CO Product-specific tariff shift and RVC rules.
General Note 35 U.S.-Panama Trade Promotion Agreement PA Product-specific tariff shift and RVC rules.
Direct Importation and Non-Party Transshipment Rules
A critical, universal requirement across every U.S. free trade agreement and preference program is the Direct Importation Rule (codified for GSP under 19 CFR 10.175 and across FTA uniform regulations):
STATUTORY DIRECT IMPORTATION MANDATE: Merchandise must be imported directly from the preference country into the customs territory of the United States. If cargo passes through the territory of any intermediate non-party country, it must satisfy strict customs custody and non-manipulation conditions.
Permitted vs. Prohibited Operations in Non-Party Countries
When goods transit through an intermediate third country (e.g., Colombian goods transshipped through Panama, or Korean electronics transshipped through Hong Kong), preferential tariff treatment is preserved only if :
Customs Custody Maintained: The merchandise remained under continuous customs control and supervision in the intermediate country;
No Entry into Commerce: The merchandise did not enter into the domestic commerce of the intermediate transit country (e.g., entered only under in-bond transit or bonded warehousing);
Permitted Operations Only: The goods underwent no operations other than :
- Unloading and reloading;
- Splitting of bulk shipments for logistics;
Any operation necessary to preserve the merchandise in good condition (e.g., refrigeration, freezing, ventilation, addition of preservatives, or re-crating damaged outer packaging).
Loss of Origin Through Foreign Manipulation
If merchandise transshipped through a non-party country is subjected to any manufacturing, sorting, repackaging for retail sale, chemical blending, or commercial manipulation outside customs bonded custody, the direct importation chain is broken . The goods permanently lose their originating status and are assessed Column 1 General duty rates upon arrival in the United States. When requested by CBP, the importer must substantiate direct importation by presenting Through Bills of Lading , commercial transportation invoices, and Certificates of Non-Manipulation issued by the customs authorities of the intermediate country.