House Committee Issues Report on U.S.-Australia FTA Implementing Legislation

(In order for the U.S.-Australia FTA to be implemented, H.R. 4759 must now be approved (enacted) by the President, which is expected. The President must also issue a proclamation for its implementation. According to H.R. 4759 and USTR sources, the U.S. and Australia must exchange notes on the FTA prior to the issuance of this proclamation.)

Highlights of House Ways and Means Committee Report on H.R. 4759

Prior to the House's passage of H.R. 4759, the House Ways and Means Committee issued a report (H. Rept. 108-597) on the measure, which is highlighted below:

U.S.-Australia FTA rules of origin. Under the general rules, there are four basic ways for a good of Australia to qualify as an "originating good" and therefore be eligible for preferential tariff treatment when it is imported into the U.S.

A good would be an originating good if:

it is wholly obtained or produced entirely in the territory of Australia, the U.S. or both;

those materials used to produce the good that are not themselves originating goods are transformed in such a way as to cause their tariff classification to change or meet other requirements, as specified in Annex 4-A or 5-A of the U.S.-Australia FTA;

it is produced entirely in the territory of Australia, the U.S. or both exclusively from originating materials; or

it otherwise qualifies as an originating good under Chapter 4 or 5 of the U.S.-Australia FTA.

Under the rules of U.S.-Australia FTA Chapter 5.1 and Annex 4-A, an apparel product must generally meet a tariff shift rule that implicitly imposes a "yarn forward" requirement. Thus, to qualify as an originating good imported into the U.S. from Australia, an apparel product must have been cut (or knit to shape) and sewn or otherwise assembled in Australia from yarn, or fabric made from yarn, that originates in Australia or the U.S., or both.

Exemption from MPF for originating goods. Under the U.S.-Australia FTA, "originating goods" would be exempted from the merchandise processing fee (MPF, both formal and informal).

Grace period to correct invalid claims for preferential tariff treatment There would be a prohibition on the imposition of a penalty upon importers who make an invalid claim for preferential tariff treatment under the FTA if the importer acts promptly and voluntarily to correct the error and pays any duty owing. Importers would have at least a 12-month grace period after submitting an invalid claim in which to correct it.

Agricultural market access. All U.S. agricultural exports to Australia would receive immediate duty-free access under the U.S.-Australia FTA and about 67% of U.S. tariffs would be immediately reduced to zero. Most remaining U.S. agricultural tariffs would be phased out in three baskets: 4 years, 10 years, and 18 years. There is less liberalized treatment for imports of Australian beef and dairy. The exclusion of sugar liberalization in the U.S.-Australia FTA is noted with disappointment and the expectation that this omission will not be reflected in future FTAs.

Agricultural safeguards. The U.S. would be permitted to impose an agricultural safeguard measure, in the form of additional duties, on imports from Australia of certain listed agricultural goods. There would be three different types of agricultural safeguards: (1) one for certain specified horticultural goods; (2) certain beef goods imported into the U.S. above specified quantities (quantity-based safeguard) during the 2013-2022 period; and (3) the same beef goods if they are imported into the U.S. above specified quantities and the monthly average index price in the U.S. falls below a specified "trigger" price (price-based safeguard) beginning January 1, 2023. The U.S. Trade Representative (USTR) would be allowed to waive the application of the quantity-based beef safeguard and the price-based beef safeguard in certain cases.

Import relief when increased imports cause/threaten injury to domestic industry. The President would be authorized, after an investigation and affirmative determination by the International Trade Commission, to impose specified import relief when, as a result of the reduction or elimination of a duty under the U.S.-Australia FTA, an Australian product is being imported into the U.S. in such increased quantities and under such conditions as to be a substantial cause of serious injury or threat of serious injury to the domestic industry. (Such relief would be a suspension of further reductions for the article, or an increase to a level that does not exceed the lesser of the existing normal trade relations (NTR) rate or the NTR rate imposed when the U.S.-Australia FTA went into force.)

Import relief when textile or apparel imports cause/threaten damage to domestic industry. An interested party would be able to file a request for safeguard relief with the President. If he decides that the request meets the necessary requirements, the President would determine whether, as a result of the elimination of a duty provided under the U.S.-Australia FTA, an Australian textile or apparel article is being imported into the U.S. in such increased quantities, in absolute terms or relative to the domestic market for that article, and under such conditions as to cause serious damage, or actual threat thereof, to a domestic industry producing an article that is like, or directly competitive with, the imported article. (Such relief would be the lesser of the existing NTR rate or the NTR rate imposed when the FTA entered into force.) (H.R. 4759 also contains provisions for critical circumstances determinations, time limitations for the relief, etc.

Special textile and apparel enforcement provisions. In order to ensure that only qualifying textile and apparel goods receive preferential treatment under the U.S.-Australia FTA, special textile enforcement provisions have been included under which the U.S. could request that the Australian government conduct a verification to determine that (a) an exporter or producer in Australia is complying with applicable customs laws, regulations, etc. affecting trade in textile or apparel goods; or (b) a claim that a textile or apparel good exported or produced by such exporter or producer qualifies as an originating good or is a good of Australia, is accurate. The President would be allowed to direct that specified actions be taken (1) while the verification is being conducted and (2) if the information obtained by the verification is insufficient to make such a determination.

Committee comments on yarn forward rule, short supply list. Because the U.S.-Australia FTA requires a yarn-forward rule of origin, it provides little benefit to Australia because it produces minimal quantities of yarn. As a result, the Committee understands that at Australia's request, the duties on over 90% of textile and apparel trade will not be eliminated until year ten of the U.S.-Australia FTA.

In addition, maintaining a current short supply list under the U.S.-Australia FTA is integral to the effective functioning of the rule of origin for textiles and apparel. As a result, the Committee expects the President to seek to incorporate all existing and future affirmative short supply determinations from other trade agreements and trade preference programs into the textile and apparel rule of origin for the U.S.-Australia FTA.

It is also noted that the short supply provision included in the U.S.-Australia FTA, as well as previous FTAs and trade preference programs enacted by Congress, only contemplates items being added to the list of short supply items. In other words, once an item is designated as being in short supply under this FTA, other FTAs, and trade preference programs, the item is permanently designated as such unless otherwise provided for by the statute implementing the FTA or preference program.

(See ITT's Online Archives or 07/19/04 news, 04071905, for previous BP summary on Congress' passage of H.R. 4759.)

H. Rept. 108-597 available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=108_cong_reports&docid=f:hr597.108.pdf.