Conflict Between International and National Regulations?

Free Trade Agreements, Requirements for Accessing Tariff Benefits, and Regulations on Bank Transactions for International Payments

Abstract

This article analyzes how, in Peru, according to the authors, access to the tariff benefits negotiated in free trade agreements (FTAs) is much more complex than the texts of the agreements suggest. It begins with classic concepts such as the meaning of “negotiated product” in the agreements, rules of “origin,” “direct shipment,” and the importer’s “expression of intent” when requesting preferential treatment. It also attempts to explain in simple terms concepts such as: (i) ad valorem tariffs, (ii) specific tariffs, (iii) mixed tariffs, (iv) total and partial reduction of these tariffs; (v) certificates of origin, and (vi) tariff reduction schedules by product and sector. Through examples applicable to agricultural exports, mining, and agro-industry, it shows how a tariff that may initially be 5%, 10%, or 12% can be partially or totally reduced and how this difference affects prices, competitiveness, and investment decisions.
Based on this, this paper focuses on developing and explaining, firstly, the operational requirements for accessing tariff benefits, such as identifying whether the product is subject to a trade agreement, whether it complies with the negotiated rules of origin, whether direct shipment is documented with transport and transit records, whether preferential treatment is requested in a timely manner using the corresponding code, and whether proof of origin and other documents are retained for the required period. Using regulations, official guidelines, and precedents from the Tax Court, the main reasons why companies have lost tariff benefits will be highlighted, such as tariff classification errors, invalid or expired certificates of origin, failure to prove direct shipment, and untimely requests for preferential treatment.
Furthermore, we believe the article’s central contribution is to emphasize what we have termed an “extra requirement”: the need to demonstrate payment of the purchase from the foreign supplier through bank transfers. Although this requirement does not appear in the Free Trade Agreements (FTAs), the Law on Means of Payment and tax jurisprudence condition the deduction of costs and access to refunds and reimbursements (such as drawback and VAT refunds) on payments being channeled through the financial system and being fully traceable. Real-world cases will demonstrate that the lack of access to banking services has led to the loss of economic benefits linked to transactions that did meet the classic requirements, such as negotiation, origin, direct shipment, and, where applicable, the declaration of compliance.
Three positions are presented regarding the above: (i) the position that there is no conflict between international agreements and national law, because it considers that FTAs regulate tariffs and the Law on Means of Payment only regulates provisions for formalizing the economy; (ii) the position that there is indeed a regulatory conflict, because the requirement for access to banking services operates in practice as an additional filter not foreseen in the treaties and directly affects importers; (iii) A third perspective acknowledges the existence of this additional requirement and proposes that it be expressly incorporated and defined in foreign trade regulations and in the instruments implementing free trade agreements (FTAs), to avoid disparate results and reduce the margin of interpretive uncertainty. The article thus seeks to offer the reader a clear map of how integration law, customs law, and tax law interact in the utilization of tariff benefits, and invites a reconsideration of whether the current design ensures that the advantages of FTAs truly reach those who are supposed to benefit from them.