The preferential calculation is the process of determining the reduced or exempted tariff rates for goods traded between countries that have established preferential trade agreements. Preferential treatment is given to goods that meet certain criteria, such as originating from a particular country, meeting specific rules of origin, or being classified under a specific Harmonized System (HS) commodity code. The basis for preferential calculation can vary depending on the trade agreement in place. Here are some general rules that are commonly used: 1. HS code: The HS system is an internationally standardized system for classifying goods that is recognized by most countries around the world. To qualify for preferential treatment, goods must be identified under a specific HS code that is recognized in the trade agreement. For example, if a free trade agreement stipulates a tariff reduction for HS code 8703.90, any car parts exported under that code will receive preferential treatment. 2. Country of Origin: In order to qualify for preferential treatment, goods must originate from a specific country that is a party to the trade agreement. For example, if the United States has a free trade agreement with Mexico, only goods originating from the US or Mexico will be eligible for preferential treatment. 3. Rules of Origin: The rules of origin are a set of criteria used to determine whether goods are considered as "originating" from a particular country. These criteria can include the percentage of local content, the transformation or processing undergone by the goods, the value-added, and other factors. For example, if a free trade agreement stipulates that goods must contain at least 60% local content to be eligible for preferential treatment, a manufacturer must prove that their goods meet this criteria in order to receive the tariff reduction. 4. Free Trade Agreement: The terms of the free trade agreement itself can also be a basis for preferential calculation. This can include specific product exclusion lists, rules for non-tariff barriers, or other provisions that affect preferential treatment for certain goods. 5. Customer: Ultimately, the customer's country of import can determine whether preferential treatment is granted. For example, if a Canadian company exports goods to the United States, the US Customs and Border Protection will apply the terms of the trade agreement to the imported goods to determine the appropriate tariff rate. In conclusion, the basis for preferential calculation is a complex process that involves a variety of rules and factors. Understanding the rules based on HS codes, country of origin, rules of origin, free trade agreements, and the customer can help businesses navigate the intricacies of preferential trade agreements and take advantage of the potential tariff reductions.