USTR Fact Sheet on Textile Provisions of CAFTA
The Office of the U.S. Trade Representative (USTR) has issued a fact sheet regarding the textile provisions of the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA, CAFTA-DR, or DR-CAFTA).
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(On August 5, 2004, the U.S., Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed CAFTA. See ITT's Online Archives or 08/10/04 news, 04081005, for BP summary.
During the week of June 13, 2005, both the House Ways and Means Committee and the Senate Finance Committee approved CAFTA's draft implementing legislation. (See ITT's Online Archives or 06/16/05 news, 05061699 1 for BP summary.)
CAFTA Provides Retroactive Textile Benefits, Yarn-Forward Rule of Origin, Etc.
The following are highlights of USTR's fact sheet on the textile provisions of CAFTA:
CAFTA textile benefits would be retroactive to January 1, 2004. The CAFTA parties will provide reciprocal duty free access for all goods and will make CAFTA tariff benefits retroactive to January 1, 2004. According to USTR, retroactive duty free treatment will benefit companies doing business in the region, including U.S. yarn spinners and fabric makers. In addition, USTR states that the retroactive duty free provision will help the U.S. and CAFTA partners maintain and possibly expand production as retailers decide how to distribute orders after the removal of quotas in 2005.
Yarn-forward rule of origin. The CAFTA parties agree to a "yarn forward" rule, meaning that only apparel using yarn and fabric from the U.S., Central America and the Dominican Republic qualifies for duty-free benefits. This rule will apply to no less than 90% of Central American apparel exports to the U.S. Because deviations from the yarn forward rule amount to less than 10% of current trade, the USTR states that CAFTA is the tightest textile trade agreement ever negotiated.
No TPLs for major suppliers. The USTR states that CAFTA does not contain tariff preference levels (TPLs) for El Salvador, Costa Rica, Honduras, and Guatemala, but does provide Nicaragua with a TPL of 100 million square meters that amounts to less than 4% of trade and phases out over 10 years1.
"Cumulation" with Mexico and Canada for woven apparel. The USTR states that the CAFTA parties agree to "cumulation" with Mexico and Canada for woven apparel, allowing a limited amount of inputs from Mexico and Canada to be used in Central American/Dominican apparel that will still qualify for duty-free benefits in the U.S.
According to USTR, cumulation is subject to a 100,000,000 square meter annual cap, which can grow to 200,000,000 square meters depending on growth in CAFTA trade. Under the overall cap of 100,000,000 SME, there is a 1,000,000 SME cap on wool, 20,000,000 SME cap on blue denim, and 45,000,000 SME cap on cotton and man-made bottom-weights. Mexico and Canada must provide reciprocal benefits to U.S. and Central American textile and apparel exports, and must also agree to strengthen Customs enforcement measures.
According to USTR, this cumulation provision, in lieu of the TPLs in former FTAs that allowed for large quantities of Asian fabric imports, benefits American companies with investments in Mexico and Canada and helps to integrate production in the region as a counterbalance to Asian producers.
Textile-specific safeguard. CAFTA contains a special textile safeguard, allowing the U.S. to impose tariffs on certain goods when injury occurs due to import surges. USTR notes that this is the only product-specific safeguard in CAFTA.
New short supply process. CAFTA contains a new short supply process that includes tighter timelines than in earlier short supply processes, allows items to be deemed in partial short supply, and provides for items to be added to and removed from the short supply list.
Thread and elastics must originate, etc. For the first time in an FTA, CAFTA requires thread and narrow elastic fabrics to originate. As in past agreements, there is a provision to ensure visible linings originate.
Flexibilities. CAFTA contains several narrowly-tailored provisions to address specific concerns of Central America. These flexibilities amount to less than 10% of trade, a smaller percentage than any past FTA.
Customs enforcement procedures. Among other provisions, U.S. Customs and Border Protection (CBP) authorities can conduct surprise site visits to Central American producers, and the U.S. can undertake a variety of enforcement actions (up to and including a bar of entry of suspect goods).
1 Subscribers should note that the USTR's fact sheet does not state whether or not CAFTA provides a TPL for Dominican Republic.
USTR fact sheet (dated May 2005) available at http://www.ustr.gov/assets/Trade_Agreements/Bilateral/CAFTA/Briefing_Book/asset_upload_file583_7185.pdf