Overview
The US imported 19 billion square meter equivalent units (sme) of apparel in 2003. Of this total, 3.6 billion (20%) came from our 6 CAFTA trade partners - Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua, and the Dominican Republic. The textile and apparel sector of the CAFTA will provide increased benefits for U.S. textile, yarn, and thread manufacturers as well as U.S. apparel and retail firms.
Tariffs
Tariffs will be eliminated for products that meet the rule of origin, retroactive to January 1, 2004. This will allow textile and apparel manufacturers in the region certainty to place orders for the approaching retail seasons immediately and thus build and strengthen regional business partnerships.
Rules of Origin
The regional yarn forward rule of origin will apply for 90% of the textile and apparel products. The U.S. and CAFTA countries agreed to limited deviations from the standard yarn-forward rule of origin. For example, qualifying narrow elastics and visible lining used in apparel must be sourced in the region and will be subject to a fabric forward rule of origin. Yarns and fibers can be sourced from anywhere allowing U.S. narrow elastic and visible lining manufacturers sourcing flexibility. Threads used in apparel under CAFTA must be sourced from the region helping U.S. thread manufacturers. A ‘Value Added provision’ will allow US fabric makers to source third party yarns for the production of fabric, which when used in apparel made in Central America will be subject only to a value-added duty when the apparel enters the US.
The CAFTA allows for an expanded list of items that are currently not commercially available (in short supply) under the various U.S. trade preference programs (CBTPA, AGOA, NAFTA, ATPDEA). This provision will allow manufacturers to use non-regional inputs for certain products. The CAFTA includes a cut and sew rule of origin for brassieres, woven boxer shorts, woven pajamas, certain woven girl’s dresses, and textile travel goods. These products currently use minimal quantities of US fabric. An increased de minimis level (from 7% to 10%) will allow regional fabric and yarn producers to source more economically. Central America and the U.S. will be able to source non-elastomeric nylon yarns from Israel and Canada, retaining the current CBTPA provision. Wool apparel will be subject to a fabric forward rule of origin.
A regional cumulation provision was introduced in CAFTA to allow apparel assemblers in the region more flexible sourcing opportunities and to promote North American regional integration of the textile and apparel production as we approach increasing pressures from other regions in a quota-free 2005. Cumulation with Mexico and Canada will allow a limited amount of certain types of fabric from NAFTA countries to be used in Central American apparel and still enter the United States duty and quota-free. The provision is subject to a 100 million square meter annual cap with sub-limits for wool (1 million sme for CA-5 and 1 million sme for DR), denim (20 million sme), and cotton and man-made pants (45 million). The 100 million-sme cap will have the opportunity to grow to 200 million square meters, based upon the growth of CAFTA country exports of qualifying apparel made of woven fabrics.
A country-specific provision was allotted to Costa Rica for tailored wool apparel. Tailored wool apparel assembled in Costa Rica that does not use regional fabric, will pay 50% of the general rate of duty when entering the US. This provision will be only for the first two years of the Agreement will have an annual cap of 500,000 SME.
The U.S. agreed to allow a 10-year Tariff Preference Level (TPL) for Nicaragua of 100 million sme for cotton and man-made apparel to provide a transition period for the growth of their apparel industry. This measure should promote increased U.S. investment of apparel factories in Nicaragua and build Nicaragua as a market for textile and yarn sales.
A streamlined commercial availability (short supply) process will allow determinations of yarns or fabrics that are deemed not commercially available in the region to be used in the production of apparel. Also, the process will allow items that have been determined not commercially available in the region to be removed from the ‘short supply list’ if a regional manufacturer can prove that they produce the subject product in commercially timely manner.
Other Provisions
The Parties agreed to a Safeguard Mechanism applicable to textiles and apparel and Customs Cooperation Procedures that address fraud and transshipment concerns.