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Textile and Apparel Preference Rules

Textile and Apparel Preference Rules. U.S. Customs & Border Protection. U.S.-Morocco FTA Technical Seminar: Textile & Apparel Rules . 14-18 March 2005 Casablanca, Morocco. Overview. U.S. Customs & Border Protection U.S. Duty Rates & the FTA Brief Textile Lesson Fiber, Yarn & Fabric

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Textile and Apparel Preference Rules

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  1. Textile and Apparel Preference Rules U.S. Customs & Border Protection

  2. U.S.-Morocco FTA Technical Seminar: Textile & Apparel Rules 14-18 March 2005 Casablanca, Morocco

  3. Overview • U.S. Customs & Border Protection • U.S. Duty Rates & the FTA • Brief Textile Lesson • Fiber, Yarn & Fabric • Concepts Defined • FTA Preference Rules • Tariff Shift Rule • Compliance & Enforcement • Resources

  4. U.S. Customs & Border Protection (CBP) • On March 1, 2003, the U.S. Customs Service became part of the Bureau of Customs and Border Protection (CBP) within the Department of Homeland Security. • CBP has many roles, the priority mission is to protect our borders. • Regulating & Facilitating International Trade • Collecting Import Duties • Enforcing U.S. Trade Laws • The U.S. has over 300 Ports of Entry

  5. Imports After Quota Expire • Effective for exports on/after 1 January 2005, all textiles and wearing apparel from World Trade Organization (WTO) members are no longer subject to quota. • Possible Chinese Safeguards

  6. Imports WITHOUT Quotas Without quotas, competition will be fierce and the social/political aspect is something to watch! • “More than 80% of our export earnings are coming from this [apparel and textile] sector.” - Farkul Ahsan, Bangladesh Embassy official. • Where Free Trade Hurts: The end of textile quotas makes economic sense, but the social disruption will be huge.(Business Week, Dec. 15, 2003) • Countdown to 2005: Developing Nations Fear Millions of Job Losses(WWD, Feb. 3, 2004)

  7. Competition • Without quotas, textile and apparel manufacturers will be searching for a Competitive Advantage. • Without quotas, price will play a major factor in determining who has a Competitive Advantage.

  8. Purpose of an FTA? • What is the Purpose of an FTA? Remember this is a Free Trade AGREEMENT. • In all agreements there are negotiations - and all parties make concessions. • The intent of an FTA is that both parties benefit from that agreement.

  9. Three Possible Duty Rates • Products of Morocco can be eligible for three different duty rates depending on the inputs (raw materials) and production. • (1) Non-FTA products are subject to Regular Duties • FTA products are (2) Duty Free or (3) Reduced Duties www.ustr.gov

  10. FTA Duty Reductions • For the majority of qualifying textile products, tariffs will be eliminated over six (6) years. (see Annex IV – Tariff Elimination) • However, immediate, duty-free treatment will be provided to selected items – up to designated quantities. • Annex 4-B: Tariff Rate Quotas for originating goods. Quantities above the levels in Annex 4-B will immediately be eligible for the reduced rates listed in Annex IV – Tariff Elimination.

  11. FTA Duty Reductions • Upon full implementation of the U.S.-Morocco Free Trade Agreement, ALL originating textiles and wearing apparel will be duty free.

  12. Average U.S. Duty Rates • Although the average trade-weighted duty rate for all U.S. imports is less than 2%, U.S. duty rates on textiles and apparel remain high. Product Average Duty FTA Rate* • Yarn 8% 0% • Fabric 10% 0% • Made-Up Articles 10% 0% • Apparel 16% 0% *When fully implemented

  13. “Originating” Goods • An “Originating” good meets the applicable FTA preference rule of origin. • A “Non-Originating” good does NOT meet the applicable preference rule of origin.

  14. Example of High U.S. Duty Non-FTA vs. FTA

  15. Example of High U.S. Duty • Nylon/Spandex Knit Top HTS 6109.90.10 • Non-FTA Rate = 32% • FTA Duty Rate = 0% (free)

  16. Example of High U.S. Duty • Cotton Knit Shirt HTS 6105.10.00 • Non-FTA Rate = 19.7% • FTA Duty Rate = 0% (free)

  17. Example of High U.S. Duty • Cotton Trousers = 16.6% • Men’s 6203.42.4015 • Women's 6204.62.4020 • MMF Trousers = 27.9% • Men’s 6203.43.4010 • Women’s 6204.63.3510 • FTA Duty Rate = 0% (free)

  18. U.S.- Morocco FTA Chapter 4 - Textiles and Apparel Articles: 4.1 - Tariff Elimination 4.3 - Rules of Origin and Related Matters 4.4 - Customs and Administrative Cooperation Annex 4-A - Preferential Rules of Origin (a.k.a. Tariff Shift Rules) Annex 4-B - Tariff Rate Quotas on Apparel Goods

  19. FTA Preference Rules • In most cases, a good must be “more than” a product of Morocco, it must also meet the FTA preference rule of origin.

  20. Preferential Rule of Origin • Is this “Originating” fabric?

  21. FTA Originating Product Annex 4-A(1)(i): “each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification specified in this Annex as a result of production occurring entirely in the territory of one or both of the Parties…”

  22. Harmonized Tariff Schedule Know the HTS Number! U.S. Harmonized Tariff Schedule: www.usitc.gov

  23. Harmonized Tariff Schedule • The Harmonized Tariff Schedule (HTS) shows the applicable duty rate. • It also shows if the item qualifies for various trade preference programs • Just like classification, always look at the rule for the finished product. www.usitc.gov

  24. Market Analysis • Harmonized Tariff Schedule • U.S. Duty Rates • Other Preference Programs • Quotas • Non-WTO Members • Chinese Safeguards • U.S. Import Data • U.S. Demand for Imported Products

  25. Brief Textile Lesson • What is a textile product?

  26. Textile Manufacturing • Fiber…..Yarn…..Fabric…..

  27. Fiber • Fiber • staple fibers • filament fibers

  28. Yarn • Yarn • single • plied

  29. Fabric • Fabric • woven • knit • non-woven

  30. Concepts Defined • Fiber Forward • Yarn Forward • Fabric Forward The textile and apparel preference rules are very similar for U.S. Free Trade Agreements with Morocco, Bahrain, the NAFTA, Singapore, Chile, and Australia.

  31. Fiber Forward • Fiber Forward requires U.S. and/or Morocco origin fiber, and all operations forward. Forward Fiber

  32. Yarn Forward • Yarn Forward requires U.S. and/or Morocco origin yarn, and all operations forward, but the fiber may originate outside the U.S. and Morocco. Forward Yarn

  33. Fabric Forward • Fabric Forward requires U.S. and/or Morocco origin fabric, and all operations forward, but the fibers and yarns may originate outside the U.S. and Morocco. Forward Fabric

  34. FTA Preference Rules U.S.-Morocco FTA Preference Rules • Yarn • Fabric • Made-up Articles • Apparel The “General” Rule

  35. FTA Rules • Reminder: Always look up the Harmonized Tariff Schedule (HTS) number for the finished product that will be exported to the United States. • It is important to know the HTS number for the products you produce!

  36. FTA Rule for Yarn • The preference rule for yarn is fiber forward, except: • spun yarns of silk, wool, and vegetable fibers (other than cotton) may be spun with fibers originating outside US/Morocco. • filament yarns must be formed (extruded) in Morocco or the United States.

  37. FTA Rule for Fabric • The preference rule for fabric is yarn forward, except: • fiber forward: • cotton & man-made fiber knit fabric • man-made fiber non-woven fabric • certain specialty fabrics • fabric forward: • silk & linen fabrics • coated fabrics, but with exceptions

  38. Rule for Made-Up Articles • The preference rule for made-up articles is yarn forward, except: • fabric forward: • silk & linen articles • man-made fiber luggage • certain other products Examples of Made-Up Articles: Towels, Bedding, Carpets, Luggage, etc.

  39. FTA Rule for Apparel • The preference rule for apparel is yarn forward, exceptions include: • cut & sew rule for: • Certain apparel made from specific fabrics • Apparel made of silk fabric • Apparel made of linen fabric • Apparel made of fabrics in “short supply”

  40. Tariff Shift Rule Tariff Shift Rule • International Nomenclature (HTS) • WTO Consistent • Transparent • Not Subjective (“Substantial Transformation”) • Unlike “Value Added” Rules

  41. 50 - Silk 51 - Wool 52 - Cotton 53 - Other Vegetable 54 - Man-Made Filaments 55 - Man-Made Staple 56 - Wadding, etc 57 - Carpets, etc 58 - Special Fabrics 59 - Coated Fabrics 60 - Knit Fabrics 61 - Knit Apparel 62 - Woven Apparel 63 - Made-Up Articles Harmonized Tariff Schedule Section XI - Textile and Textile Articles U.S. Harmonized Tariff Schedule: www.usitc.gov

  42. Tariff Shift Rule A change to heading ####, from any other heading, except ####, #### through ####, and ####. Example for Cotton Yarn (Heading 5205): A change to headings 5201 through 5207 from any other chapter, except from headings 5401 through 5405, or 5501 through 5507.

  43. Preference Rule for Yarn Remember that the preference rule for yarn is “Fiber Forward” Therefore the fibers must originate in a preference country.

  44. Example: Cotton Yarn (5205) A change to headings 5201 through 5207 [cotton yarn] from any other chapter*, except from headings 5401 through 5405 [man-made filament fibers], or 5501 through 5507 [man-made staple fibers]. * since cotton fibers are classified in chapter 52,foreign fibers may not be used.

  45. Example: Cotton Yarn (5205) Rule as written... A change to headings 5201 through 5207 from any other chapter, except from headings 5401 through 5405, or 5501 through 5507. Or, you can say... A change to cotton yarn from any other chapter, except from man-made fibers.

  46. Example: Cotton Yarn (5205) • You must use Morocco and/or U.S. Cotton and Man-Made Fibers. • However, all other fibers may be foreign…

  47. Blended Fibers • There are always exceptions…. • For example, if you have a blended fiber yarn, 65% Cotton and 35% Wool, the wool fibers do NOT have to be a product of Morocco or the United States.

  48. Preference Rule Summary Textile Product “General” Rule Yarn Fiber Forward Fabric Yarn Forward Made-up Articles Yarn Forward Apparel Yarn Forward There are exceptions to every rule!

  49. U.S. - Morocco FTA • Preferential treatment for certain textiles and apparel Advanced Lesson

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