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Textile and Apparel Rules of Origin in International Trade

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Abstract:

In moves to open foreign markets to U.S. goods and services, and vice versa, and to boost economic growth in poorer regions of the world, the United States has entered into free trade agreements and established preferential trade programs. Major challenges are preventing non-members or ineligible countries or products from benefitting, and limiting the potential harm to U.S. producers. These challenges are addressed in part by explicitly or implicitly setting rules for determining the origin of each of particular categories of goods to ensure that benefits flow only to the appropriate trade partner(s) and/or only to the designated categories of goods made by a partner or beneficiary country. Usually, this is done by establishing rules of origin based upon one more or conceptual approaches that have been developed to help designate a category of products or particular item as the "product" of a particular country or group of countries -- as unambiguously as possible. Because the United States is considering entering into other free trade agreements, it may be instructive to examine the rules that are part of current agreements and preferential programs.

Existing U.S. free trade agreements and trade preference programs include the following: the North American Free Trade Agreement, the United States-Jordan Free Trade Agreement, the United States-Israel Free Trade Agreement, Andean trade preference (Andean Trade Preference and Drug Eradication Act), Caribbean trade preference (Caribbean Basin Trade Partnership Act as amended), and sub-Saharan trade preference (African Growth and Opportunity Act, AGOA, as amended). The United States has signed proposed free trade agreements with Chile and Singapore.

Based upon brief summaries of the free trade agreements and preferential trade programs listed above, it is observed that if a trade agreement has broader coverage than a trade preference program it does not necessarily indicate that it is a more generous trade promotion vehicle with respect to textiles and apparel. A trade agreement is intended to generate reciprocal benefits whereas a preference program is a unilateral grant of benefits to the intended beneficiary country(ies). However, while recognizing this caveat, it needs to be reported that the trade agreements cover textile and apparel categories more broadly than the preferential programs.

Also, a major characteristic of rules of origin contained in all of the agreements and programs covered is that they tend to be very specific with respect to textiles and apparel. One overall rule, usually set out at the beginning of the relevant document(s), applies to textiles and apparel to the extent that the specific rules do not supercede it. That rule requires that the value of materials produced in a beneficiary country plus the direct cost of processing in a beneficiary country must equal at least 35% of the total value of the article at its entry into the United States. But up to 15% of the 35% may consist of the value originating in the United States.

Thirdly, all of the agreements and preferential programs make special allowance for handloomed, handmade, and folklore articles, as defined by consultation among or between the countries. This report will not be updated.