Update on ITC Report on the Potential Effects of the U.S-Peru FTA (Textile and Apparel Provisions)

The International Trade Commission (ITC) has issued a report entitled "U.S.-Peru Trade Promotion Agreement: Potential Economy-wide and Selected Sectoral Effects," which among other things, discusses the potential impact of the PTPA on textiles and apparel, aspects of which are highlighted below.

(See ITT's Online Archives or 07/11/06 news, 06071120 for initial BP summary on ITC report, etc.)

Tariff elimination for textiles and apparel. With respect to textiles and apparel, the ITC report states that the PTPA will immediately eliminate all tariffs on U.S. trade with Peru in textiles and apparel that meet the PTPA rules of origin, thereby (1) making permanent the duty-free benefits currently available under the Andean Trade Preference Act (ATPA), as amended by the Andean Trade Promotion and Drug Eradication Act (ATPDEA) for almost all U.S. imports of Peruvian apparel, and (2) granting duty-free treatment for the first time to U.S. imports of textiles from Peru and to U.S. exports of textiles and apparel to Peru.

General "yarn-forward" rules of origin. According to the report, the rules of origin under the PTPA for textiles and apparel will generally be based on the "yarn-forward rule" found in most other U.S. free trade agreements (FTAs), which requires that imports of such goods from the PTPA party be made in the U.S. or Peru from the yarn stage forward to qualify for duty-free benefits.

Although the ATPDEA also generally requires apparel to be made in beneficiary countries from the yarn stage forward to qualify for duty-free preferences, the PTPA contains provisions relating to allowable foreign content and application of the rules of origin that will likely provide the parties more flexibility than ATPDEA in using third-country inputs.

For example, a garment subject to the PTPA yarn-forward rule will be eligible for PTPA preferences if the component that determines the tariff classification of the good is made of originating yarns and fabrics, without regard to the source of any collar, cuffs, or most other components incorporated into the garment. Apparel components that must be originating include certain visible linings, narrow elastic fabrics, sewing thread, and pocketing fabrics.

In contrast, the report states that under the ATPDEA, its rules generally apply to all the fabric components of a garment.

De minimis foreign content rule is higher in the PTPA than in the ATPA, etc. The report states that the de minimis foreign content rule under the PTPA will, like in CAFTA-DR, permit up to 10 percent of the total weight of the component that determines the tariff classification of the good to consist of third-country fibers or yarns, except for elastomeric yarns, which must be made in a PTPA party. By contrast, the ATPDEA de minimis foreign content rule permits third-country yarns to account for not more than 7 percent of the total weight of the garment.

U.S fabrics may be dyed, printed in Peru, etc. Unlike the ATPDEA, the PTPA will grant duty-free benefits to garments made in Peru from U.S. fabrics that are dyed, printed, and finished in Peru and to unlimited quantities of garments made in Peru from Peruvian fabrics of the U.S. or Peruvian yarns.

In contrast, the ATPDEA grants duty-free treatment to U.S. imports of apparel made in Andean countries from fabrics formed in the Andean region of U.S. or Andean yarns, subject to an annual cap.

No provisions permitting "third-country" inputs in originating goods, TPLs, etc. According to the ITC report, the PTPA does not contain certain provisions found in other recent U.S. FTAs that permit the parties to use third-country inputs in originating goods.For example, the PTPA does not include any tariff preference levels (TPLs) that would provide duty preferences to specified quantities of U.S. imports of specific apparel articles made in Peru from third-country inputs.

The report also states that the PTPA does not contain a single-transformation rule that permits certain garments to be made of third-country fabrics as long as the fabrics are cut and sewn in an agreement party.

With respect to cumulation provisions, which permit the use of inputs from other FTA partner countries in originating goods, the PTPA contains a single, limited specific rule that allows the use of nylon filament yarn only from pre-1995 FTA partner countries (Canada, Mexico, and Israel) in originating apparel.

¹ International Trade Commission (ITC) sources have previously stated that the term "trade promotion agreement" (TPA) is essentially interchangeable with the term "free trade agreement" (FTA).

(See ITT's Online Archives or 04/14/06 news, 06041405, for BP summary of the signing of the PTPA. See ITT's Online Archives or 07/11/06 news, 06071120, for BP summary of the Ways and Means Hearing on the implementation of the PTPA.)

ITC report (USITC Publication 3855, June 2006) available at http://hotdocs.usitc.gov/docs/pubs/2104F/pub3855.pdf.