DR-CAFTA

Costa Rica Joins DR-CAFTA

On December 23, 2008, President Bush issued a proclamation that implemented the Dominican Republic- Central America-United States Free Trade Agreement (DR-CAFTA) with respect to Costa Rica, effective January 1, 2009.

Costa Rica was the last country with respect to which the 2004 trade agreement was implemented. The United States implemented DR-CAFTA with respect to El Salvador, Guatemala, Honduras and Nicaragua in 2006, and with respect to the Dominican Republic in 2007.

Implementation for Costa Rica was delayed until Costa Rica could adopt domestic legal changes relating to issues such as intellectual property rights and telecommunications. Opposition in Costa Rica necessitated a referendum on DR-CAFTA in October 2007, and the country’s high court had to review proposed legislation twice before finding it constitutional.

DR-CAFTA makes duty-free virtually all goods imported into the United States from any other DR-CAFTA party or exported from the United States to any other DR-CAFTA party. Trade in textiles and apparel, machinery, agricultural products and consumer products benefits from DR-CAFTA. According to a December 2008 report by the U.S. Chamber of Commerce, for example, exports of cotton yarn and fabric from the United States to Central America and the Dominican Republic increased by 34.6 percent from 2005 to 2008. Exports of manmade staple fibers and fabrics, and of manmade filaments and fabrics, increased 39.5 percent and 36.1 percent, respectively, over the same period.

DR-CAFTA also provides opportunities for the U.S. telecommunications and banking industries and for government contracts, and it affords enhanced protection for U.S. intellectual property rights in the region. In a December 23, 2008, statement that discussed increased U.S. trade with the region, now-retired Congressman Jim McCrery (R-LA), then the ranking member on the House Ways and Means Committee, said, “Costa Rica’s full participation in the agreement further expands the opportunities and benefits available to American workers and businesses.”

April 1 Deadline for Retroactive Refunds Under DR-CAFTA

Implementation of DR-CAFTA for Costa Rica marked the beginning of the last 90 days during which importers may seek retroactive refunds for certain DR-CAFTA goods. Eligible goods include textile and apparel articles of Harmonized Tariff Schedule (HTS) chapters 50 to 63, as well as certain textile luggage and handbags, umbrellas, pillows, quilts, comforters, and glass fibers and articles thereof. The goods must have been entered between January 1, 2004, and January 1, 2009, and they must be goods that would have qualified as originating if they had been entered after the implementation of DR-CAFTA with respect to the relevant country or countries.

The original DR-CAFTA text provided for retroactive refunds for textiles and apparel. U.S. Customs and Border Protection (CBP) subsequently addressed the co-production problems caused by rolling implementation of DR-CAFTA by providing in its regulations that importers may file retroactive refund requests up to 90 days after the date of entry into force of the last DR-CAFTA country.

Refund requests must be filed at the port where the eligible goods were entered. Entries need not be liquidated to be the subject of DR-CAFTA retroactive refund requests.

Congress Passes Dominican Republic 2-for-1

In October 2008, Congress passed, and President Bush signed into law, the Earned Import Allowance Program that the United States promised to the Dominican Republic in exchange for the Dominican Republic’s agreement to restrictions on the origin of pocket bag fabric in DR-CAFTA apparel articles. The Earned Import Allowance Program, or “2-for-1 program,” permits the duty-free importation into the United States of one square meter equivalent (SME) of “qualifying apparel articles” for every two SME of woven cotton fabric, wholly formed in the United States from yarns formed in the United States, that is purchased for use in the Dominican Republic in the production of similar articles.

The “qualifying apparel articles” are woven cotton trousers, bib and brace overalls, breeches and shorts, skirts and divided skirts, and pants. Denim articles are excluded. The program includes a de minimis exception that permits otherwise qualifying U.S. fabric to include up to 10 percent by weight of yarns not formed in the United States, but any spandex in the fabric must be formed in the United States. The U.S. fabric may also contain certain nylon filament yarn, and it may contain fibers or yarns deemed to be in short supply under NAFTA, DR-CAFTA, the African Growth and Opportunity Act (AGOA), the Andean Trade Preference Act (ATPA) or the Caribbean Basin Economic Recovery Act (CBERA).

Producers or entities controlling production in the Dominican Republic may establish an account with the Department of Commerce, into which they may deposit credits for purchases of qualifying U.S. fabric. Credits will be issued at a rate of one credit for every two SME of qualifying fabric that was exported to the Dominican Republic on or after August 1, 2007. A producer may then exchange those credits for earned import allowance certificates that may be used for duty-free entry of a number of SME of qualifying apparel that is equivalent to the number of credits in the producer’s account.

On November 25, 2008, President Bush issued the proclamation required for the program to take effect. The program will remain in effect for 10 years from that date.

Oman

President Bush also issued a proclamation on December 29, 2008, to implement the free trade agreement (FTA) with Oman, effective January 1, 2009. The United States and Oman signed the FTA and Congress passed the required implementing legislation in 2006. The FTA, along with FTAs between the U.S. and Israel, Jordan, Morocco and Bahrain, was a part of the outgoing administration’s goal of creating a Middle Eastern free trade area.  

Peru  

While the United States and Peru did not meet their goal of implementing a bilateral Trade Promotion Agreement by January 1, 2009, President Bush issued a proclamation on January 16, 2009, to make the FTA effective February 1, 2009.  

The two countries signed the FTA in April 2006, but they renegotiated portions of the agreement in June 2007 to comply with a May 10, 2007, compromise agreement in the U.S. Congress on labor, environmental and intellectual property rights provisions in pending FTAs. The House and Senate passed legislation to implement the amended FTA in November and December 2007, respectively. Since that time, Peru has been working to implement the necessary domestic legal changes. In December 2008, the Peruvian congress extended its legislative session by a month in order to address the remaining legislative issues, so that the President Bush could issue a proclamation before leaving office.  

Korea, Colombia and Panama

The 110th Congress adjourned without voting on pending FTAs between the United States and Korea, Colombia and Panama, and the prospects for passing those FTAs in 2009 are uncertain. This uncertainty may be especially significant with respect to Korea. At the time that FTA was signed, Korea was the world’s tenth largest economy and the United States’ seventh largest goods trading partner, which arguably makes the agreement the most commercially significant FTA signed by the United States in the last two decades.  

President Bush submitted implementing legislation for the FTA with Colombia to Congress in April 2008, but the House of Representatives passed a resolution to override the “fast-track” timeline otherwise applicable under the President’s Trade Promotion Authority (TPA). House leadership thereafter declined to act on the proposed legislation, citing concerns about Colombia’s efforts to combat violence against union leaders in Colombia and about a need for enhanced Trade Adjustment Assistance in the United States. President Bush did not thereafter present to Congress the implementing legislation for the other two FTAs. Korea’s national assembly likewise delayed a vote on that FTA because of vehement disagreement over the FTA with the opposition party in the national assembly.  

The FTAs with Korea and Panama technically remain subject to rules requiring a vote without amendments within 90 days after Congress receives the implementing legislation, because President Bush signed the agreements before his TPA expired on June 30, 2007. President Bush also signed the FTA with Colombia in November 2006, while his TPA was in effect, but the new Congress may not be restrained by TPA procedures because the implementing bill was presented and expired in the previous Congress. Regardless, President Obama may not support any of the three FTAs in their current form, and Democrats in Congress have expressed significant opposition as well. There is some speculation about whether Obama might seek to renegotiate the agreements with the three FTA partners.