On December 8, 2006, the U.S. Congress passed legislation extending important trade programs, creating a new trade program with Haiti, and confirming normal trade relations with Vietnam. President Bush is expected to sign the legislation soon.
The Andean Trade Preference Act (ATPA), which includes the apparel provisions of the Andean Trade Promotion and Drug Eradication Act (ATPDEA), was set to expire on December 31, 2006. If ATPA expired, previously duty-free apparel would become dutiable until pending free trade agreements with Colombia and Peru could be implemented. The legislation relieves this problem by extending ATPA for six months. Another six-month extension will be available for any ATPA country if that country and the United States each pass legislation by July 1, 2007, to approve a free trade agreement. This second extension will be available for Colombia and Peru if additional time is needed to make free trade agreements effective after their legislatures and the U.S. Congress vote for approval. Peru’s legislature has already approved its free trade agreement with the United States. Colombia’s legislature has not yet acted, nor has the U.S. Congress voted on either agreement.
Votes on the Colombia and Peru agreements in the U.S. Congress will be influenced by the belief of some U.S. legislators that the agreements should be renegotiated to insert more stringent labor provisions.
Since it is unlikely that Bolivia or Ecuador will enter free trade agreements with the United States in the next six months, the extension beyond June 30, 2007, will probably not be available to those countries. Previously duty-free apparel from those countries will become dutiable in the United States after that date. Apparel produced in Colombia and Peru after June 30, 2007, with fabric or yarn produced in Bolivia and Ecuador will be disqualified from duty-free treatment under ATPDEA.
The legislation extends the third country fabric provision of the African Growth and Opportunity Act (AGOA) through September 2012. This provision, originally expiring at the end of September 2007, allows duty-free treatment in the United States of apparel assembled from fabric, or knit to shape and assembled, in lesser developed AGOA countries, regardless of the origin of the fabric or yarn. Entries of such apparel will remain limited to 3.5 percent of all U.S. apparel imports each year. The legislation disqualifies apparel made with fabric or yarn that is found to be produced in “commercial quantities” in AGOA countries, and singles out denim as such a fabric. Additional fabric or yarn produced in commercial quantities in southern Africa can be designated upon approval of petitions filed by interested parties.
The U.S. Generalized System of Preferences (GSP), set to expire on December 31, 2006, is extended by the legislation to December 31, 2008. The GSP is inapplicable to most apparel, but allows duty-free treatment in the United States for most other non-agricultural goods from developing countries. A new feature, targeted mainly at Brazil and India, will effectively remove GSP treatment for certain goods by limiting so-called “competitive need waivers.”
The legislation creates a new program, allowing duty free treatment of apparel assembled or knit to shape in Haiti, 50 percent or more of the value of which is from the United States, Haiti, or other countries with which the United States has free trade agreements or preference programs. The percentage changes to 55 percent in year 4 and 60 percent in year 5. This benefit is capped at 1 percent of U.S. apparel imports. The cap grows by 0.25 percent per year until year 5. Short supply fabrics and yarns of foreign origin identified in NAFTA or designated as not being available in commercial quantities under CBTPA, ATPDEA, CBTPA, CAFTA, or any other provision of a U.S. free trade agreement, can be used to meet the percentage test for qualifying apparel.
Brassieres are eligible for single transformation, meaning they can be cut and sewn in Haiti with fabric of any origin. Haiti also gets a 50 million square meter equivalents (SME) tariff preference level (TPL) for woven apparel for each of the first 2 years, reduced to 33.5 million SME for year 3. The TPL allows the woven garments to be cut and sewn with fabric or yarn of any origin, subject to the applicable annual limit, even though they do not meet the applicable percentage test.
The Haiti program will not become effective until after the U.S. president certifies to the U.S. Congress that Haiti has met certain legal, political, social, and labor standards, and has satisfied certain conditions regarding transshipping.
The Vietnam permanent normal trade relations (PNTR) provision gives Vietnam unconditional normal trade relations status, without periodic review, and contains a “subsidies enforcement mechanism” to allow quick remedies if Vietnam subsidizes textiles and apparel in violation of the World Trade Organization (WTO). This mechanism permits the U.S. trade representative to reinstate pre-PNTR quotas after arbitration under WTO dispute settlement rules.