Impact of Origin Rules for Textiles and Clothing on Developing Countries

 
Impact of Origin Rules for Textiles and Clothing on Developing Countries
December 2007   ICTSD Programme on Competitiveness and Sustainable Development

ICTSD Series on Trade-Supported Strategies for Sustainable Development

Impact of Origin Rules
for Textiles and Clothing
on Developing Countries

By M
    unir Ahmad
   Executive Director, International Textiles and Clothing Bureau

                                                                         Issue Paper No. 3
Impact of Origin Rules for Textiles and Clothing on Developing Countries
December 2007   l ICTSD Programme on Competitiveness and Sustainable Development

Impact of Origin Rules for Textiles
and Clothing on Developing Countries

By M
    unir Ahmad
   Executive Director, International Textiles and Clothing Bureau

     ICTSD
                                                                   Issue Paper No. 3
Impact of Origin Rules for Textiles and Clothing on Developing Countries
ii          Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     Published by

     International Centre for Trade and Sustainable Development (ICTSD)
     International Envrionment House 2
     7 Chemin de Balexert; 1219 Geneva, Switzerland
     Tel: +41 22 917 8492            Fax: +41 22 917 8093
     E-mail: ictsd@ictsd.ch          Internet: www.ictsd.org

     Chief Executive:                Ricardo Meléndez-Ortiz
     Programmes Director:            Christophe Bellmann

     Acknowledgments

     This paper was prepared by Mr. Munir Ahmad, Executive Director, International Textiles and Clothing
     Bureau (ITCB) at the request of the International Centre for Trade and Sustainable Development
     (ICTSD). Mr. Ahmad received invaluable assistance from his ITCB colleagues, Ms. Dinora Diaz and Mr.
     Guan Weigang. The views expressed in the paper do not necessarily represent that of the ITCB or that
     of its members.

     ICTSD is grateful for support for this project, provided by the Dutch Ministry of Foreign Affairs (DGIS)
     and the UK Department for International Development (DFID).

     For more information about ICTSD’s Programme on Competitiveness and Sustainable Development,
     visit our website at www.ictsd.org

     ICTSD welcomes feedback and comments on this document. These can be forwarded to Gloria Carrion
     at gcarrion@ictsd.ch

     Citation: Ahmad, Munir (2007). Impact of Origin Rules for Textiles and Clothing on Developing
     Countries, ICTSD Programme on Competitiveness and Sustainable Development, International Centre
     for Trade and Sustainable Development, Geneva, Switzerland.

     Copyright ICTSD, 2007. Readers are encouraged to quote and reproduce this material for educational,
     non-profit purposes, provided the source is acknowledged.

     This work is licensed under the Creative Commons Attribution-Noncommercial-No-Derivative
     Works 3.0 License. To view a copy of this license, visit http://creativecommons.org/licenses/by-
     nc-nd/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco,
     California, 94105, USA.

     The views expressed in this publication are those of the author(s) and do not necessarily reflect the
     views of ICTSD or the funding institutions.

     ISSN 1995-6932
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                      iii

TABLE OF CONTENTS
LIST OF BOXES AND TABLES                                                        iv

LIST OF CHARTS                                                                   v

ABBREVIATIONS/ACRONYMS                                                          vi

INTRODUCTION                                                                     1

I.     THE MAKING OF TEXTILE-RELATED ORIGIN RULES                                2

       A.   Non-preferential Origin Rules                                        2

       B.   Preferential Origin Rules                                            5

II.	PREFERENTIAL TRADE ARANGEMENTS WITH TEXTILE-
     SPECIFIC ORIGIN RULES                                                       8

       A.   Preferential Tariff Arrangements                                     8

       B.	Typical Textile-specific Origin Rules in
           Preferential Arrangements                                             9

III.    HE NEXUS BETWEEN ORIGIN RULES AND TRADE UNDER
       T
       PREFERENTIAL ARRANGEMENTS                                                15

       A.	Textile Trade Has Been Subject to Persistent
           Policy Changes                                                       15

       B.   Recent Developments in Textile Trade                                16

       C.   Trade Flows under Preferential Arrangements                         19

       D.	Sourcing of Raw Materials by Preference-
           Receiving Countries                                                  20

IV.    ORIGIN RULES AND DISTORTIONS IN TEXTILE TRADE                            30

       A.	Little Evidence of Origin Rules Promoting
           Vertical Integration                                                 30

       B.	Origin Rules and Sub-optimal Utilization of Preferences              31

       C.   Impediment to Development of South-South Trade                      33

       D.   Impact on NAMA Negotiations                                         39

       E.   The Need to Fix the Rules of Origin Conundrum                       39

V.     CONCLUDING REMARKS                                                       41

ENDNOTES                                                                        43

References                                                                      46

Appendix                                                                        47
iv          Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     LIST OF BOXES
     Box 1. U
             s Textiles and Clothing* Imports from Cbi, Agoa and Andean Countries (US Versus Non-Us
            Content)                                                                                12

     Box 2. US/EU-25/Canada Textiles and Clothing Imports from Selected Preferential Partners           19

     LIST of TABLES
     Table 1. US Imports of Textiles and Clothing from Top 30 and Preferential Suppliers (1990–2006)    17

     Table 2. EU-25 Imports of Textiles and Clothing from Top 30 and Preferential Suppliers (1995–2006) 18

     Table 3. United States Textile and Clothing Exports – Composition and Main Destinations            22

     Table 4. EU-25 Textiles and Clothing Exports – Composition and Main Destinations                   23

     Table 5. Main Sources of Jordan and Selected AGOA Countries’ Textiles Imports (US $1000)           35

     Table 6. Main Sources of EU Preferential Partners’ Textiles Imports, 2005 (US $1000)               36

     Table 7A. Bangladesh Textiles Imports by Source (US $1000)                                         37

     Table 7B. Cambodia Textiles Imports by Source (US $1000)                                           38

     Appendix Table: Countries covered by non-reciprocal preference schemes                             47
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                                                                                         v

LIST OF CHARTS
Chart 1. US Exports of Textile Mill Products to Mexico and CBI Countries            6

Chart 2. Canada Clothing Imports from Least-Developed Countries                    14

Chart 3A. US Exports of Textiles and Clothing to Preferential Partners             21

Chart 3B. EU Exports of Textiles and Clothing to Main Preferential Partners        21

Chart 4. US Imports from Mexico Versus Us Exports to Mexico                        25

Chart 5. US Imports from CBI Versus US Exports to CBI Countries                    25

Chart 7. US Imports from Andean Versus US Exports to Andean Countries              26

Chart 8. EU-25 Imports from Romania Versus EU-25 Exports to Romania                27

Chart 9. EU-25 Imports from Tunisia Versus EU-25 Exports to Tunisia                27

Chart 10. EU-25 Imports from Morocco Versus EU-Exports to Morocco                  28

Chart 11. EU-25 Imports from Bulgaria Versus EU-25 Exports to Bulgaria             28

Chart 12. EU-25 Imports from Bangladesh Versus EU-25 Exports to Bangladesh         29

Chart 13. EU-25 Imports from Cambodia Versus EU-25 Exports to Cambodia             29

Chart 14. US Imports Of Textiles and Clothing from CBI and US Textile
           Mill Product Exports to CBI Countries                                   30

Chart 15. EU GSP Utilization Rates by Bangladesh                                   31

Chart 16. EU-25 and US Clothing Imports from African Least-Developed Countries     33

Chart 17. US Exports of Textiles and Clothing to Preferential Partners             33

Appendix Chart 1. US Imports from Dominican Republic Versus US
Exports to Dominican Republic                                                      49

Appendix Chart 2. US Imports from El Salvador Versus US Exports to El Salvador     49

Appendix Chart 3. US Imports from Honduras Versus US Exports to Honduras           50

Appendix Chart 4. US Imports from Jordan Versus US Exports to Jordan               50
vi            Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     ABBREVIATIONS/ACRONYMS

     ACP          African, Caribbean and Pacific Island group of countries
     AGOA         Africa Growth and Opportunity Act (of the United States)
     ASEAN        Association of Southeast Asian Nations
     ATC          Agreement on Textiles and Clothing
     ATPA         Andean Trade Preference Act (of the United States)
     ATPDEA       Andean Trade Promotion and Drug Eradication Act (of the United States)
     CAFTA–DR     US/Central America–Dominican Republic Free Trade Agreement
     CBERA        Caribbean Basin Economic Recovery Act (trade vehicle under CBI of the United States)
     CBI	Caribbean Basin Initiative (US programme to assist countries of the Caribbean and Central
                  America)
     CBTPA        Caribbean Basin Trade Promotion Act (of the United States in modification of CBERA)
     CTG          Council for Trade in Goods of the WTO
     EBA	Everything-But-Arms (initiative of the EU granting quota-free, duty-free treatment to
                  least-developed countries)
     EU           European Union
     FTA          Free Trade Agreement
     GALs	Guaranteed Access Levels (system establish by the United States providing additional MFA
                  quotas for CBI countries)
     GATT         General Agreement on Tariffs and Trade (forerunner of the WTO)
     GSP          Generalized System of Trade Preferences
     HS	Harmonized Commodity Description and Coding System (classification system devised by
                  World Customs Organization)
     ICTSD        International Centre for Trade and Sustainable Development
     ITCB         International Textiles and Clothing Bureau
     LDCs         Least-developed countries
     MFA          Multi-Fibre Arrangement
     MFN          Most-Favoured-Nation treatment
     NAFTA	North American Free Trade Agreement (between Canada, Mexico and the United States
                  of America)
     NAMA         Non-Agricultural Market Access (negotiations under Doha Round)
     OPT          Outward processing trade
     QIZ	Qualifying Industrial Zones (US programme of duty-free treatment for imports from
                  Jordan and Egypt)
     SAARC        South Asian Association for Regional Cooperation
     SITC         Standard International Trade Classification (classification system devised by the UN)
     TPLs         Tariff Preference Levels (under US free trade agreements)
     TRQ          Tariff Rate Quota
     US           United States of America
     WTO          World Trade Organization
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                             1

INTRODUCTION

Rules of origin are an essential for the conduct of international trade. They are needed to determine
the nationality of traded products, which, in turn, is used for a whole variety of commercial policy
purposes: to collect trade statistics; to apply import tariffs; to impose countervailing or anti-dumping
duties on unfairly traded products; to apply safeguard measures for temporary protection to domestic
industries in times of need; to administer requirements with respect to marking of products to help
consumers to distinguish between them depending on their source. Origin rules are also required for
administering preferential trade agreements to ensure that only the intended countries benefit from
those preferences.

Textile and clothing are no exception to these essentials. Over time, however, origin rules in this sector
have so evolved as to serve as conditions on access to markets or to provide protection to domestic
textile industries. And, in the context of preferential arrangements, these rules have increasingly
been designed to provide advantage to textile producers in preference-granting countries. While,
on the one hand, this situation limits the possibility for preference-receiving countries to derive full
benefit from preference schemes, on the other it has led to the creation of new distortions to trade
in the sector. Origin rules are also a major factor behind concerns about the sustainability of many
developing countries’ exports following the expiry of quota restrictions.

This paper is intended as an input to policy-makers and other stakeholders. It aims to provide an analysis
of the working of various origin schemes in as simple and user-friendly a manner as possible.

To this end, the first section gives a brief background to the making and evolution of present-day origin
rules relating to textiles and clothing in some major economies, both in the context of normal most-
favoured-nation (MFN) trade and preferential trading arrangements which now account for a large
portion of trade in the sector. Section II identifies the main preferential trade arrangements in which
textile-related origin rules play a significant role. It also brings out the aspects of these rules that
condition the utilization of preferential access by preference-receiving countries to the use of inputs
from preference-giving countries. Section III gives a short account of recent developments in textile
trade in general and its evolution under preferential trade arrangements in particular. It then maps
the binding influence of origin rules on the sourcing of raw materials by various groups of preference-
receiving countries. It shows the nexus between origin rules and trade and how preferential origin
rules constrain many countries’ trade prospects, contrasting their situation with those countries that
are not bound by these rules and have been better able to cope with competition due to the flexibility
of their sourcing options. Section IV highlights how restrictive origin rules constitute a source of
continuing distortions in textile and clothing trade. Section V offers some concluding reflections.
2           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

    I.      THE MAKING OF TEXTILE-RELATED ORIGIN RULES

    A.      Non-preferential Origin Rules

    (i)   The context of quota restrictions              United States law however did not provide
                                                         for any specific definition of the ‘substantial
    Trade in textiles and clothing has long been         transformation’ standard. Following court
    controversial. For over four decades, markets in     rulings, it was interpreted as a process that
    developed countries were shielded from imports       created a new and different article of commerce
    by a series of international arrangements that       “having a distinctive name, character or use.”
    authorized developed countries to impose limits
    on the quantities that could be exported to their    In response to complaints that textiles and
    markets from particular exporting countries.         clothing were being imported by getting around
    Beginning with the “Short Term” Arrangement          the applicable quotas, in May 1984 2 President
    Regarding International Trade in Cotton Textiles     Reagan directed the Secretary of the Treasury
    in 1961, it evolved into the Arrangement             to issue new country of origin regulations for
    Regarding International Trade in Textiles, usually   textiles and apparel. Pursuant to this, interim
    called the Multi-Fibre Arrangement or MFA, in        regulations were published in August 1984 and final
    1974 until it was replaced by the Uruguay Round      regulations in March 1985.3 They provided that a
    Agreement on Textiles and Clothing (ATC) from        textile or apparel product will be considered to
    January 1995.1 The ATC itself expired at the end     have undergone a substantial transformation if it
    of 2004 and, with it, came the end of the system     had been transformed by means of “substantial
    of quota restrictions.                               manufacturing or processing operations” into a
                                                         new and different article of commerce.
    Neither these arrangements nor GATT rules set
    out any specific criteria to determine the origin    The concept of substantial manufacturing or
    of imported products. Not surprisingly, exporters    processing operations thus came to be added to
    and importers would attempt to maximize trade in     the interpretation of ‘substantial transformation’.
    whatever ways the regime would permit. One way       Following these regulations, until the conclusion
    was to ship unfinished or semi-finished products     of the Uruguay Round, US Customs conferred
    to countries that were not covered by restraints     origin to an apparel article on the basis of where
    or could not fully use their available quotas.       its components were cut to shape or, in the case
    The transformation of unfinished products in the     of apparel of knitted fabric, where the knit
    second country would confer origin on the second     panels were sewn together. However, as even
    country and would thus free the final product from   this standard afforded possibilities of quota
    quota limits imposed on the first country. Much of   utilization by parcelling out the assembly of
    this development had to be a natural evolution       components to a different location, on the eve
    of production methods in a globalizing world.        of implementation of the Uruguay Round results
    Notwithstanding, however, it inflamed the textile    the US textile industry extracted a concession
    industries in importing countries which sought the   from the US Administration and succeeded in
    protection of quotas and brought persistent calls    getting the origin rules relating to textile and
    for plugging the loopholes.                          clothing products to be significantly changed and
                                                         formally codified in law. This was accomplished
    (ii) The United States                               by Section 334 of the US Uruguay Round
                                                         Agreements Act. The actual implementation of
    In general, the rule-of-thumb standard for           these changes came into effect in July 1996.4
    origin determination had long been ‘substantial
    transformation’, i.e., to deem a product as          The modifications effected through this law
    originating in a place where it had undergone        substantially departed from the previous
    substantial transformation in its making. The        US practice, particularly insofar as the
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                              3

determination of origin of finished fabrics,               However this same rule does not apply to
made-up articles, apparel assembled in                     fabrics made of wool. In other words, for
different locations, and apparel made from                 fabrics of wool, origin remains where the
knit-to-shape panels was concerned. It was now             basic fabric is formed.
provided that such manufacturing operations
as dyeing/printing of fabric, a multitude of          (b) For made-up articles: For 16 specified
operations in the making of made-up articles              categories of made-up articles, the July 1996
from fabric, cutting to shape of apparel, and             change established the origin as the country
sewing together of knit-to-shape panels would             where the constituent greige fabric was
no more be deemed to confer origin.                       formed by weaving or knitting, regardless
                                                          of any further processing such as dyeing and
Thus, for example, even if greige fabric imported         printing of fabric, and subsequent conversion
from developing countries was further processed           of fabric to made-up articles.
by dyeing, printing and other finishing operations
in, say, a European country and then exported              The 2000 changes with respect to some
from that European country to the United States,           (not all) of these 16 articles resulted in
its origin remained the developing country where           the following:
the greige fabric was originally made. Likewise,
flat goods (bed linen, kitchen linen, table line,          (i) For non-cotton and non-wool made-up
toilet linen, curtains, bedspreads and other                   articles (i.e., only those of silk, man-made
furnishing articles, sacks and bags, tarpaulins,               fibres or other vegetable fibres), the rule
tents, sails, and similar other articles) imported             now recognizes dyeing and printing as
into the United States, say, from a European                   origin conferring. Therefore the origin is
country (where fabrics imported from quota-                    the country where the constituent fabric
restrained developing countries were dyed,                     is dyed and printed and undergoes two or
printed and subjected to other operations) also                more finishing operations.
came to be treated as originating in the developing
country where the fabric was originally made, not             However, if these same products are
the European country where the fabric had been                made of cotton or wool fabric, the
subjected to further processing and making into               origin continues to be deemed to be the
various flat goods.                                           country where the constituent cotton or
                                                              wool fabric is formed.
This gave rise to disruption of established
patterns of trade and to loud protests from                (ii) For all made-up articles, contrary to
a wide cross-section of stakeholders. Under                     pre-ATC rules, the new rule continues to
pressure, especially from the European Union,                   disregard such processing operations as
the US relented and enacted an amendment to its                 designing, cutting, hemming, sewing that
Uruguay Round Agreements Act 5 which resulted in                are necessary to be undertaken on the
further modifications, essentially accommodating                fabric to convert it to made-up articles.
the EU concerns. Under these amendments:
                                                      (c) For apparel products: No modification
(a)   For processed fabrics: The origin reverted          was effected in 2000. Consequently, origin
      to the pre-July 1996 rule so that fabrics           continues to be determined on the basis
      are now conferred origin of the country             of rules as modified and implemented
      where they are both dyed and printed                with effect from July 1996, i.e., designing
      and, in addition, undergo two or more               and cutting to shape of apparel is no more
      of the following finishing operations:              deemed to be origin conferring; nor are the
      bleaching, shrinking, fulling, napping,             sewing together of knit-to-shape panels and
      decating, permanent stiffening, weighting,          a variety of finishing operations that are
      permanent embossing or moireing.                    commonly undertaken for the final product.
4           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

    (iii) The European Union                               exceed 40 percent of the ex-works price of the
                                                           final product.
    In the case of the European Union, the concept
    of substantial transformation, insofar as textile      In fact, the annex listing the origin criteria for
    and clothing products falling under Section XI         textile and clothing products is spread over
    of the Harmonized Commodity Description and            more than five pages. By contrast, the annex
    Coding System (HS) are concerned, has been             pertaining to all other products (including
    reflected in detailed rules specifying the criteria    agricultural products) consists of less than four
    for each main group of products. This method of        pages. Such has been the attention devoted to
    determining origin is sometimes also referred to       origin rules for textiles and clothing!
    as the ‘list system’.
                                                           (iv) Some other jurisdictions
    In general, under this method, origin is conferred
    to an imported product if it was so transformed        While several other countries including Japan,
    by working or processing in the exporting country      Norway and Switzerland follow the change-in-
    as to fall under a different tariff heading.6 The      tariff-heading method, in some other jurisdictions
    relevant EU Regulation provides a listing of the       the origin rules are based on prescribed minimum
    working or processing operations that must be          proportions of value addition. For example,
    carried out on non-originating materials.              Canadian rules confer origin if at least 50 percent
                                                           of the cost of imported good was incurred in the
    With respect to textiles and clothing, the practical   exporting country and was finished there in the
    reflection of the above principle is contained         form in which it is imported into Canada.
    in a specific annex to an EU Regulation,7 item
    by item. Thus, for example, printed or dyed            (v) Harmonization of non-preferential
    woven fabric, classifiable under chapters 50 to        origin rules
    56 of the HS, qualifies to receive origin status if
    it was manufactured from yarn, or was printed          It was in recognition of such diversity of origin
    or dyed from unbleached or pre-bleached fabric         criteria (admittedly not just in textiles but
    and had undergone two preparatory or finishing         other sectors as well) that the WTO Membership
    operations in the exporting country. Thus, printing    reached an interim agreement during the Uruguay
    or dying of fabric by itself is also accepted as       Round to harmonize non-preferential origin rules
    origin conferring, provided, however, that it is       on the basis of the principle that they “should
    accompanied by two preparatory or finishing            provide for the origin of a particular good to
    operations. Non-printed or non-dyed fabric is          be either the country where the good had been
    considered as originating in the exporting country     wholly obtained or, when more than one country
    only if it was manufactured there from yarn.           is concerned in the production of the good, the
                                                           country where the last substantial transformation
    Finished or complete apparel of woven fabrics          had been carried out” (the Agreement on Rules
    classified under HS Chapter 62 receives origin         of Origin). The practical reflection of this
    if it received ‘complete making up’ in the             otherwise simple principle, however, continues
    exporting country. Complete making up is, in           to defy resolution and has remained a source
    turn, defined as “all operations following the         of contention in WTO negotiations for over ten
    cutting of the fabric.” However, shawls, scarves,      years (although, admittedly, not just on textiles
    mufflers and veils which are also classified under     but a number of other sectors as well). The work
    the same Chapter 62 receive origin only if they        aimed at harmonizing non-preferential origin
    were manufactured from yarn. But if these              rules has therefore yet to be finalized.
    articles are embroidered, they receive origin
    either if they were manufactured from yarn or          Although non-preferential origin rules remain
    were manufactured from unembroidered fabric,           important, in particular concerning possible
    provided that the value of the fabric does not         application of any new safeguard actions under
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                             5

normal GATT rules and disciplines, countervailing     that varying origin criteria remain responsible
or anti-dumping duties, or marking of the origin      for creating unnecessary confusion in data on
of imported products, they do not enjoy the level     textile and clothing trade because, as it happens,
of significance that they used to have under the      some export shipments made to particular
MFA or the ATC. Now that quota restrictions have      countries actually end up being shown in import
gone, it matters little, for example, if bed linen    figures from elsewhere and for something else.
exported from, say, Indonesia to the United           Consequently, it is not uncommon to find large
States had only been assembled in Indonesia           differences between export figures of certain
from fabric imported from Chinese Taipei and          countries and the counterpart import data of
gets classified in the United States as originating   their partner importing economies.
in Chinese Taipei. Even so, it is to be recognized

B.	Preferential Origin Rules

(i)   The quota system loomed large                   differential treatment to re-imports into a
                                                      participating [importing] country of textile
Like non-preferential origin rules, the evolution     products which that country has exported to
of the making of present-day preferential             another participating country for processing
origin rules for textiles and clothing can also       and subsequent re-importation in the light of
be traced to the strong influence of quota            the special nature of such trade …” 8
restrictions in the sector as brought out in the
following sub-sections.                               On the back of this provision, the EC provided
                                                      additional quota entitlements for outward
(a)   Outward processing trade (OPT)                  processing trade. Although, with the passage of
                                                      time, the possibility of OPT quotas was offered
Outward processing had long been an established       on a more generalized basis, as a matter of
feature of trade, especially in Europe. In textile    sheer economic logic it was of the greatest
and clothing, given the labour-intensive nature       significance to some of the EC member states
of sewing and other operations required in            themselves inasmuch as it enabled their yarn
the making of clothing products, it essentially       and fabric makers to find convenient outlets
involved the shipping of fabric and cut or            for their products and also to economize on the
unfinished parts of apparel from high-wage            cost of labour. It also provided the much-needed
importing countries to neighbouring low-              export prospects for some exporting countries
wage developing economies for making up               with surplus pools of available labour. Besides
into garments and re-importing the finished           Yugoslavia, the more successful examples
garments. The practice initially developed in         were Morocco and Tunisia. As subsequent
some EC member states, especially Germany             developments (discussed in the following
and France, on the one hand, and former               section) were to show, the system proved to be
Yugoslavia, on the other. With passage of time,       a boon in creating ready availability of markets
it received added significance and was extended       for developed countries’ textile producers but
to countries of the Mediterranean, especially,        could not promote the long-term viability of
Tunisia and Morocco.                                  industries in developing exporting countries.

To take advantage of the opportunities offered        On the other side of the Atlantic, the United
by outward processing trade a provision was           States also established (in 1988) a similar “Special
included in the Multi-Fibre Arrangement of            Regime” for most apparel and selected made-
1974, even though it effectively involved             up textiles from Mexico whereby a significant
a further departure from the general GATT             portion of Mexico’s quotas was set aside for
rule of non-discrimination. It provided that          export of articles assembled from fabrics wholly
“Consideration shall be given to special and          formed and cut in the United States.9
6                         Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

    (b) United States System of Guaranteed                        disruption notwithstanding. After all, they
    Access Levels                                                 ensured the use of US textile materials! The
                                                                  concurrent sweetener of duty concession, albeit
    The same concept, in essence, had already been                as exemption of duty only on the value of US
    adapted by the United States to its Caribbean                 content in the exported product, provided the
    Basin Initiative (CBI).10 Aimed to assist the                 added bait.
    development of countries in its neighbouring
    region, this initiative was first launched from               A stage was thus set for US textile makers to make
    January 1984. It granted duty free treatment                  use of Mexico and the neighbouring Caribbean and
    to a group of products, which did not, however,               Central American countries as additional markets
    include textiles and clothing. This exclusion                 for their yarns and fabrics and for apparel makers
    notwithstanding, some enterprises were taking                 to outsource more labour-intensive operations
    advantage of a US customs provision which                     to these low-wage locations. Apparel import
    exempted import duties to the extent of the                   under these programmes grew swiftly making
    value of US content contained in import products              it possible for US producers to also make a rich
    (the so-called 807 trade) and were shipping                   killing and increase their exports of yarns, fabrics
    garments by assembling them from components                   and unfinished or semi-finished clothing ready
    made in the United States. As the rates of tariff             for assembly into finished apparel. For the US
    on clothing were quite substantial, there was                 textile industry, it produced spectacular results
    economic benefit to derive even if the duty                   so much so that, by 2004, some 53.3 percent of
    saving was only on the value of US content in the             all US textile mill product exports were destined
    exported product.                                             to the CBI countries and Mexico, versus a mere
                                                                  18.9 percent in 1990. 11
    In 1986, the US launched a “special access
    programme” for the CBI countries, referred                    In fact these textile mill product data do not
    to as 807-A or Super 807. The emphasis of this                include figures with respect to cut or unfinished
    programme was on providing additional quota                   clothing parts which were/are a sizable part
    access for apparel assembled from fabric                      of US export shipments to these countries. As
    produced and cut in the United States. They                   unfinished or semi-finished articles are classified
    were invited to enter into bilateral agreements               under the same HS headings as for finished or
    that established guaranteed access levels (GALs),             fully assembled clothing,12 information about this
    as distinct from normal MFA quotas. These                     trade cannot be disaggregated from the data. But
    guaranteed access levels could be increased                   for this, the true extent of US industry’s exports
    to almost unlimited amounts on request, the                   to these captive countries was/is much greater
    oft-trumpeted industry concerns about market                  than could be captured in Chart 1.

    Chart 1. US Exports of Textile Mill Products to Mexico and CBI Countries
       Percent of World
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                            7

And, during 1984–87, the US-made content            agreements. The phenomenon, euphemistically
averaged 64 percent of the value of apparel         called the “local content requirement”, has thus
imports from these countries versus only 20         become the central plank of US preferential
percent for all other sectors combined.13 This,     origin rules found today.
because of the high average tariff of over 20
percent on apparel compared to only 3.5 percent     As the main purpose of this short paper is not to
for all other product categories.                   trace the evolution of the making of origin rules
                                                    in all its details, in the following Section we turn
The attraction held out by this mode of trade had   to the identification of the main preferential
subsequently to become the focus of lobbying        trade arrangements in which textile-related
efforts by domestic industry groups as the          origin rules play a significant role. Suffice to say,
core basis for origin rules in most preferential    the origin rules in preferential arrangements
arrangements, irrespective of whether these         have been heavily influenced by the experience
were in the context of autonomous non-reciprocal    of the quota regime.
schemes or bilateral or regional free trade
8           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

    II.	PREFERENTIAL TRADE ARANGEMENTS WITH TEXTILE-SPECIFIC
         ORIGIN RULES

    A.	Preferential Tariff Arrangements

    Presently, all major developed economies provide     (ii) The United States
    tariff preferences on import of textiles and
    apparel from a variety of developing countries.      Non-reciprocal
    Some of these programmes are autonomous in
    nature and do not require reciprocal concessions     •   Caribbean Basin Initiative (CBI),15 the
    in return. Others are bilateral or regional free         group of Caribbean countries, of whom
    trade agreements. In almost all cases, these             Haiti is now the largest exporter. (The list
    programmes or agreements provide for specific            of CBI eligible countries is provided in the
    origin criteria for textile exports to be able to        Appendix table.)
    benefit from duty concession or preference.          •   Africa Growth and Opportunity Act
                                                             (AGOA), under which Botswana, Kenya,
    The principal programmes under which textile             Lesotho, Madagascar, Mauritius, Namibia,
    and clothing exports from developing economies           South Africa and Swaziland are significant
    are provided tariff preference by developed              exporters of apparel. (The list of all AGOA
    economies are:                                           countries is also provided in the Appendix
                                                             table.)
    (i)   The European Union                             •   Andean Countries (ATPA), of whom Colombia
                                                             and Peru are significant apparel exporters.
    Non-reciprocal                                       •   Qualifying Industrial Zones (QIZ) schemes:
                                                             for Jordan and Egypt.
    •     Generalized      System     of   Preferences
          framework for developing and least-            Reciprocal
          developed countries.14 (A list of least-
          developed countries is provided in the         •   North American Free Trade Agreement
          Appendix.)                                         (NAFTA), under which Mexico is a substantial
    •     The partnership agreement with African,            exporter of textile and apparel to the US.
          Caribbean and Pacific Island countries (ACP)   •   US/Central American Free Trade Agreement
          in the framework of the Cotonou (formerly          (CAFTA-DR):     Costa     Rica,   Dominican
          Lome) Convention. (The list of the ACP group       Republic, El Salvador, Guatemala, Honduras
          of countries is given in the Appendix.)            and Nicaragua, all of which have sizeable
                                                             apparel exports to the US.
    Reciprocal                                           •   Other US Free Trade Agreements: with
                                                             Australia, Jordan, Israel, Morocco, Bahrain,
    •     EU–Turkey Customs Union.                           Chile and Singapore.
    •     European Association agreements with
          Bulgaria and Romania (These two have since     (iii) Canada
          joined the EU as full members and have
          had large apparel exports to the other EU      •   Generalized System of Preferences (GSP)
          member states.)                                    (especially duty-free access to least-
    •     Stabilization and Association Agreements           developed countries in its framework).
          with Western Balkan countries.
    •     Euro-Mediterranean Association Agreements
          with Algeria, Morocco, Tunisia, Israel,
          Palestinian Authority, Egypt, Jordan,
          Lebanon and Syria.
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                             9

(iv) Japan                                            (v) Australia

•     Generalized System of Preferences.              •    Duty-free access to least-developed
                                                           countries in the framework of Generalized
                                                           System of Trade Preferences.

B.	Typical Textile-specific Origin Rules in Preferential
    Arrangements

In the scope of this short paper, it seems            Typically the criteria require the final product
unnecessary to provide detailed descriptions          to undergo particular manufacturing operations
of all origin schemes, with all their twists and      expressed as change from a specified tariff
shades. The following account therefore brings        heading to a different heading. The change of
out only the main features with emphasis on           tariff headings is also defined at various degrees
those aspects that have a significant impact on       of aggregation.
developing countries’ trade prospects.
                                                      In general, the EU rules also provide for the
(i)   The European Union                              possibility of use of materials or components
                                                      produced in other countries specified in the
EU preferential origin rules are specified in each    particular arrangement or with which the EU has
preferential arrangement or agreement. The            free trade arrangements. Known as ‘cumulation’,
basic architecture of these rules is substantially    it allows producers from preference-benefiting
the same irrespective of whether they pertain to      countries to import non-originating materials
non-reciprocal schemes in the framework of the        from other beneficiaries without affecting the
GSP or they relate to reciprocal preferences under    final product’s originating status and therefore the
free trade area agreements (FTAs). In general,        possibility of benefiting from duty concession.
they are based on a scheme of ‘list rules’ which
are in turn organized according to the structure      There are four types of cumulation criteria:
of HS classification. The criteria for determining    bilateral cumulation, diagonal cumulation,
the origin of various products are listed against     regional cumulation and full cumulation.
each product category, setting out the minimum
amount of working or processing required on non-      Bilateral cumulation is the most common form
originating materials in order for the resulting      and applies to trade between two partners in a
product to obtain originating status.                 preference scheme. It stipulates that producers
                                                      in beneficiary country A may use inputs from the
Generally, two broad criteria are used to             preference-giving country B without affecting the
identify origin:                                      final good’s originating status.

•     The ‘wholly-obtained or produced’ criterion     Under diagonal cumulation, beneficiary countries
      applies in cases in which the product is        included in the same programme can use materials
      manufactured in the country from inputs         that originate in another beneficiary country – as
      that are also wholly obtained within the        if the materials were originating in the country
      country; it thereby precludes the use of        where further processing is undertaken. As with
      second-country components.                      bilateral cumulation, only products or materials
•     The      more      complex       ‘substantial   originating in the parties to these agreements
      transformation’ criterion, which is used        can benefit from diagonal cumulation. Although
      in the majority of cases as most products       more than one country can be involved in the
      contain varying amounts of imported inputs,     manufacture of a product, it will have the origin of
      defines various levels of requisite working     the country where the last working or processing
      or processing to receive origin status.         operation took place, provided that it was more
10           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     than a prescribed minimal operation. Diagonal          Romania, Tunisia etc., given that these countries
     cumulation operates between the European               also possess only limited textile manufacturing
     Community and the countries of the so-called           capacities.
     ‘pan-European cumulation zone’.
                                                            The practical effect of EU origin criteria for
     Regional cumulation: Regional cumulation is a          preferential arrangements is thus two-fold. In
     form of diagonal cumulation, which only exists         the case of least-developed countries, the actual
     under the GSP and operates between members             utilization of preferential access is much less
     of a regional group of beneficiary countries (e.g.     than optimal. In the case of the countries of the
     ASEAN and the South Asian Association for Regional     Maghreb (Morocco, Tunisia, etc.) and Central
     Cooperation/SAARC).                                    and East European countries, by sheer economic
                                                            logic, their producers and exporters are obliged to
     Finally, under full cumulation, all processing         import their raw material (yarns and fabrics, etc.)
     or transformation of a product within a set of         from the EU member states. These phenomena
     beneficiary countries can be counted as qualifying     are brought out at some length in Section III of
     content, regardless of whether the processing          the paper.
     is sufficient to confer originating status to the
     materials themselves. Full cumulation is less          (ii) The United States
     common than diagonal but is applied by the EU in
     its agreements with Algeria, Morocco and Tunisia       (a)   Free trade agreements
     and in the Cotonou Agreements. It allows for
     greater flexibility in production processes.           With the exception of US/Jordan and US/Israel
                                                            FTAs, the main benchmark for textile and clothing
     Leaving aside the somewhat technical description       origin rules is the so-called ‘yarn forward’ of
     of origin criteria outlined above, in a nutshell the   NAFTA. In fact, although it is generally described
     EU requires that, to be accorded duty concession       as yarn forward, for many products it is actually
     under its GSP schemes, the product concerned           ‘fibre forward’. Simply expressed, this rule
     must have undergone ‘double transformation’,           makes duty-free treatment of textiles and
     i.e., “at least two manufacturing/processing           clothing imports conditional on the requirement
     operations” in the country of export. Thus, for        that the imported product is made within the
     example, for a woven shirt to benefit from duty        free trade area from yarn (fibre) onward. In
     concession, it should have been assembled in           other words, for a shirt to benefit from duty
     the exporting least-developed country from             concession it must be manufactured with yarn as
     fabric made in that country. Consequently, most        well as fabric that is produced or sourced in any
     least-developed countries are unable to take           of the NAFTA member countries, or effectively a
     full advantage of the facility, lacking as they        triple transformation process. For fabric, it must
     are in textile manufacturing capacity due to the       have been manufactured with yarn that was also
     highly capital-intensive nature of this segment        produced in the FTA partner concerned.
     of textile and clothing production. Moreover,
     a significant portion of clothing is made with         Typically, the US free-trade agreements contain
     fabrics of new fibres with technologies patented       two main exceptions from the general yarn
     in the developed world.                                forward standard. First, they provide for the
                                                            so-called Tariff Preference Levels (TPLs) that
     Likewise, although the origin criteria under other     stipulate import of specified maximum quantities
     preference programmes allow relatively more            at preferential rates of duty even if the products
     flexibility in the use of components made outside      concerned are made with material that does not
     the Union (but from within the wider cumulation        otherwise qualify under the prescribed origin
     areas), yet, effectively, these criteria necessitate   criteria. Second, they provide for a process for
     the use of EU materials and components by major        determination of inputs (yarns and fabrics) that
     clothing exporters such as Bulgaria, Morocco,          may not be available in commercial quantities
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                          11

within the United States and may therefore be       is the so-called local content requirement. As
sourced from non-FTA partners. However, there       in the case of free trade agreements, there are
is no uniformity as to the existence of these       a few deviations permitted from this general
exceptions across all FTAs to which the United      principle, but subject to strict criteria including
States is a party.                                  limits on the maximum quantities that may
                                                    benefit from duty concession.
(b) Non-reciprocal preferential programmes
                                                    Perhaps the simplest way to understand the
The criteria in US non-reciprocal preference        origin criteria under non-reciprocal preference
arrangements under the Caribbean Basin              schemes of the United States is to see the
Initiative (CBI), Africa Growth and Opportunity     specific conditions under which duty-free access
Act (AGOA) and Andean Trade Promotion Act           is available under these programmes (Box 1
(ATPA) are in, some respects, even stricter. They   below). For convenience sake, and to avoid
stipulate duty benefit for apparel imports from     repetition in later sections of the paper, the
these countries mainly if the component inputs      volumes of imports benefiting from preferential
are sourced from the United States itself. This     access under various criteria are also indicated.
12           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     Box 1. U
             s Textiles and Clothing* Imports from Cbi, Agoa and Andean Countries (US Versus
            Non-Us Content)
                  CBI Countries (Caribbean Basin Trade Partnership Act) 2005
      Total Imports (Million US$)                                            9 661.20
      Subject to US content
      Apparel assembled from US cut fabric from US yarn                        16.00%
      Knit apparel from US fabric, yarn and thread                             15.90%
      Knit apparel from regional or US fabric from US yarn (TRQ)               13.40%
      Apparel cut and assembled from US fabric, yarn & thread                  12.70%
      Articles assembled from any fabric cut in the United States               9.80%
      Brassieres cut and assembled in the US and/or CBI                         3.50%
      T-shirts made of regional fabric from US yarn (TRQ)                       2.10%
      Apparel assembled from US cut fabric & yarn, further processed            1.60%
      Apparel assembled with US thread and fabric (mixed cutting)               1.30%
      Total above                                                             76.40%
      With no US content or under MFN duty
      Apparel from fabric or yarn determined as not available in US             1.50%
      Outside the preference programme (i.e., subject to MFN duty)             22.10%
      Total above                                                              23.60%

             AGOA Countries (African Growth and Opportunity Act)
      Total Imports (Million US$)                                                       1 481.90
      Subject to US content
      Apparel assembled from US cut fabric & yarn, further processed                      0.30%
      With no US content or under MFN duty
      Apparel made in a lesser-developed AGOA with non-US fabric                          83.40%
      Apparel from regional fabric from US or African yarn                                 7.40%
      Apparel from fabric or yarn determined as not available in US                        4.40%
      Cashmere sweaters, knit-to-shape                                                     0.30%
      Outside the preference programme (i.e., subject to MFN duty)                         4.30%
      Total above                                                                        99.70%

                     Andean Countries (Andean Trade Promotion
                                 and Drug Eradication Act)
      Total Imports (Million US$)                                                       1 495.30
      Subject to US content
      Apparel assembled from US fabric (finishing in US)                                 10.60%
      Brassieres cut and assembled in the US and/or an ATPDEA country                     0.20%
      Total above                                                                        10.90%
      With no US content or under MFN duty
      Apparel assembled from ANDEAN fabric/yarn                                          74.90%
      Apparel, chief value of llama, alpaca, etc. (i.e., Andean components)               1.90%
      Apparel from fabric or yarn determined as not available in US                       0.30%
      Outside the preference programme (i.e., subject to MFN duty)                       12.00%
      Total above                                                                        89.10%
      * Product coverage: MFA
      Source: Compiled from US Department of Commerce data.
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                          13

The design of AGOA and Andean preference             In the case of Jordanian QIZs, the product must
programme is also essentially the same as that       be a substantially transformed good, with at least
for the CBI, the main difference being that, under   35 percent of its value added generated in Israel,
AGOA, there is an exception which allows duty-       a Jordanian QIZ or the West Bank/Gaza. Of that
free treatment to apparel made in designated         35 percent, a minimum of 11.7 percent must be
lesser-developed countries16 regardless of the       added in a Jordanian QIZ, 8 percent in Israel,
source of fabric or yarn, subject to prescribed      and the remaining 15.3 percent can come from a
annual quantitative limits. Similar to AGOA, the     Jordanian QIZ, Israel or the West Bank/Gaza.19
Andean programme permits duty-free entry of
apparel assembled in the beneficiary countries       It is worth noting that the United States also
from fabric made in the [Andean] region from         has a free trade agreement with Jordan. The
US or regional yarn. Luckily, for Colombia and       FTA, however, does not supersede or eliminate
Peru, both have had substantial indigenous           the QIZ programme. Indeed, currently, the
yarn and fabric production capacities and are        bulk of Jordanian apparel export is under the
therefore able to make do without using US           QIZ programme because it offers immediate
made yarns.                                          tariff and quota-free access to the US market
                                                     to goods that are produced in the QIZs and meet
The relative flexibility of origin rules for these   the specific rules of origin requirements. Under
programmes can be gleaned from the percentages       the US–Jordan FTA, on the other hand, tariffs
of imports accounted for by US content or            and quotas for many goods are phasing out over
otherwise. The largest share of imports under        time, and rules of origin require 35 percent
the CBI programme (over 76 percent) is with          Jordanian content. Thus for some high-tariff
US components because they do not have the           goods, producing in QIZs continues to offer a
possibility of enjoying duty benefit unless they     better advantage. For instance, many apparel
use US textile materials. On the other side,         goods face US tariffs of up to 30 percent. Under
the largest shares under AGOA and Andean             the FTA, tariffs on these goods are to be reduced
programmes are against those exceptions that         over ten years, and Jordanian exports would
do not require the use of US inputs. Thus little     have to meet the 35 percent Jordanian content
of imports from AGOA countries are made with         level. Under the QIZ initiative, those same
US content. For Andean countries, too, 89            goods enjoy immediate elimination of tariffs and
percent is outside the US-content requirement.       quotas and require a lower level of Jordanian
Unfortunately, however, those provisions are         value-addition.
time-limited 17 and are also subject to prescribed
limits as to the maximum annual quantities that      In the case of the QIZs in Egypt, industrial
could be entered duty-free.                          products, including textiles and apparel, are
                                                     authorized duty-free entry into the US if these
Qualifying Industrial Zones (QIZs)                   products comply with rules of origin requirements.
                                                     The required rules state that 35 percent of the
In 1996 the United States Congress established       commodity’s value must be manufactured in an
the Qualifying Industrial Zones (QIZ) initiative     Egyptian QIZ, with a minimum of 11.7 percent of
to support the peace process in the Middle           Israeli inputs.20 The Israeli content requirement
East.18 These zones are designated industrial        is fulfilled if a factory’s cumulative export in
parks in Egypt, Israel or Jordan, from which         each quarter satisfies the agreed-upon ratio.
goods can be exported to the United States
duty free. The QIZ initiative does not have any      Furthermore, unlike under some elements in
expiration date; nor is it required to be renewed    the CBI and AGOA programmes, duty-free access
by Congress every few years like the Generalized     under the QIZ arrangements is not limited by
System of Preferences or other trade legislations    any quotas on quantities that could benefit from
such as certain provisions of AGOA.                  duty-free treatment.
14           Munir Ahmad — Impact of Origin Rules for Textiles and Clothing on Developing Countries

     (iii) Canada

     From 1 January 2003, Canada substantially             In other words, the LDC exports to Canada are now
     modified its GSP scheme for least developed           duty-free provided they fulfill any of the following
     countries, extending full duty-free access to         origin criteria: (i) the exported apparel are made
     imports of textile and clothing products.21 It also   with inputs from any least-developed country or
     significantly relaxed the origin rules pertaining     Canada; (ii) the exported apparel contain at least
     to these imports. Under these rules, apparel          25 per cent value-added in the least-developed
     products exported from least-developed countries      country concerned even when the inputs are
     were made eligible for duty-free treatment if         sourced from other developing countries.
     they were cut, or knit to shape, and sewn from
     inputs from any of the 48 eligible LDCs.              This relaxation compares very favourably with
                                                           40 percent value-added required for most of
     More significantly, apparel products were also        the other non-textiles and clothing items and
     made eligible for duty-free treatment even when       60 percent under the normal GSP for developing
     they used inputs from other developing countries,     countries. Little wonder that this revised
     the only condition being that at least 25 per cent    dispensation resulted in major improvements in
     of value addition on the apparel product must         the rates of utilization and, thereby, exports from
     have taken place in the LDC exporting country. Any    several least-developed countries to Canada (see
     Canadian input materials used in the manufacture      Chart 2 and Box 2).
     of apparel exported from the LDCs are also
     deemed to originate in the LDC concerned.

     Chart 2. Canada Clothing Imports from Least-Developed Countries

     (iv) Japan                                            treatment to imports from least-developed
                                                           countries, but with effect from 1 July 2003. Rules
     The Japanese GSP regime includes duty-free            of origin require local content to be 50 percent of
     treatment for covered textile and clothing from       total factory cost and that the last manufacture
     least-developed countries and duty concession         take place in the LDC. A fairly broad definition of
     at different rates for other developing countries.    local content is provided to meet the 50 percent
     There is a complex system of ceilings beyond          target. An LDC can include input from other LDCs,
     which duty concessions do not apply.                  developing countries, Pacific Island countries and
                                                           Australia in calculating the 50 percent content.
     (v)   Australia                                       Within this, non-LDC developing country content
                                                           is, however, subject to a maximum of 25 percent
     Like Canada, Australia also extended duty-free        of manufacturing cost.22
ICTSD Programme on Competitiveness and Sustainable Development
                                                                                                                 15

III.      HE NEXUS BETWEEN ORIGIN RULES AND TRADE UNDER
         T
         PREFERENTIAL ARRANGEMENTS

For years, then, trade in textiles and clothing has       This section is designed to map the development
been subject to the influence of policy intervention      of trade in textiles and clothing, especially in
through three main policy tools: (i) quota                the context of preferential arrangements and
restrictions, (ii) tariff preferences, and (iii) origin   the role of origin rules in linking the sourcing of
rules including, especially those that condition the      textile inputs by preference-receiving countries
access to preferences to the sourcing of textile          from preference-granting countries.
inputs from preference-giving countries.

A.	Textile Trade Has Been Subject to Persistent Policy
    Changes

Interpreting textile and clothing trade data is           As noted in the previous section, Mexico was also
fraught with complications. It does not lend itself       provided special access quotas from 1988 linking
to broad-brushed generalizations. For one thing,          this access to the use of “fabrics wholly formed and
all preferential schemes were not launched at             cut in the United States”.24 The added advantage
the same time. For another, over time, changes            of duty concession in the form of remission of duty
have been introduced to the extent and quality of         on the value of US content was also available as in
preferences under some preferential programmes.           the case of the Caribbean countries. From 1994,
Further still, the origin rules pertaining to various     Mexico got on to a faster track – complete duty
preference schemes have been far from uniform.            free access – pursuant to NAFTA.

The US CBI initiative has been on the go since            The AGOA included a time-bound exception to
1984; NAFTA became effective from 1994; AGOA              the general origin rule so that it provided duty-
from late 2000; the US programme of Qualifying            free access for specified quantities of apparel
Industrial Zones (QIZs) in respect of Jordan and          from designated lesser-developed Sub-Saharan
Egypt from 2001 and 2005 respectively; and the            African countries regardless of the source of
Andean preferences from 2002. 23                          fabric or yarn.25 This so-called ‘third country
                                                          fabric’ provision has since been extended through
As to the quality of preference, the Caribbean            September 2012.26
Basin Economic Recovery Act (which covered the
trade elements of the umbrella programme, CBI)            Origin rules under Jordanian and Egyptian QIZ
did not include textiles and clothing for duty-free       schemes did not tie the duty-free treatment to
treatment. Traders could only take advantage of a         the use of US materials.
US Customs provision that provided duty exemption
on the value of US inputs incorporated in the             On the EU side, too, Bulgaria and Romania became
imported products. In 1986, the US established            entitled to duty exemption from different times.
the Special Access Programme for CBI countries,           Prior to that, both these countries also used to
the accent of which was on extending additional           be subject to MFA/ATC quotas. In the case of
(virtually unlimited) quota access for textiles and       the countries of the Maghreb, the preferential
apparel provided the additional quotas were used          treatment had been in effect for much longer.
in conjunction with US inputs. The Trade Act of
2000 accorded complete duty-free treatment to             And Canada and Australia extended duty-free
CBI apparel subject of course to prescribed origin        access to least-developed countries with vastly
rules requiring, in most cases, that the products         liberal origin rules only from 2003.27
are made with US yarns and fabrics. The Andean
programme was brought at par with that for the            In a nutshell, aside from the implementation of
CBI beneficiaries only from 2002.                         various preferential programmes from different
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