The Andean Trade Partnership and Drug Eradication Act and the Caribbean Basin Trade Partnership Act

How to Benefit

Prepared by Cotton Council International

In conjunction with

Jonathan M. Fee, Partner, Alston & Bird, LLP

Mary O’Rourke, Managing Partner, Jassin – O’Rourke

Introduction

The Andean region and the Central American and Caribbean region (CBI) offer substantial advantages to manufacturing apparel for the U.S. marketplace. Many are inherent to these countries, such as their proximity to the United States allowing for quick replenishment and short delivery times. The Andean and CBI regions have well established apparel manufacturing industries, and a large skilled labor force with competitive wages. Development in the regions, mainly by U.S. apparel manufacturers and established local companies, accelerated in the 1980’s, as a means to reduce costs to compete more effectively with Asian suppliers. .

U.S. Congress enacted and the U.S. President signed the Caribbean Basin Trade Partnership Act (CBTPA) in 2000 and the Andean Trade Partnership and Drug Eradication Act (ATPDEA) in 2002. Both programs provide quota and duty benefits to garments manufactured in the Andean and CBI regions, although on somewhat different terms. The comparative cost advantages of sourcing apparel in beneficiary countries have increased significantly since the adoption of CTPTA and ATPDEA. This document will explain the details of both programs, including changes to the CBTPA made in 2002 when ATPDEA was passed. It will also explain how to compare the net cost of sourcing garments from the Andean and CBI regions with the cost of sourcing garments from other places.

ATPDEA and CBTPA

ATPDEA was passed in 2002 as part of the Trade Act of 2002, which also amended CBTPA. CBTPA was originally passed in 2000 as part of the Trade Development Act of 2000. Both programs provide duty and quota free treatment of certain eligible apparel and textile luggage manufactured in beneficiary countries and imported into the United States. Eligible articles under CBTPA must generally be made in CBTPA beneficiary countries from U.S. fabric, or CBI regionally knit fabric, made with U.S. yarn. ATPDEA has similar requirements for eligible articles, but it allows the use of regional yarns and fabrics for certain eligible garments. Participating producers under both programs enjoy the opportunity to compete on a preferred basis for access to the U.S. apparel and textile luggage markets.

Trade has been ongoing under CBTPA since October 1, 2000, and under ATPDEA since October 31, 2002. Below are background information, details of the CBTPA and ATPDEA and a discussion of the ways that these laws can be used to the advantage of apparel manufacturers in the CBI and Andean regions for apparel and luggage products destined for the U.S. market.

Background

CBTPA and ATPDEA have roots in older U.S. preferential trade programs: 807, Special Access, and NAFTA. These programs are described below:

807:

The earliest program, 807 (named for Item 807 of the old U.S. tariff schedule, which was replaced in 1989 when the United States adopted the international Harmonized System), offered duty reductions on apparel imported into the United States. Eligible 807 goods are assembled outside the United States with U.S. components. This program is not specific to the textile and apparel industry and is available for any article that can be assembled abroad with U.S. components.

For apparel, qualifying U.S. components are fabric parts that are cut in the United States. The parts must be exported in condition ready for assembly (uncut piece goods do not qualify) and cannot lose their physical identity by change in form, shape, or otherwise in the finished garment. The parts cannot be advanced in value or improved in condition, other than by assembly and other than by operations (like buttonholing or washing) incidental to assembly. If all of these conditions are met, the U.S. components in the assembled article are duty free. Duty is computed at the rate applicable to the assembled article, which is applied to the full value of the article minus the value of the U.S. components.

All 807 garments formally fall under subheading 9802.00.80 of the Harmonized Tariff Schedule of the United States (HTSUS), but the trade continues to refer to them as 807 garments.

Apparel imports with the benefit of 807 proved very popular in the 1970s and 1980s, as U.S. garment producers took advantage of lower labor rates in Mexico and the Caribbean Basin. These garments were still subject to quotas, which became a serious problem for U.S. importers as the United States began to impose more quotas on more categories, including quotas on garments from the countries where 807 was used. In addition, further processing in the country of assembly, such as bleaching, garment dyeing, stone-washing, acid-washing and perma-pressing, are considered more than incidental to assembly, disqualifying the garment from 807 benefits.

The United States continues to impose quotas on several categories of garments originating in the CBI and Andean regions, including 807 garments. The cotton product categories that remain subject to quotas are described below:

Quota Category Number

Description

CBI and Andean Countries Where Quotas Are Still in Effect

331/631

Cotton/mmf gloves and mittens

Jamaica

336/636

Cotton/mmf dresses

Jamaica

338/638

Men’s and boys’ cotton/mmf knit shirts

Dominican Republic, Jamaica,

339/639

Women’s and girls’ cotton/mmf knit shirts and blouses

Dominican Republic, Jamaica

340/640

Men’s and boys’ cotton/MMF shirts, not knit

Costa Rica, Dominican Republic, Guatemala, Jamaica, El Salvador,

341/641

Women’s and girls’ cotton/mmf shirts and blouses, not knit

Jamaica

342/642

Cotton/mmf skirts

Costa Rica, Dominican Republic, Jamaica

345/845

Cotton/silk or other vegetable fiber sweaters

Jamaica

347/348

Men’s and boys’/women’s and girls’ cotton breeches, trousers, and shorts

Costa Rica, Dominican Republic, Guatemala, Jamaica

351/651

Cotton/mmf nightwear and pajamas

Dominican Republic, Guatemala

352/652

Cotton/mmf underwear

Jamaica

 

Special Access:

To alleviate some quota pressure in the CBI region, the Reagan Administration adopted Special Access in the middle 1980s, which was later expanded to include participating Andean countries. Eligible garments must meet all conditions of 807 (assembled from qualifying U.S. components). In addition, the U.S. components must be cut from U.S. formed fabric (fabric woven or knitted in the United States). There is no requirement regarding the origin of the yarn used in these fabrics or in the origin of the sewing thread used to assemble the garment. Non-US origin findings and trimmings up to a limit of 25 percent of the value of all components are allowed. If all of the conditions are met, the importer enjoys quota free treatment under guaranteed access levels. These are special quotas that never result in embargoes and can be increased upon request by the exporting country.

Special Access garments receive 807 duty treatment. If the garments are subjected to bleaching, garment dyeing, stone-washing, acid-washing, or perma-pressing, they lose 807 duty benefits, but still receive Special Access quota treatment.

NAFTA

NAFTA offers three basic benefits for apparel: NAFTA originating goods treatment; Tariff Preference Levels (TPLs); and NAFTA Special Regime. Most classifications of apparel are NAFTA originating if the yarn is spun or extruded, the fabric is formed, and the cutting and sewing are performed in one or more of the NAFTA countries. Duties were reduced in annual stages, and most NAFTA originating garments are presently duty free. All NAFTA originating garments are quota free. Some garments, like brassieres, certain knit panties, and garments made with fabrics in short supply in the NAFTA countries, are subject to more relaxed NAFTA origin rules, under which cutting and sewing with foreign fabric suffice for NAFTA treatment. Other garments, like man-made fiber sweaters, are subject to stricter rules, under which even the fiber must be produced in NAFTA countries. NAFTA originating goods must be covered by a NAFTA certificate of origin signed by the exporter certifying their originating status.

Tariff Preference Levels (TPLs) are tariff rate quotas, under which non-NAFTA originating garments are nevertheless eligible for NAFTA duty treatment (but not quota free treatment) within quantitative limits specified for each calendar year. Three TPLs are available for garments from Mexico: the first covers most cotton and man-made fiber garments cut and sewn in Mexico, the second covers wool garments cut and sewn in Mexico, and the third covers garments of any fiber content cut in the United States and assembled by sewing in Mexico. Because they are popular with U.S. apparel companies, the TPLs have filled, and have become unavailable, before the end of every recent calendar year.

NAFTA Special Regime requires that eligible garments must be assembled in Mexico with U.S. cut and formed fabric. The garments are imported into the United States quota free and duty free. Special Regime is similar to 807 and Special Access, except that those other programs only afford duty-free treatment for the value of the U.S. components.

Shortly after NAFTA was enacted, interested persons began advocating parity, or equal treatment, for the CBI region, setting the stage for the CBTPA.

CBTPA Benefits

CBTPA is available during a transition period from October 1, 2000, to the earlier of September 30, 2008, or the date on which the Free Trade Area of the Americas (presently under negotiation) enters into force. Beneficiary countries designated by the United States Trade Representative under CBTPA eligibility requirements are:

Barbados

Belize

Costa Rica

Dominican Republic

El Salvador

Guatemala

Guyana

Haiti

Honduras

Jamaica

Nicaragua

Panama

St. Lucia

Trinidad and Tobago

CBTPA does not provide NAFTA parity. Instead, it is a unique program that borrows some of its provisions from the 807, Special Access, Special Regime, and NAFTA programs that preceded it.

There are several different "preference groups" of garments and luggage eligible for duty free and quota free treatment under CBTPA. Like NAFTA originating goods, they must be the subjects of certificates of origin signed by the exporter, certifying their qualifying status under CBTPA. The several kinds of garments are described in the following discussion.

  1. Preference Groups A and B – Garments Assembled from U.S. Components.

These preference groups cover garments assembled in CBTPA beneficiary countries from fabrics wholly formed and cut in the United States from yarns wholly formed in the United States. (The fabric can also include certain fabric not made from yarn, such as felt, if wholly formed and cut in the United States.) All fabrics used in the garments, including body fabric, pocketing, and lining, must be wholly formed in the United States with yarns wholly formed in the United States. These garments fall in Preference Group A on the CBTPA certificate of origin, and are classified under HTSUS subheading 9802.00.8044, unless they are subjected to certain post-assembly processes.

If the garments described above are subjected to stone-washing, enzyme washing, acid washing, perma-pressing, oven baking, bleaching, garment dyeing, screen printing, or other similar processes, they fall in Preference Group B on the CBTPA certificate of origin and are classified under subheading 9820.11.03. The sewing thread used in either preference group can be of any origin.

Example: Men’s cotton twill trousers are assembled in a CBTPA beneficiary country. All of the fabrics in the garments, including the twill body fabric and the pocketing and lining fabrics, are woven in the United States. The yarn used to weave the fabric is also spun in the United States. The finished garments are duty free and quota free under Preference Group A and subheading 9802.00.8044. If they are stonewashed in the CBI, they qualify for duty and quota free treatment under Preference Group B and subheading 9820.11.03.

As originally enacted, CBTPA did not include garments assembled from U.S. knit to shape components under these preference groups. The Trade Act of 2002 changed the law to include such garments. The knit to shape components must be knit in the United States with yarn wholly formed in the United States. This new allowance for garments assembled from U.S. knit to shape components has been incorporated in Preference Group A (subheading 9802.00.8044).

The Trade Act of 2002 also clarified CBTPA to require that all fabric used in these garments must be dyed, printed, and finished in the United States.

  1. Preference Groups C and K – Garments Assembled from U.S. Fabric and Knit Components.

    Like Preference Groups A and B, Preference Groups C and K cover garments assembled in CBTPA beneficiary countries entirely from fabrics wholly formed in the United States from yarns wholly formed in the United States (or fabrics not made from yarns, if wholly formed in the United States). But unlike the fabrics in Preference Groups A and B, the fabrics in Preference Group C and K garments are cut in CBTPA beneficiary countries. Also unlike 807A+ garments, 809 garments must be assembled with sewing thread formed in the United States. Garments cut and assembled from woven fabric fall in Preference Group C and are classified under subheading 9820.11.06. Garments cut and assembled from knit fabric fall in Preference Group K and are classified under subheading 9820.11.18.

    Example: Cotton fabric is knit in the United States with yarn spun in the United States. The fabric is exported in rolls to a CBTPA beneficiary country, where it is cut into garment parts. The garment parts are assembled with U.S. formed sewing thread to make women’s knit blouses. The finished blouses are duty free and quota free under Preference Group K and subheading 9820.11.18.

    The Trade Act of 2002 modified CBTPA to include garments assembled in CBTPA beneficiary countries from such U.S. fabric cut in beneficiary countries, or from components knit to shape in the United States from yarns wholly formed in the United States, or both. This would allow coverage, for example, of a knit polo-style shirt made with a body, sleeves, and a placket cut in a CBTPA beneficiary country and a collar knit to shape in the United States. Such garments fall in Preference Group C and are classified under subheading 9820.11.06

    The new law also clarified CBTPA to require that all fabric used in these garments must be dyed, printed and finished in the United States.

  2. Preference Group L – Hybrids.

    The Trade Act of 2002 added a new group of garments known as hybrid garments. Cutting can be performed partly in the United States and partly in CBI beneficiary countries. These garments can also include components knit to shape in the United States. The fabric and yarn must be wholly formed in the United States. Hybrid garments must also be assembled with U.S. formed sewing thread. Hybrid garments fall in Preference Group L and are classified under new subheading 9820.11.23.

  3. Preference Group D – Regional Knit Garments.

    Preference Group D covers regionally knit garments. These include garments (other than socks) knit to shape in CBTPA beneficiary countries with yarns wholly formed in the United States. They also include knit garments (other than non-underwear t-shirts) cut and wholly assembled in beneficiary countries from fabric formed in CBTPA beneficiary countries or the United States from yarns wholly formed in the United States. Sewing thread of any origin can be used. These regional knit garments are classified under subheading 9820.11.09. They are subject to annual tariff rate quotas (TRQs), however, for each 12-month period beginning October 1 during the CBTPA transition period.

    The Trade Act of 2002 substantially increased the TRQs. The TRQs for regionally knit garments, in square meter equivalents (SMEs), are as follows:

    Year Beginning October 1

    Square Meter Equivalents

    2002

    500,000,000

    2003

    850,400,000

    2004 and subsequent years

    970,224,000

     

    Example: Cotton yarn spun in the United States is shipped to a CBTPA beneficiary country. In the CBTPA beneficiary country, some of the yarn is knit to shape to make parts of sweaters, and some of the yarn is knit into fabric. The fabric is cut into parts of knit shirts. The knit to shape sweater parts are assembled into sweaters. The cut fabric parts are assembled into knit shirts. The sweaters and shirts are imported into the United States during the 12-month period ending September 30, 2002. Both the finished shirts and the finished sweaters fall in Preference Group D and subheading 9820.11.09. After the TRQ fills, the sweaters and shirts will be subject to normal U.S. duty and any applicable quota.

  4. Preference Group E – Regional Knit T-shirts.

    Preference Group E covers t-shirts (other than underwear) made in beneficiary countries from fabric formed in the beneficiary countries from yarns wholly formed in the United States. The sewing thread can be of any origin. They are classified under subheading 9820.11.12. Like regionally knit garments, these regionally knit t-shirts are subject to TRQs, which were substantially increased by the Trade Act of 2002. The TRQs, measured in dozens rather than square meter equivalents, are as follows:

    Year Beginning October 1

    Dozens

       

    2002

    9,000,000

    2003

    10,000,000

    2004 and subsequent years

    12,000,000

     

    Example: Cotton yarn spun in the United States is shipped to a CBI beneficiary country, where it is knit into fabric. The fabric is cut and sewn into finished, non-underwear t-shirts, which are imported into the United States during the 12-month period ending September 30, 2002. The t-shirts fall in Preference Group E and subheading 9820.11.12, but only if imported into the United States before the TRQ for the 12-month period fills.

  5. Preference Group F – Brassieres.

    Preference Group F covers brassieres, cut and sewn or otherwise assembled in beneficiary countries, the United States, or both, subject to certain limitations. These brassieres are classified under subheading 9820.11.15. For each year, brassieres of a producer or entity controlling production are eligible for duty and quota free treatment only if the aggregate cost of fabric components formed in the United States during the previous 12-month period is at least 75 percent of the aggregate declared Customs value of all fabric contained in all brassieres of that producer or entity during the previous 12-month period. If a producer or entity fails this test for any such 12-month period, his brassieres will not qualify until he completes another such 12-month period for which the percentage is 85 percent.

    Example: During the 12-month period ended September 30, 2001, a producer in a CBI beneficiary country cut and sewed brassieres from fabric knit in Asia and the United States and exported them to the United States. During the 12-month period ending September 30, 2002, the same brassieres will qualify for duty and quota free treatment only if the producer met the 75 percent test for the 12-month period ended September 30, 2001. Qualifying brassieres fall in Preference Group F and subheading 9820.11.15.

    The Trade Act of 2002 changed the brassiere provision in three respects. First, it clarified the law so that the brassiere provision only applies to brassieres not entered under other CBTPA preference groups. Second, it changed the provision so that fabrics included in the 75 percent cost test do not include findings and trimmings. Third, it confirmed that the 75 percent test only applies to fabric used in brassieres entered under the brassiere preference group.

  6. Preference Group G – Short Supply Garments.

    Garments in Preference Group G are cut or knit to shape and sewn or assembled in CBTPA beneficiary countries from fabric or yarn that is not formed in the United States or CBTPA beneficiary countries, to the extent garments of such fabric or yarn would be eligible for preferential treatment under NAFTA without regard to the source of the fabric or yarn. There are several classifications of such garments under NAFTA. They are generally any garments subject to a more relaxed NAFTA origin rule than yarn forward, including silk and linen woven garments, garments made with certified Harris Tweed fabric, and many others. A complete list is available on the U.S. Customs website at http://www.customs.gov/. These garments fall in Preference Group G and subheading 9820.11.24.

    Short supply garments also include garments not specified under NAFTA, but designated as such by the U.S. President upon a finding that fabrics or yarns cannot be supplied by the U.S. domestic industry in commercial quantities in a timely manner. Such garments are also covered by Preference Group G, but are the subject of separate subheading 9820.11.27.

    Example: A producer in a CBTPA beneficiary country cuts and sews shirts from Indian linen fabric and exports the finished shirts to the United States. The finished shirts qualify under Preference Group G and subheading 9820.11.24, because they would be originating goods under NAFTA without regard to the source of the fabric or yarn.

  7. Preference Group H – Handloomed, Handmade, or Folklore Garments.

    Preference Group H covers handloomed, handmade, or folklore garments that the U.S. President and representatives of CBTPA beneficiary countries mutually agree should be designated as such. Competent authorities of the beneficiary countries must certify such garments as qualifying articles. These handloomed, handmade, or folklore garments fall are classified under subheading 9820.11.30.

  8. Preference Groups I and J – Luggage.

In addition to garments, textile luggage is also eligible for CBTPA duty and quota free treatment. Textile luggage assembled in beneficiary countries from fabric wholly formed and cut in the United States from yarn wholly formed in the United States is covered by Preference Group I (subheading 9802.00.8046). Textile luggage assembled from fabric cut in beneficiary countries from fabric wholly formed in the United States from yarn wholly formed in the United States is covered by Preference Group J (subheading 9820.11.21). Sewing thread of any origin can be used to assemble the luggage.

ATPDEA Benefits

ATPDEA is available from October 31, 2002, until December 31, 2006. Beneficiary countries designated by the President under ATPDEA eligibility requirements are:

Bolivia

Ecuador

Colombia

Peru

Like CBTPA, ATPDEA establishes several preference groups of garments and luggage. The preference groups are modeled after the CBTPA, but reflect significant differences. Unlike CBTPA, ATPDEA allows the use of regional yarn and both regional knit and regional woven fabric in certain applications. It also contains no U.S. thread requirement for any preference group. In these and other respects, ATPDEA is broader and more flexible than CBTPA. As in the case of CBTPA, eligible ATPDEA garments must be the subjects of certificates of origin signed by the exporter. The ATPDEA preference groups are described in the following discussion.

  1. Preference Group A – Garments Assembled from U.S. Fabric or Knit to Shape Components.

    Garments in Preference Group A can be assembled in ATPDEA beneficiary countries or the United States or both. They can be assembled from fabric or fabric components wholly formed, or components knit to shape, in the United States. The yarn can be wholly formed in either the United States or ATPDEA beneficiary countries. (The fabric can also include certain fabric not made from yarn, such as felt, if wholly formed in the United States). All fabric must be dyed, printed, and finished in the United States. Garments in Preference Group A are classified under subheading 9821.11.01.

    This single preference group combines attributes from several CBTPA preference groups. It also allows the U.S. fabric or knit to shape components to be made with Andean regional yarn. In contrast, all of the CBTPA preference groups for garments made from U.S. fabric or knit to shape components require the use of U.S. yarn.

    Example: A U.S. fabric mill imports Colombian formed yarn and knits the yarn into fabric in the United States. The fabric moves to a garment manufacturer in Peru, which cuts and sews the fabric into shirts. The shirts qualify for duty free and quota free treatment under Preference Group A and are classified under subheading 9821.11.01.

  2. Preference Group B – Garments Assembled from Regional Fabric or Knit to Shape Components of Llama, Alpaca, or Vicuna.

    Garments in Preference Group B can be assembled in ATPDEA beneficiary countries or the United States or both. They can be assembled from fabric or fabric components wholly formed, or components knit to shape, in ATPDEA countries. The fabric or knit to shape components must be made from yarn wholly formed in ATPDEA countries, and must be in chief value of llama, alpaca, or vicuna. (The fabric can also include certain fabric not made from yarn, such as felt, if wholly formed in ATPDEA countries and in chief value of llama, alpaca, or vicuna). Garments in Preference Group B are classified under subheading 9821.1104.

  3. Preference Groups C and D – Short Supply Garments.

    Garments in Preference Group C are assembled in ATPDEA countries or the United States or both. The fabric and can be of any source, to the extent that apparel articles of such fabric and yarn would be eligible for preferential treatment under NAFTA without regard to the source of the fabric or yarn. These garments are classifiable under subheading 9821.11.07. Preference Group D covers such short supply garments not specified under NAFTA, but designated as such upon a finding that fabrics or yarns are not available in commercial quantities in the United States. These designated short supply garments are classified under subheading 9821.11.10.

    Garments in Preference Groups C and D are virtually identical with CBTPA short supply garments. For Preference Group D, however, interested parties must separately petition for new short supply garments not specified under NAFTA; approval under one program does not automatically constitute approval under the other.

  4. Preference Group E.

    Garments in this preference group are assembled in ATPDEA countries or the United States or both. They are made from any combination of fabric, fabric components, knit to shape components, or yarn described in two or more of Preference Groups A through D. The applicable subheading is 9221.11.01. This preference group is similar in concept to the hybrid garments preference group under the CBTPA, but it allows a more flexible combination of inputs.

    Example: An unusual garment is produced in Colombia with several different components, including fabric woven in Peru with vicuna yarn formed in Peru, linen fabric from India, and a component knit to shape in the United States with yarn formed in Ecuador. In other words, the garment has inputs described in Preference Groups A, B, and C. It qualifies for preferential treatment under Preference Group E (subheading 9221.11.01).

  5. Preference Group H – Handloomed, Handmade, or Folklore Garments.

    This preference group is identical in all respects with the CBTPA preference group of the same description, requiring certification by competent authorities in ATPDEA countries in accordance with agreements with the United States. The garments are classified under subheading 9821.11.16.

  6. Preference Group G – Brassieres.

    Preference Group G is identical with the CBTPA brassiere provision. Brassieres falling in this preference group are classified under subheading 9821.11.19. For each year, brassieres of a producer or entity controlling production are eligible for duty and quota free treatment only if the aggregate cost of fabric components formed in the United States during the previous 12-month period is at least 75 percent of the aggregate declared Customs value of all fabric contained in all brassieres of that producer or entity during the previous 12-month period. If a producer or entity fails this test for any such 12-month period, his brassieres will not qualify until he completes another such 12-month period for which the percentage is 85 percent.

    Preference Group G only applies to brassieres not entered under other ATPDEA provisions. Fabrics considered in the 75 percent cost test do not include findings and trimmings. The 75 percent cost test only applies to brassieres entered under Preference Group G.

  7. Preference Group H – Luggage.

    Preference Group H is identical with the CBTPA luggage provision. Textile luggage assembled in ATPDEA beneficial countries from fabric wholly formed and cut in the United States from yarn wholly formed in the United States is classifiable under subheading 9802.00.8048. Textile luggage assembled from fabric cut in beneficiary countries from fabric wholly formed in the United States from yarn wholly formed in the United States is classifiable under subheading 9821.11.22.

  8. Preference Group I – Regional Knit and Woven Garments.

Preference Group I covers garments assembled in ATPDEA beneficiary countries. Fabric, fabric components, or knit to shape components are formed in ATPDEA beneficiary countries from yarn wholly formed in either the United States or beneficiary countries. (The fabric can also include certain fabric not made from yarn, such as felt, wholly formed in ATPDEA beneficiary countries).The garments can also include fabric, fabric components, or knit to shape components described in Preference Groups A, B, C, or D. The applicable subheading is 9821.11.25.

Preference Group I is subject to annual TRQs for each 12-month period beginning on October 1. The TRQs, in SMEs, are as follows:

Year Beginning October 1

Square Meter Equivalents

   

2002

347,010,859

2003

477,139,931

2004

607,269,003

2005

737,398,075

2006

867,527,147

 

This preference group is far more generous than the CBTPA provisions for regional knits and t-shirts. ATPDEA makes no division between t-shirts and all other garments; nor does it exclude socks. More significantly, ATPDEA allows both knits and wovens, while the regional fabric provisions of CBTPA are confined to knits. Finally, ATPDEA allows the use of yarn formed in either the United States or ATPDEA beneficiary countries, while CBTPA is limited to U.S. formed yarns.

Example: Cotton yarn is spun and woven into fabric in Colombia. The fabric is cut and sewn in Colombia to make men’s sport shirts. The shirts are eligible for duty and quota free treatment under Preference Group I and are classifiable under subheading 99821.11.25.

Special CBTPA and ATPDEA Rules

CBTPA and ATPDEA contain identical rules under which articles otherwise eligible for preferential treatment will not be disqualified because they contain certain non-U.S. findings and trimmings, interlinings, or de minimis yarns.

  • Non-U.S. findings and trimmings are permitted as long as they do not exceed 25 percent of the cost of the components of the garment. Permissible foreign findings and trimmings include hooks and eyes, snaps, buttons, bow buds, decorative lace trim, elastic strips (but only if less than one inch wide and used to produce brassieres), zippers (including zipper tapes), labels, sewing thread (except sewing thread used to assemble garments under CBTPA Preference Groups C and K), and other similar products.
  • Permissible non-U.S. interlinings are subject to the same 25 percent limit as foreign findings and trimmings, and are limited to include only a chest type plate, a hymo piece, or sleeve header, of woven or weft-inserted warp knit construction and of coarse animal hair or man-made filaments. These special interlinings are used in the tailored clothing industry.
  • De minimis yarns are any yarns that would otherwise disqualify a garment from preferential treatment, as long as they do not exceed seven percent of the total weight of the garment. As an exception, elastomeric yarns are not eligible for treatment as de minimis yarns under CBTPA. They are eligible for such treatment under ATPDEA.

Example: An cotton fleece knit jacket is cut and sewn in a CBTPA or ATPDEA beneficiary country and exported to the United States. It meets all the requirements of CBTPA Preference Group K (subheading 9820.11.18), or ATPDEA Preference Group A (9821.11.01), except that it contains a zipper of Japanese origin and black-dyed yarn from Russia that gives the fabric a flecked or heather appearance. The zipper accounts for 15 percent of the cost of all the components in the garment, and the Russian yarn accounts for five percent of the weight of the garment. The finished garment still qualifies for CBTPA or ATPDEA treatment. The zipper is a permissible finding and trimming, and the Russian yarn is de minimis.

A final special rule refers to Canadian, Mexican, or Israeli nylon filament yarns. These yarns can be used for production of garments under CBTPA Preference Groups A, B, C, and K and ATPDEA Preference Groups A, B, C, and E, in any quantities or proportions, without disqualifying the garments from preferential treatment.

The Trade Act of 2002 added another special rule clarifying the law so that U.S. formed sewing thread required to be used to assemble garments under CBTPA Preference Groups C, K, and L. No such provision affects ATPDEA, because U.S. formed sewing thread is not a requirement under any of the ATPDEA preference groups.

US Customs Enforcement

An exporter guilty of transshipping can be suspended from CBTPA or ATPDEA participation for two years. Transshipping has traditionally meant claiming a garment originated in one country when in fact it originated in another. But CBTPA and ATPDEA loosely define transshipping to mean claiming eligibility without meeting their requirements.

The importer claiming CBTPA or ATPDEA treatment must have in his possession a certificate of origin, modeled after the NAFTA certificate of origin. It must be signed by the exporter, and must identify the producer of the garment and, where applicable, the producers of the fabric, yarn, and sewing thread. It must also state the Preference Group for which the garments or luggage are claimed to qualify.

The producer in the participating beneficiary country must maintain documentation regarding origin, including production records and information on the place of production, number and types of machines, and number of workers. He must also maintain evidence to document the use of U.S. or other qualifying materials, such as purchase orders, invoices, bills of lading, and shipping, import, and clearance documents.

The U.S. importer must maintain records explaining how he concluded the garments qualified for CBTPA or ATPDEA treatment, including documents supporting specific preference group claims. Where applicable, these records include documents identifying the U.S. producer of fabric or yarn. The importer must also have internal controls providing periodic review of the accuracy of certificates of origin, and should keep shipping papers showing direct shipment from the beneficiary country to the United States. He must, finally, be prepared to explain to U.S. Customs how the records and internal controls justify the claim for CBTPA or ATPDEA treatment.

Summary of CBTPA Provisions

All fabric and knit to shape components used in CBTPA garments and luggage must be made with yarn wholly formed in the United States.

HTSUS

Pref. Group

Fabric or Components

Cut or Knit to Shape

Thread

Sewn

TRQ

9802.00.8044

Group A

U.S.

U.S.

Any origin

CBI

No

9820.11.03

Group B

U.S.

U.S.

Any origin

CBI

No

9820.11.06

Group C

U.S.

CBI

U.S.

CBI

No

9820.11.09

Group D

CBI

CBI

Any origin

CBI

Yes

9820.11.12

Group E

CBI

CBI

Any origin

CBI

Yes

9820.11.15

Group F

75% U.S.

U.S. and/or CBI

Any origin

U.S. or CBI

No

9820.11.18

Group K

U.S.

CBI

U.S.

CBI

No

9820.11.21

Group I

U.S.

CBI.

Any origin

CBI

No

9820.11.24 and 9820.11.27

Group G

Any origin

CBI

Any origin

CBI

No

9820.11.30

Group H

Any origin

CBI

Any origin

CBI

No

9820.11.33

Group L

U.S.

Cut: U.S. and CBI; Knit to shape: U.S.

U.S.

CBI

No

 

Summary of ATPDEA Provisions

Unlike CBTPA, ATPDEA allows the use of regional yarn in some of its preference groups, and never requires the use of U.S. formed sewing thread.

HTSUS

Pref. Group

Yarn

Fabric or Components

Cut or Knit to Shape

Sewn

TRQ

9821.11.01

Group A

U.S. or Andean

U.S.

U.S.

U.S. and/or Andean

No

9821.11.04

Group B

Andean

Andean

Andean

U.S. and/or Andean

No

9821.11.07

Group C

Any origin

Any origin

Andean

U.S. and/or Andean

No

9821.11.10

Group D

Any origin

Any origin

Andean

U.S. and/or Andean

No

9821011.13

Group E

(A, B, C, or D)

(A, B, C, or D)

(A, B, C, or D)

(A, B, C, or D)

No

9821.11.16

Group F

Any origin

Any origin

Andean

Andean

No

9821.11.19

Group G

75 % U.S.

75% U.S.

Andean and/or U.S.

Andean and/or U.S.

No

9821.11.22 and 9802.00.8048

Group H

U.S.

U.S.

Andean for 9821 and U.S. for 9802

Andean

No

9821.11.25

Group I

Andean or U.S.

Andean

Andean

Andean

Yes

 

Cost Evaluation of U.S. Yarns and Fabrics under the CBTPA

Net Cost of Goods to the Buyers

When evaluating the competitiveness of apparel manufactured in the CBI under the CBTPA, the net cost to the buyer should be considered. This is different than the price. Understanding the difference is critical, as buyers’ understanding of this varies among different companies and at various sourcing decision levels. It is important that suppliers of apparel to the U.S. market understand this in evaluating the sourcing/manufacturing options in the CBI. For the U.S. buyer, the comparative fabric costs or labor costs are not as important as the net cost, landed in the buyer’s store or warehouse, taking into account all associated costs.

Prevailing acceptable benchmarks on a cost basis, for sourcing Central America or the Caribbean from a buyer’s perspective, are increasingly based on a net cost of goods, landed in a U.S. warehouse. Buyers sourcing goods in this region are willing to pay more in order to shorten the lead time, to be able to re-order specific styles within a season, and/or to have quick response replenishment programs, drawing stock weekly from the supplier’s factory, based on in-store sales.

Below are some different scenarios for evaluating the net cost of goods to the buyer of apparel products sourced in the CBI versus Asia. The following examples are for specific cotton apparel products using various yarn and fabric supply situations. The prices are used only as an example. (They represent market prices during the 4th Quarter, 2001.) The prices should only serve as a guide to demonstrate the how individual yarn or fabric prices should be viewed in terms of the net cost of the entire garment landed in the United States.

Basic Men’s Cotton T-shirt

This garment example is manufactured in the CBI using CBI knitted fabric, containing U.S. manufactured yarns vs. non-U.S. yarns. The Yarn cost is greater in the United States, resulting in a yarn component cost of nearly 35% more, and a fabric cost component that is 27% greater; however, CBTPA duty elimination provides a net landed cost of the complete garment, in a U.S. warehouse, that is actually equal.

Basic Men’s T-Shirt

   

100 % Cotton

Non US Yarn

US Yarn

5.9 Oz. Per Square Yard

Knit Honduras

Knit Honduras

 

Sewn in CBI

Sewn in CBI

Ring Spun

   

$ / T-Shirt

$ / T-Shirt

Yarn Cost

0.65

0.91

Fabric mfg. Added value

0.29

0.29

Making-up added value

0.34

0.34

Profit @12%

0.22

0.22

Shipping cost

0.04

0.04

Duty charges

0.26

0.00

Total Cost – Landed in US

1.81

1.81

Yarn landed Cost-17's Ring $/lb.

1.22

1.71

Yarn landed Cost-20's Ring.$/lb.

1.29

1.74

Knitted Golf/Placket Shirt

This garment example is sewn in the CBI, and uses 6 ounce, single knit, cotton jersey, and takes into account comparative costs under 3 different raw material sourcing possibilities:

  1. Non-U.S. knit fabric
  2. U.S knit fabric using U.S. yarn
  3. CBI knit fabric using U.S. yarn
 

Made-up

Made-up

Made-up

 

With

With

With

Golf-100% Cotton

Non-US Fabric

U.S.A. Yarn &

US Yarn

Placket knitted shirt

 

USA Fabric

CBI Fabric

6 oz single jersey, 16/1

 Sewn in CBI

Sewn in CBI 

Sewn in CBI 

Fabric Cost per yard (65in.)

1.83

2.10

2.04

Linear yards per garment

1.40

1.40

1.40

Fabric Cost

2.56

2.94

2.86

Trim Cost

1.33

1.33

1.33

Cut/Make Cost

1.25

1.25

1.25

Total Manufacturing Cost

5.14

5.52

5.44

Seconds

0.15

0.17

0.16

Profit %

12.00

12.00

12.00

Profit in US $

0.62

0.66

0.65

Shipping cost

0.13

0.13

0.13

Landed Cost

6.04

6.48

6.38

Duty rate ( 2001)

20.1

0

0

Duty charges

1.21

0.00

0.00

Total Cost

7.26

6.48

6.38

When comparing basic t-shirts or knitted golf shirts manufactured in the CBI vs. garment manufactured in Asia or the Indian Sub-Continent, the CBI manufactured product are still landed in the U.S. competitively. This is primarily because of the high raw material content and the relatively low labor content. Central America is and will likely remain the dominant supplier to the U.S. market in these categories. Other cotton dominant knit apparel products often enjoy a direct competitive advantage, providing there is not substantial complexity to the garment. The CBI is particularly adept at working with cotton/spandex fabrics for casual and active sportswear as well. Recent years have seen an influx of automated embroidery and screen printing capacity into the region, that has further served to cement to the region’s dominance as a knit supplier.

Basic Cotton Twill Trouser

This garment was made in the CBI in late fall 2001, using U.S. manufactured fabric made with U.S. yarn compared to a product manufactured in China and a product manufactured in Mexico under NAFTA.

The China-sourced garment lands in the U.S. at approximately $.04 cents less than the CBI made garment using U.S. fabric. At first glance this would seem the ideal option. However, given the 4 week lost lead time, 60 day capital cost requirement of paying against the letter of credit, the more sophisticated financially-attuned buyer should use the CBI-made product, in spite of fabric cost per yard that is 30% greater than China’s cost, higher trim and sewing costs. 

Woven Twill Trouser

Made-up

Made-up

Made-up

100% Cotton Ring/Open End

with

With

With

 

US Yarn

China Fabric

Mexico Yarn

 

And Fabric

 

And Fabric

2x1 Twill; 7.5 oz. Sq. yd.

Sewn CBIs

Sewn in China

Sewn in Mexico

Fabric Cost per yard (65in.)

2.64

2.01

2.55

Linear yards per garment

1.45

1.50

1.45

Fabric Cost

3.83

3.02

3.70

Trim Cost

1.20

1.07

1.18

Cut/Make Cost

2.59

2.12

2.85

Total Manufacturing Cost

7.62

6.21

7.73

Profit in US $

.88

.71

.90

Shipping cost

.12

.18

.12

Landed Cost Before Duty

8.62

7.10

8.75

Duty charges

0

1.48

0

Total Landed Buyer Cost

8.62

8.58

8.75

Conclusion

CBI sourcing has emerged as an attractive supplement to Asian sourcing, and increasingly, in view of the return on capital employed benefits and shorter lead time requirements. There is an increasing trend upon U.S. apparel importers to split specific, same style programs between a low cost Asian source and a nearby CBI source using the CBTPA duty benefits. This is driven by anticipated return on capital employed, potential for re-orders, later commitments for color assortments, and overall economic uncertainty. Recent surveys show that supply chain participants can and will pay 35% to 40% more for yarn or fabric requirements, for garments made in the CBI under the CBTPA benefit, to capture the bigger net savings opportunity.

As global trade legislation continue to unfold, eliminating barriers throughout the world, regional sourcing will become more predictable and in line with given textile capabilities as well as garment quality capabilities. Major developed markets such as the U.S. and Europe will always demand that a local/regional supply base be available, accounting for at least 20% of consumption. Successful apparel vendors and manufacturing suppliers servicing the U.S. market will be those who are positioned to produce and source globally, with a CBI option as well, to best service their import buyers’ needs.

When evaluating raw material sources for CBI operations as well as deciding which apparel programs should be manufactured in the CBI, apparel companies should look at the benefits of the CBTPA and the net cost of using U.S. manufactured cotton yarns and fabrics. There is a large, reliable supply of high quality cotton yarns and fabrics available in the United States. These products should be viewed as part of the total cost evaluation in order for apparel companies to maximize efficiencies for greater profits.

Antex Knitting Buhler Quality Yarns Corp.Cap Yarns, Inc.Carolina Cotton Works, Inc. - CCWCentral Textiles/Cotswold IndustriesContempora FabricsFrontier Spinning Mills, Inc.Hamrick Mills, Inc.Keer America CorporationMilliken & CompanyParkdaleSwisstex DirectZagis USA