Rules of Origin
The NAFTA provisions on trade in textiles and apparel are particularly detailed. The Annex 401 origin criteria aim to ensure that most of the production relating to textiles and apparel occurs in North America.
The basic origin rule for textile and apparel articles is "yarn-forward." This means that the yarn used to form the fabric (which may later be used to produce wearing apparel or other textile articles) must originate in a NAFTA country. Thus, a wool shirt made in Canada from fabric woven in Canada of wool yarn produced in Argentina would not be considered originating since the yarn does not originate within a NAFTA country. If, however, Argentine wool fiber was imported into Canada and spun into wool yarn, which was then used to produce the wool fabric, the shirt would be considered originating.
Less demanding rules of origin govern certain knitted underwear, brassieres, and shirts made from fabric in short supply in North America, and textile and apparel made from fabric not commonly produced in North America. For example, silk and linen apparel follow a single-transformation instead of a "yarn-forward" rule. Thus, silk blouses are considered originating even if made from non-originating fabric, provided the fabric is cut and sewn in one or more NAFTA countries. These exceptions give producers flexibility to import materials not widely produced in North America.
Yarn must be made in NAFTA region and subsequent processing must occur in NAFTA region.
On the other hand, stricter rules of origin exist for certain textile and apparel articles made of fibers that are produced in abundance in Canada, Mexico and the United States. For example, cotton yarn and cotton knitted fabrics follow a fiber-forward rule for goods traded between the three countries while man-made fiber sweaters follow a "fiber-forward" rule as to trade between the United States and Mexico.
Fiber must be made in NAFTA region and subsequent processing must occur in NAFTA region.
Tariff Preference Levels
To allow flexibility, textile and apparel exports will have access to tariff preference levels (TPLs). This means that specified quantities of yarns, fabrics, and made-up textile goods and apparel goods that do not meet the Article 401 origin criteria, but which are subject to significant processing in one or more NAFTA countries, can still be eligible for preferential NAFTA rates. Amounts of these goods exceeding the tariff preference level will be subject to most-favored-nation (MFN) rates of duty.
The United States and Canada will continue to apply the rates of duty negotiated in the Canada-United States Free Trade Agreement as to trade between them.
With respect to trade between Mexico and Canada, tariffs for most textile articles will be phased-out over a period of eight years; for apparel, the adjustment period is ten years.
With respect to trade between Mexico and the United States, tariffs for many textile and apparel articles will be completely eliminated upon entry into force of the Agreement (tariff staging category A). Others will be eliminated over a six-year period, and all tariffs on textile and apparel articles will be eliminated within ten years. Moreover, Appendix 2.1 to Annex 300-B provides that duties for articles in the B6 (six-year) and C (ten-year) tariff phaseout categories shall at no time exceed 20 percent ad valorem. Although this maximum rate of 20 percent applies until the stipulated rate reductions result in an ad valorem rate that is 20 percent or less, it does not serve as the base for subsequent rate reductions.
|Calculated||Base rate (percent)||Reduced rate (percent)||Effective rate (percent)|
Note that the calculated reduced rate column shows the rate that would apply for a six-year phaseout under the B6 staging schedule. However, since the phaseout rate cannot exceed 20 percent, the effective rate in 1994 is different, as shown in the effective rate column. Also, the effective rate for 1994 (20%) does not serve as the base rate for the subsequent tariff reductions. The calculated reduced rate for 1994 becomes the base rate for calculating subsequent reductions.
Quantitative Restraints (Quotas)
Upon entry into force of the Agreement, all prohibitions, restrictions, and consultation levels on imports and exports will be eliminated for originating textile and apparel articles. Thus, all import quotas for originating textile articles will be eliminated immediately. The United States will maintain import quotas for non-originating goods from Mexico in 14 categories; ten of them will be eliminated on the first day of the eighth phaseout year, and the last four categories on the first day of the tenth year.
The "Special Regime" provided bilateral access to the U.S. market for certain apparel articles assembled in Mexico of fabric formed and cut in the United States. This agreement was embodied in the U.S. tariff under HTS 9802.00.8010. Similar liberal access was also given to articles which were assembled in Mexico from fabric formed and cut in the United States, and which were then acidwashed, bleached, dyed or permapressed. Under the NAFTA, the United States eliminated all duties and quotas applied to both these categories of goods. These goods are now classifiable under a new tariff number, HTS 9802.00.90, that provides for:
Textile and apparel goods, assembled in Mexico in whole of fabrics wholly formed and cut in the United States, which (a) were exported in condition ready for assembly without further fabrication, (b) have not lost their physical identity in such articles by change in form, shape or otherwise, and (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process, provided that goods classifiable in chapters 61, 62 or 63 may have been subject to bleaching, garment dyeing, stone-washing, acid-washing or perma-pressing after assembly as provided herein.
This new tariff classification covers all textile and apparel goods that meet this description (e.g., handbags and hats), not just those categories that were covered by the Special Regime.
For textile goods classified in Chapters 50 through 63 of the Harmonized System, the de minimis amount is seven percent by weight (instead of value) of the component of the good that determines its tariff classification.