U.S.-Colombia Trade Promotion Agreement

The United States and Colombia concluded negotiations for the U.S.-Colombia Trade Promotion Agreement (TPA) in February 2006, and the U.S. President signed the agreement in November 2006.  In June 2007, Colombia and the United States concluded a further agreement that modified the TPA’s treatment of issues such as labor standards, investment, environmental protection, and intellectual property rights.  The TPA is not yet in force and requires U.S. congressional approval before it can be implemented.  There is opposition to the agreement in Congress, however, because of concerns about violence against union leaders in Colombia. 

Unlike the U.S.-Dominican Republic-Central America Free Trade Agreement (CAFTA), the TPA’s textile and apparel provisions are not retroactive; they will become effective only as of the implementation date of the TPA.  In the interim, the U.S. Congress passed and the President signed legislation in February 2008 to extend the benefits under the Andean Trade Promotion and Drug Eradication Act (ATPDEA) until December 31, 2008. 

Once implemented, the TPA will grant immediate duty-free treatment to all originating goods, including textiles and apparel.  The ATPDEA has provided duty-free entry into the United States for many textile and apparel articles from Colombia, but the TPA covers a wider range of products and provides for duty-free importation of U.S. goods, including yarns and fabrics, into Colombia.  Moreover, the TPA will remain in effect indefinitely unless one of the parties withdraws.  The ATPDEA will expire on December 31, 2008, unless it is extended. 

Rules of Origin 

While the ATPDEA offers duty-free treatment only for apparel articles and luggage made with U.S. yarn and fabric, or with regional yarn and fabric up to certain caps, the TPA covers all articles and permits unlimited use of U.S. or Colombian inputs.  Like most other U.S. free trade agreements, the TPA treats as originating articles that are wholly obtained or produced entirely in the United States and/or Colombia, as well as articles for which non-originating inputs meet specific tariff shift rules.   

Subject to additional rules applicable to certain components, discussed below, the tariff shift rules for most apparel articles are yarn forward, meaning that only staple fiber may be non-originating.  Thus, the fabric must be woven or knit to shape in Colombia or the United States with yarn spun or extruded in Colombia or the United States, and the garment must be cut and sewn, or assembled, in Colombia or the United States.  Unlike the ATPDEA, which applies origin rules to all components of a garment other than “findings and trimmings,” the tariff shift rules under the TPA apply only to the component of a garment that determines its classification.  And while the ATPDEA requires that dyeing, printing, and finishing occur in the United States, the TPA permits these operations to occur in the United States or Colombia. 

Short Supply 

The TPA also provides for duty-free treatment of non-originating textiles and apparel that are composed of fibers, yarns, or fabrics that are not available in commercial quantities in the United States or Colombia.  At the time of the TPA’s negotiation, the short supply list included only 18 fabrics and yarns.  Any additions to the short supply lists for the ATPDEA, the Caribbean Basin Trade Partnership Act (CBTPA), or the African Growth and Opportunity Act (AGOA) prior to the implementation date of the TPA will also become part of the TPA’s short supply list.  Additions to the short supply lists for CAFTA or for the North American Free Trade Agreement (NAFTA) will not be incorporated into the TPA’s short supply list.   

The TPA also provides for additions to the short supply list after the implementation of the agreement if the United States determines that a fiber, fabric, or yarn is commercially unavailable.  Under the TPA, the United States must make short supply determinations on a much shorter timeline than the timeline under the ATPDEA.  The TPA also permits the addition of items to the short supply list in restricted quantities and permits removal of items from the short supply list if the United States determines that the items are no longer unavailable.  Updated information about short supply, including the short supply list, will be available after the TPA is implemented at http://www.otexa.ita.doc.gov. 

Additional Requirements for Originating Articles 

Although the TPA’s origin rules are in some respects more lenient than those in the ATPDEA, the TPA also contains an additional requirement for sewing thread, and, despite the general rule under the TPA that only the component that determines classification must meet the applicable origin rule, the TPA also includes rules for pocketing, narrow elastic fabrics, and visible linings that reinstate the yarn forward rules for these components.  

First, sewing thread in apparel or other textile articles must be both formed and finished in one or more of the TPA parties.  This rule, however, specifies particular sewing thread classifications in the Harmonized Tariff System (HTS).  Because only multiple, folded, or cabled yarns may be classified as sewing thread under the HTS, single yarn sewing thread is not subject to the origin rule in the TPA.  Furthermore, garments that qualify for duty-free treatment under the short supply rules are not subject to the sewing thread rule. 

Second, the pocket bag fabric of any good of Chapter 61 or 62 that contains pockets must be formed and finished in one or more of the TPA parties from yarn wholly formed in one or more of the TPA parties.  Short supply fabrics and yarns, although not formed and finished in the United States or Colombia, may also be used for pocketing.  Garments that qualify for duty-free treatment under the short supply rules are not subject to the pocketing rules.  

Third, apparel articles that contain narrow elastic fabrics will be originating only if the narrow elastic fabrics are both formed from yarn and finished in one or more of the TPA countries.  But garments that qualify for duty-free treatment under the short supply rules are not subject to the restriction on the origin of narrow elastic fabrics. 

Fourth, the visible lining fabric in suits, suit jackets, skirts, overcoats, carcoats, anoraks, windbreakers, and similar articles must be both formed from yarn and finished in one or more TPA countries.  Alternatively, short supply fabrics or yarns may be used to produce visible lining fabrics.  Garments that qualify for duty-free treatment under the short supply provisions are not subject to the visible lining rules. 

Single Transformation Rules 

The TPA includes a rule like CAFTA’s that grants duty-free treatment to brassieres that are cut and sewn in the United States or Colombia from foreign fabric.  The unrestricted single transformation rule under the TPA is therefore simpler than ATPDEA’s brassier rule, which also incorporated a complicated rule under which 75 percent of the value of fabric used by any producer in the previous year’s production had to be formed in the United States. 

The TPA does not include several additional single transformation rules that are incorporated into CAFTA, such as single transformation rules for certain woven boxer shorts, woven pajamas, woven negligees, and girls’ dresses.  Additionally, CAFTA grants duty-free treatment to certain wool garments made in CAFTA countries with foreign yarn and a 50 percent duty reduction to certain wool garments cut and sewn in Costa Rica, regardless of the origin of the wool fabric.  And CAFTA includes a tariff preference level (TPL) for certain garments cut or knit to shape and sewn or otherwise assembled from foreign fabric or yarn in Nicaragua.  Under the TPA, there are no TPLs, and all of these articles remain subject to yarn forward origin rules.   

De Minimis Fibers and Yarns 

An article is still originating under the TPA despite the presence of fibers or yarns in the component that determines the article’s classification that do not meet the applicable tariff shirt rule, if these fibers or yarns account for 10 percent or less of the total weight of all the fibers or yarns in the component that determines classification of the article.  The exception to this rule is that a good containing any elastomeric yarns in the component of the good that determines its classification is not originating unless the elastomeric yarns are wholly formed in the United States or Colombia. 

Nylon Filament Yarn 

Also, an article is still originating under the TPA despite the presence of yarns in the component that determines the article’s classification that do not meet the applicable tariff shirt rule, if these yarns are certain nylon filament yarns produced in Canada, Mexico, or Israel.  The ATPDEA contains a similar provision. 

Cumulation 

Unlike CAFTA, which includes cumulation provisions that treat certain Mexican and Canadian inputs as if they were produced in CAFTA countries, the TPA does not provide for cumulation of fabrics or yarns from any other countries, including the other Andean countries.  Therefore, although the United States has also concluded a free trade agreement with Peru, even after both agreements are implemented, Peruvian yarns will not be permitted for use in producing originating garments in Colombia, and most fibers and yarns from Ecuador and Bolovia will disqualify garments from benefits under the TPA as well.   

The TPA does require the United States and Colombia to hold discussions within 6 months of the TPA’s implementation to determine whether to permit cumulation of materials from other countries in the region.  Because negotiations with Peru also concluded successfully, while attempts to negotiate with Ecuador and Bolivia have failed, it is possible that the United States and Colombia might agree to cumulation provisions involving Peru.  In contrast, it is unlikely that the United States will permit cumulation with articles produced in Ecuador or Bolivia.  In fact, unless the ATPDEA is renewed, yarns, fabrics, and apparel from Ecuador and Bolovia will lose all preferential trade benefits. 

Treatment of Sets 

Sets, which generally consist of two or more articles that go together and are packaged and marketed together, like a blouse with a matching scarf, are only originating under the TPA if each good in the set is an originating good, or if the value of the non-originating components is not more than ten percent of the value of the set. 

Safeguards 

The TPA provides for safeguard measures to remove preferential duty benefits if textile or apparel imports increase to a level that causes or threatens to cause “serious damage” to domestic industry.  Safeguards may not last more than two years (with an option for a one-year extension) or past the end of the “transition period,” which is defined as five years after the entry into force of the agreement.  Safeguards must be accompanied by concessions.