MEMORANDUM
August 22, 2011
To:
Senate Finance Committee, International Trade, Customs, and Global Competitiveness
Subcommittee
Attention: Jayme R. White
From:
Vivian C. Jones, Specialist in International Trade and Finance
Subject:
Textile and Apparel Rules of Origin in Selected Free Trade Agreements
This memorandum is in response to your request for a description of the textile and apparel rules of origin
in the free trade agreements in which Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru,
Singapore, and Vietnam are trading partners. You indicated that you are especially interested in those free
trade agreements to which the United States is not a party. Please feel free to contact me if you require
further information.
Rules of Origin in Free Trade Agreements
Rules of origin (ROO) are “the specific provisions, developed from principles established by national
legislation or international agreements (“origin criteria”), applied by a country to determine the origin of
goods.”1 There are two types of ROO. First, Non-preferential ROO schemes are used to grant countries
Most-Favored-Nation (or MFN) treatment,2 country of origin marking, government procurement, and to
identify (and in some cases limit the quantity of) imports of textile and textile products. In the United
States, for example, these rules of origin follow a substantial transformation rule in which the country of
origin is the last place in which the imported good was substantially transformed into a new and distinct
article of commerce.3
Second, preferential ROO apply to special tariff programs such as the African Growth and Opportunity
Act (AGOA) or free trade agreements (FTAs).4 The primary objective of preferential ROO is to ensure
that only qualifying products of FTA partners receive the benefits of the FTA.5 A secondary goal is to
1
The Revised Kyoto Convention (1999). This convention was adopted by the World Customs Organization (WCO) to
standardize and harmonize customs policies and procedures around the world. The WCO adopted the original Convention in
1974. The revised version was adopted in June 1999.
2 All members of the World Trade Organization (WTO), must grant immediate and unconditional MFN treatment to the products
of other members with respect to tariffs and other trade-related measures.
3 U.S. Customs and Border Protection, Rules of Origin, Informed Compliance Publication, May 2004, http://www.cbp.gov/.
4 Ibid.
5 Edwin A. Vermulst, “Rules of Origin as Commercial Policy Instruments - Revisited” in Rules of Origin, eds; Edwin A.
Vermulst, Paul Waer, and Jacques H. J. Bourgeois (Ann Arbor: The University of Michigan Press, 1994), pp. 435-450.
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limit the impact of the FTA on any domestic industry sector that either FTA party regards as particularly
import sensitive.6 Thus, ROO are included in FTAs to make sure that transshipment and light processing,
such as simple assembly or repackaging, are not used by third-country suppliers to circumvent higher
duties.7
Determining the country of origin is fairly straightforward when a product is “wholly obtained” from one
FTA party and transferred directly into the territory of another.8 However, when a finished product’s
component parts and other inputs are manufactured in many countries, determining origin can be a
complex process.9 In order for products to receive the more favorable tariff treatment provided by an
FTA, importers must demonstrate that their products meet the ROO criteria.
There are three principal methods used when developing ROO: (1) a tariff-shift test; (2) a regional value
content test; and (3) a technical test. Most FTAs make use of a combination of these ROO methods. First,
the tariff shift method (also known as a “change in tariff heading” or CTH test) specifies that nonoriginating component or ingredients incorporated in a product must undergo a tariff shift from one
Harmonized Tariff Schedule (HTS) subheading to another.10 Preferential ROO in the North American
Free Trade Agreement (NAFTA), for example, make frequent use of the tariff-shift method.
Second, ROO in many FTAs use a regional value content (RVC) test to ensure that a certain percentage of
the value of a manufactured product (as determined by the cost of inputs, labor, and other direct costs of
processing operations) originate in the FTA region. When calculating RVC, specific equations are often
required to factor in the value of originating materials,11 the adjusted value of the product, the value of
non-originating materials,12as well as other costs, such as processing operations and shipping.
Third, a technical test (also known as critical process criterion) requires that certain production or
sourcing processes be performed that may (positive test) or may not (negative test) confer originating
status.13
Preferential ROO are individually negotiated along with other FTA commitments, and are tailored to meet
the needs of each trading partner in the agreement. However, since WTO countries have agreed to
international disciplines on rules of origin, all FTAs make use of similar methodologies.14 Therefore, it is
6
Ibid.
CRS Report RL34524, International Trade: Rules of Origin, by Vivian C. Jones and Michael F. Martin. Rules of origin in
FTAs may be general (apply to all goods claiming the benefits of the FTA) or specific (apply to particular products, such as
agricultural or textile and apparel goods).
8 Ibid.
9 Ibid. See also LaNassa, Joseph A. “Rules of Origin and the Uruguay Round’s Effectiveness in Harmonizing and Regulating
Them,” The American Journal of International Law, 90:4 (October 1996), pp. 625-640.
10 The Harmonized Tariff Schedule, the list of all tariffs charged in the United States, classifies all goods based on the
Harmonized Commodity Coding and Classification System (Harmonized System), established by the World Customs
Organization. The Harmonized System generally classifies goods by their level of processing, with raw materials in the early
chapters and highly processed goods in the later chapters. Individual chapters are organized in a similar manner.
11 “Originating materials” refer to inputs and processes performed in FTA parties that confer origin. This is different from the
concept of products that are “wholly obtained or produced,” which specifies that products such as plants and plant products, fish
and other marine life, or minerals and other natural resources are harvested in the territory of one of the parties.
12 “Non-originating materials” are materials, components, and processes that are manufactured or take place outside of an FTA
territory.
13 Edwin Vermulst, “Rules of Origin as a Commercial Policy Instruments?,” in Rules of Origin in International Trade: A
Comparative Study, ed. Edwin Vermulst, Paul Waer, Jacques Bourgeois, Ann Arbor: University of Michigan Press, 1994, p. 450.
14 World Trade Organization, Agreement on Rules of Origin, http://www.wto.org/english/docs_e/legal_e/22-roo.pdf.
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possible to use illustrative examples from U.S. FTAs because similar conventions exist in FTAs
internationally.
Characteristics of Textile and Apparel ROO
Internationally, the textile and apparel sector has traditionally been very import sensitive, especially when
goods are traded between industrialized and developing countries. This was illustrated by the General
Agreement on Tariffs and Trade (GATT) and subsequent World Trade Organization (WTO) disciplines.
First, under the GATT, multilateral trade in the sector was governed by the Multi-Fiber Arrangement
(MFA, expired in 1994) which established quotas limiting the amount of textile and apparel products that
could be imported into developed countries from developing countries. The MFA was followed by the
Agreement on Textiles and Clothing (ATC), under the WTO, which provided disciplines for the
elimination of these quotas by January 2005. 15
After the expiration of the ATC, countries negotiating bilateral or regional FTAs dealt with importsensitive tariff lines, such as textiles and apparel, by limiting FTA benefits through the implementation of
narrower preferential rules of origin. All of the methods described above have been used to craft textile
and apparel ROO. Other technical provisions may also serve to expand or limit the ability of products to
satisfy the ROO requirements.
Tariff Shift Test Methodology and “Yarn Forward”
Tariff shift methodology is favored by many, including U.S. customs officials, because they say
that it provides an objective method for determining exactly the type of substantial
transformation that must occur to determine its origin.16 U.S. Customs and Border Protection has
periodically proposed implementing a more uniform system of non-preferential ROO using the
tariff shift method in place of the substantial transformation rule currently used.17
The “yarn forward” principle, related to ROO for certain textile and apparel products, is a type of tariff
shift test that requires, through the use of a tariff shift, that textile and apparel products must originate in
one of the FTA countries from the yarn stage forward (fibers can come from anywhere) in order to qualify
for the benefits of an FTA. U.S. FTAs, beginning with the North American Free Trade Agreement
(NAFTA), make use of the yarn forward principle, among other things, to limit access to FTA benefits.18
In some cases, “fiber forward” (the fiber and all operations forward must originate in an FTA country),
and “fabric forward” (fabric is required to come from the parties, but that the fibers and yarns may come
from anywhere) rules also apply.19
World Trade Organization, “Textiles,” http://www.wto.org/english/tratop_e/texti_e/texti_e.htm.
U.S. Customs and Border Protection, How Do I Read Tariff Shift Rules? And Other Textile and Apparel Rules of Origin
Questions You Were Afraid to Ask, Seminar Presentation, October 2007,
http://www.cbp.gov/linkhandler/cgov/trade/trade_programs/textiles_and_quotas/fta_training/tariff_shift.ctt/tariff_shift.pdf
(Hereinafter, CBP Tariff Shift Presentation). For examples of tariff-shift ROO, see this presentation.
17 CBP’s last proposal was on July 25, 2008. See 73 Federal Register 43385.
18 U.S. International Trade Commission, U.S.-Peru Trade Promotion Agreement: Potential Economy-wide and Selected Sectoral
Effects, Investigation No. TA-2104-20, USITC Publication 3855, June 2006, pp. 2-7, http://www.usitc.gov/.
19 CBP Tariff Shift Presentation.
15
16
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The specific terms “fiber forward,” “yarn forward,” and “fabric forward” never actually appear in an
FTA. Instead, the tariff shift presented in the ROO indicates the amount of processing required
(substantial transformation) in an FTA country in order to confer originating status. Specific ROO for
certain products, including textiles and apparel, generally appear in an annex to the FTA, and list various
categories of goods by reference to their Harmonized Tariff Schedule (HTS) tariff lines (see Table 1,
Table 2 and the text box below)20 along with a description that provides the degree of shift needed for the
product to qualify for FTA benefits.21 In U.S. FTAs, the “fiber forward” principle generally applies to yarn
products and knit fabrics, while “yarn forward” applies to woven fabrics, apparel, and other made-up
articles.22
Table 1. Harmonized Tariff Schedule Chapters: Textiles and Apparel
Harmonized
Tariff Schedule
Chapter
Description
Chapter 50
Silk
Chapter 51
Wool, fine or coarse animal hair; horsehair yarn and woven fabric
Chapter 52
Cotton
Chapter 53
Other vegetable textile fibers; paper yarn and woven fabric of paper yarn
Chapter 54
Man-made filaments
Chapter 55
Man-made staple fibers
Chapter 56
Wadding, felt and nonwovens; special yarns, twine, cordage, ropes and cables and articles thereof
Chapter 57
Carpets and other textile floor coverings
Chapter 58
Special woven fabrics; tufted textile fabrics; lace, tapestries; trimmings; embroidery
Chapter 59
Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial
use
Chapter 60
Knitted or crocheted fabrics
Chapter 61
Articles of apparel and clothing accessories, knitted or crocheted
Chapter 62
Articles of apparel and clothing accessories, not knitted or crocheted
Chapter 63
Other made-up textile articles; sets; worn clothing and worn textile articles; rags
Source: United States International Trade Commission (USITC). http://www.usitc.gov/tata/hts/bychapter/index.htm.
20
The Harmonized Tariff Schedule (HTS) is a classification scheme used internationally to identify products and assign
applicable tariffs.
21 U.S. Congress, House Committee on Ways and Means, Overview and Compilation of U.S. Trade Statutes, Volume I,
committee print, 111th Cong., 2nd sess., December 2010, WCMP 111-6 (Washington: GPO, 2010), p. 187.
22 Op. cit.
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Table 2. Textiles and Apparel “Tariff Shift” Groupings
Textile Category
HTS Description
Harmonized Tariff Schedule
Grouping
Fiber
Silk
5001 – 5003
Fiber
Wool and Fine Animal Hair
5101 – 5105
Fiber
Cotton
5201 – 5203
Fiber
Vegetable Fibers, Paper Yarns, and Woven Paper
Fabric
5301 – 5305
Fiber
Man-made Staple Fibers
5501 – 5507
Yarn
Silk
5004 – 5006
Yarn
Wool and Fine Animal Hair
5106 – 5110
Yarn
Cotton
5204 – 5207
Yarn
Vegetable Fibers, Paper Yarns, and Woven Paper
Fabric
5306 – 5308
Yarn
Man-made Filaments
5401 – 5406
Yarn
Man-made Staple Fibers
5508 – 5511
Fabric
Silk (woven)
5007
Fabric
Wool and Fine Animal Hair (woven)
5111 – 5113
Fabric
Cotton (woven)
5208 – 5212
Fabric
Vegetable Fibers (woven) and Woven Paper Fabric
5309 – 5311
Fabric
Man-made Filaments (woven)
5407 – 5408
Fabric
Man-made Staple Fibers (woven)
5512 – 5516
Fabric
Felt and Non-wovens
5602 – 5603
Fabric
Specialty Fabrics
5801 – 5802
Fabric
Knit Fabrics
6001 – 6006
Source: Harmonized Tariff Schedule of the United States and U.S. Customs and Border Protection, How Do I Read
Tariff Shift Rules? And Other Textile and Apparel Rules of Origin Questions You Were Afraid to Ask, Seminar
Presentation, October 2007.
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Examples of Tariff Shift Rules of Origin
Fiber Forward

A change to heading 5101 through 5105 [wool fibers] from any other chapter.
o
Wool fiber must be produced in the territory of the trading partners. Because wool fibers are classified in
chapter 51, foreign fibers may not be used.
Yarn Forward

A change to heading 5801 through 5811 [special woven fabrics] from any other Chapter, except from
headings 5106 through 5113 [wool yarn and fabric], 5204 through 5212 [cotton yarn and fabric], 5308
[yarn of other vegetable fibers], or 5311 [woven fabrics of other vegetable textile fibers], Chapter 54
[man-made filaments and fabrics], or heading 5508 through 5516 [yarn and fabric of synthetic staple
fibers].
o
Yarn and fabric must be produced in the territory of the trading partners, but foreign fibers may be used.
Fabric Forward

A change to heading 5901[coated textile fabrics] from any other chapter, except from heading 5111
through 5113 [woven wool fabrics], 5208 through 5212 [woven cotton fabrics], 5307 through 5308
[woven fabrics of other vegetable yarns (coir yarn, paper yarn, etc], 5407 through 5408 [woven manmade fiber filament fabrics], or 5512 through 5516 [woven man-made staple fabrics].
o
Fabric must be produced in the territory of the trading partners, but foreign yarn and fibers may be used.
Source: Harmonized Tariff Schedule of the United States and U. S. Customs and Border Protection, “Textile and Apparel
Preference Rules.”
Technical Tests
A technical test requires that a certain procedure must be performed in one or more of the FTA partners.
For example, a technical test for processing of yarns and fabrics in the Japan – Malaysia agreement,
discussed below, specifies that dyeing and printing processes must be accompanied by two or more
additional operations, including antibacterial finish, compressive shrinkage, or waterproofing.23
Regional Value Content Requirements
A regional value content (RVC) test requires that a certain percentage of the value of a manufactured
product (as determined by the cost of inputs, labor and other direct costs of processing operations)
originate in the territory of one or both of the partners. When calculating RVC, specific equations are used
to determine the value of inputs originating within the FTA, the value of non-originating inputs, and other
costs, such as shipping. Of the agreements discussed below, the China - Peru, European Union - Chile,
and the Australia - New Zealand agreements use some type of RVC requirement for some fabric and
apparel goods.
FTA Selection and Examination
The countries you requested us to look at are those which are currently negotiating the Trans-Pacific
Partnership Agreement (TPP), in which the United States is also participating. We identified over twenty23
Agreement Between the Government of Japan and the Government of Malaysia for an Economic Partnership, Annex 2,
Product - Specific Rules, Section XI, December 2005, http://www.mofa.go.jp/region/asia-paci/malaysia/epa/index.html.
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five FTAs (excluding ASEAN agreements) to which one or more of the countries mentioned above are a
party.24 Providing an analysis of the textile and apparel provisions in each of these agreements is beyond
the capacity of CRS to provide in a timely manner. As you suggested, therefore, we are providing a
representative sample.
We selected FTAs, first, based on the level of total textile and apparel exports (HTS 50-63) in calendar
year 2010 of each of the prospective TPP partners listed above. Of these countries, Vietnam was the
largest exporter of textiles and apparel, with total world exports of $12.5 billion in 2010, followed by
Australia ($3.4 billion), Malaysia ($2.5 billion), Singapore ($1.8 billion), and Peru ($1.5 billion).25
Table 3. Leading Exporters of Textiles and Apparel, 2010
Trans-Pacific Partnership Negotiating Countries, HTS Chapters 50-63
Reporting Country
Value ($billions)
Vietnam
$12.5
Australia
$3.4
Malaysia
$2.5
Singapore
$1.8
Peru
$1.5
New Zealand
$0.9
Chile
$0.1
Source: Global Trade Atlas (GTIS).
Second, we chose representative FTAs that the TPP countries had negotiated with the world’s largest
textile and apparel exporters. China heads this list, with total exports of a total of $191.6 billion in textiles
and apparel products, followed by the combined EU countries ($138.2 billion), Hong Kong ($33.4
billion), India ($25.6 billion), and the United States ($21.3 billion).26
Table 4. Top 20 World Exporters of Textiles and Apparel, 2010
HTS Chapters 50 - 63
Reporting Country
Value ($ billions)
China
$191.6
European Union
$138.2
Hong Kong
$33.5
India
$25.6
Vietnam is negotiating several bilateral agreements, but has none in force at this time. Brunei Darussalam’s exports in the
textile and apparel sector are negligible.
25 Vietnam is currently negotiating bilateral FTAs with Chile and the European Union, but has none currently in force.
26 Export figures were compiled by CRS using the Global Trade Atlas (GTIS). European Union export figures included internal
trade ($138.2 billion) and exports to the rest of the world ($109.8). U.S. export figures for textiles and apparel can be misleading,
since much of the value reflects fabric and yarn sent to U.S. trading partners (i.e., in Latin America or the Caribbean) for further
processing and imported back into the United States for further finishing operations.
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Reporting Country
Value ($ billions)
United States
$21.3
Turkey
$20.5
South Korea
$12.2
Taiwan
$9.7
Indonesia
$9.1
Japan
$6.9
Thailand
$6.3
Mexico
$6.1
Poland
$4.9
Portugal
$4.7
Sri Lanka
$3.5
Australia
$3.4
Morocco
$3.2
Canada
$2.9
Egypt
$2.8
Switzerland
$2.7
Source: Global Trade Atlas (GTIS)
Third, we also took into account the level of development of each of the trading partner pairs so that
examples of developed country FTAs with developing countries were included, as well as those between
partners with a similar level of development.
On this basis, we selected the textile and apparel ROO from the following agreements for further analysis:

Agreement Between the Government of Japan and the Government of Malaysia for an Economic
Partnership (Japan-Malaysia Economic Partnership);

Comprehensive Cooperation Agreement Between the Republic of India and the Republic of
Singapore (India-Singapore CECA);

Agreement Establishing an Association Between the European Community and its Member
States, of the one Part, and the Republic of Chile, of the other Part (European Union-Chile FTA);

Free Trade Agreement Between the Government of the People’s Republic of China and the
Government of the Republic of Peru (China-Peru FTA); and

Australia–New Zealand Closer Economic Relations Trade Agreement (ANZCERTA).
Textile and Apparel ROO in Selected Agreements
Although the agreements below do not make comprehensive use of “yarn forward” rules in the same
manner that the United States employs in its agreements, they use other ROO methods to ensure that the
benefits of the agreement are restricted to qualifying products. Some of these methods include regional
value content restrictions, technical tests, or tariff shift requirements that are different from “yarn
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forward” provisions. In some cases, products that one or the other partner find to be particularly importsensitive are excluded from the benefits of the agreement entirely.
Japan-Malaysia Economic Partnership27
The Japan–Malaysia Economic Partnership entered into force in December 2005. Malaysia and Japan
eliminated most textile and apparel tariffs on the day that the agreement was implemented. A few manmade fiber yarns and fabrics were eliminated in 7 equal annual installments.
Cumulation
Another key ROO component not previously mentioned is “cumulation,” or the ability to use materials
from another FTA partner in order to satisfy the ROO requirements. Most FTAs, including the ones
examined here, allow bilateral cumulation between the trading partners. The Japan–Malaysia Economic
Partnership, however, uses a broader form of cumulation, because yarn, fabric and apparel may be spun,
dyed, printed, or otherwise improved, in other members of the Association of Southeast Asian Nations
(ASEAN) as well as in the territories of the two partners.
Specific ROO Provisions
All fiber must be produced in either Malaysia or Japan. With regard to yarn, in most cases, nonoriginating materials may be used, provided that each of the non-originating goods are carded, combed, or
otherwise processed in either country or in another ASEAN member country. Most fabrics require a tariff
shift, but non-originating materials may be used, provided that each of them is spun, dyed, or printed
entirely either country or in another ASEAN member country.
Fabrics may also originate, with no tariff shift, if they are dyed or printed, and the non-originating
material of that group is woven in either country or another ASEAN member country.
In most cases, apparel products may be made from non-originating yarns and fabrics if they are knitted,
woven, or crocheted in either country or another ASEAN member country.
Technical Test for Textiles and Textile Articles
For all textile and textile articles in HTS chapters 50-55 (silk, cotton, wool, other vegetable fibers, manmade filament and staple textile products) and 60 (impregnated, coated, or laminated textile fabrics), the
dyeing process must be accompanied by two or more additional operations, including: (1) antibacterial
finish; (2) anti-melt finish; (3) anti-mosquito finish; (4) anti-pilling finish; (4) antistatic finish; (6)
artificial creasing; (7) bleaching; or (8) brushing. A total of 48 operations are listed.
27
Ministry of Foreign Affairs of Japan, Agreement Between the Government of Japan and the Government of Malaysia for an
Economic Partnership , http://www.mofa.go.jp/region/asia-paci/malaysia/epa/index.html.
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India - Singapore CECA28
The India-Singapore CECA went into force in June 2005. Singapore eliminated customs duties on all
originating goods from India (including textiles and apparel) from the date of entry into force of the
CECA. India eliminated tariffs on most silk, cotton textiles, textile floor coverings, and other made-up
textile articles in five annual stages, which ended in 2009. Tariffs on many of its apparel tariff lines were
reduced by 50 percent (but not eliminated) in five stages, which also ended in 2009. Some apparel tariff
lines were excluded from any concession of duty, including t-shirts, sweaters, babies garments, track
suits, underwear (brassieres), and apparel accessories, (i.e., stockings and socks). MFN duty rates are
charged in for these products.
Specific ROO Provisions
There are no specific ROO in the CECA for textiles or apparel. Therefore, the general ROO applies. First,
products are deemed originating if they are wholly produced or obtained in the territory of the exporting
Party. Second, for products that are not wholly produced, foreign parts and materials may be used as long
as: (1) the amount of foreign content does not exceed 60 percent of the free-on-board (FOB)29 value of the
product; and (2) the finished product's tariff classification (at the 4-digit HTS level) is different from the
classification of the non-originating materials used to produce it.
European Union-Chile FTA30
The European Union-Chile FTA entered into force in February 2003. Chile and the European Union
eliminated most textile and apparel tariffs upon the entry into force of the agreement. The European
Union excepted some yarns made of manmade staple fibers, which were eliminated in three equal annual
stages.
Specific ROO Provisions:
All non-originating textile materials must undergo sufficient processing operations to meet the specific
ROO requirements for the HTS classification of the finished product. All fiber must be produced in the
EU or Chile in order to receive preferential treatment.
Yarn must be manufactured in the territory of either or both trading partners from (1) raw silk or silk
waste, carded or combed or otherwise prepared for spinning; (2) natural fibers, not carded or combed or
otherwise prepared for spinning; or (3) man-made fibers: manufactured from chemical materials, textile
pulp, or paper-making materials.
Knitted or crocheted fabrics must be manufactured in the territory of either or both trading partners from a
single yarn or a mixture of fibers (coir yarn, natural fibers, chemical materials or textile pulp). Woven
28
Government of India, Ministry of Commerce and Industry, Department of Commerce, Comprehensive Cooperation Agreement
Between the Republic of India and the Republic of Singapore, http://commerce.nic.in/ceca/toc.htm.
29 Free-on-board value is the value of the product, minus the cost of shipping and insurance.
30 Organization of American States, Foreign Trade Information System, Agreement Establishing an Association Between the
European Community and its Member States, of the one part, and the Republic of Chile, of the Other Part,
http://www.sice.oas.org/Trade/chieu_e/cheuin_e.asp. Specific ROO appear in Annex III, “Definitions of the Concept of
Originating Products and Methods of Administrative Cooperation.”
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fabrics must be manufactured from a single yarn or a mixture of fibers (coir yarn, natural fibers, chemical
materials or textile pulp, or paper-making materials). Non-originating woven fabrics may also qualify for
preferential tariff benefits if they are printed in either the EU or Chile (or both) accompanied by at least
two preparatory or finishing operations (including scouring, bleaching, or mercerizing). The value of the
non-originating unprinted fabric may not exceed 47.5 percent of the ex-works price31 of the product. Manmade fabrics must undergo similar processing operations to qualify, except that non-originating inputs
must not exceed a percentage of value as specified in each tariff line.
Most apparel is yarn forward. However, some woven apparel products may also be made from nonoriginating unembroidered or uncoated fabric (e.g., handkerchiefs or fire-resistant equipment or fabric) if
the value of the non-originating fabric does not exceed 40 percent of the ex-works price of the finished
product.
De Minimis Rule for Mixed Yarns and Other Textile Products
A de minimis rule specifies that a small amount of non-originating content may be included in a product,
up to a certain limit. There are two de minimis rules in the European Union – Chile FTA that apply to
textiles. First, in mixed yarns, non-originating textile materials that do not otherwise meet the ROO
requirements may be used if their value does not exceed 10-20 percent of the weight of the yarn,
depending on the tariff classification of the finished product. Second, in other textile products, nonoriginating materials may be used (other than linings and interlinings), provided that they are classified in
a tariff heading other than that of the product, and that their value does not exceed eight percent of the exworks price of the finished product.
China-Peru FTA32
The China-Peru FTA entered into force in June 2006.Many of Peru’s textile and apparel products are: (1)
exempt from tariff elimination; (2) will be eliminated over a 10 year period; or (3) a preferential tariff rate
(other than zero) will be provided. China eliminated tariffs on fiber, yarn and fabric immediately upon the
entry into force of the agreement. Tariffs on China’s apparel and other made-up goods will be reduced to
zero over a five or ten-year period, depending on the tariff line of the finished product.
Specific ROO Provisions
Fiber must be produced in Peru or China in order to receive preferential tariff benefits. Yarn requires a
tariff shift, as well as a regional value content of not less than 50 percent.33 One exception is silk yarn,
which requires a tariff shift only.
In general, fabric also requires a tariff shift, as well as a regional value content of not less than 45- 50
percent, depending on the tariff classification of the finished product.
31
The ex-works price is the value of the product at the factory.
Organization of American States, Foreign Trade Information System, Free Trade Agreement Between the Government of the
People’s Republic of China and the Government of the Republic of Peru,
http://www.sice.oas.org/TPD/PER_CHN/Texts_28042009_e/index_e.asp .
33 Regional value content is calculated on the basis of the FOB price of the good, subtracted from the value of non-originating
materials, then divided by the FOB price of the good. The result is expressed as a percentage.
32
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Most apparel products require no tariff shift, as long as a regional value content requirement of not less
than 50 percent is met.
ANZCERTA34
The agreement between Australia and New Zealand entered into force in January 1983. All goods that
were duty-free on an MFN basis remained duty-free on date the agreement entered into force, and tariffs
of up to 5 percent were also eliminated. Tariffs from 5 up to 30 percent were reduced by 5 percent at that
time, and subsequently reduced annually by five percent. Tariffs of more than 30 percent were eliminated
over a five-year period.
Specific ROO Provisions
According to amended ROO that went into effect on January 2007, 35 all fiber must be produced in
Australia or New Zealand to qualify for tariff benefits. Most yarns require a tariff shift and a regional
value content of not less than 45 percent.36 Fabric also requires a tariff shift, and a regional value content
of not less than 45 percent.
Apparel products also require a tariff shift, and all apparel products must be cut (or knit to shape)
and sewn (or otherwise assembled) in the territory of one or both countries. For certain apparel
products, such as men’s and boy’s suits, a regional value content ranging from 45-50 percent,37
depending on the tariff line, is also required.
Australian Government, Department of Foreign Affairs and Trade, Australia – New Zealand Closer Economic Relations Trade
Agreement, http://www.dfat.gov.au/fta/anzcerta/index.html.
35 Specific rules of origin, as amended, appear in Government of Australia, Customs (New Zealand Rules of Origin) Regulations
2006, Select Legislative Instrument 2006, No. 374, http://www.comlaw.gov.au/Details/F2006L04069.
36The regional value content requirement for yarn and fabric is based on the build-down method, in which the customs value of
the finished product is subtracted from the value of all non-originating materials, and divided by the customs value. The result is
expressed as a percentage.
37 Regional value content for apparel is calculated using a factory cost method which is a factor of all qualifying expenditures of
goods (i.e., all labor, materials, factory overhead in New Zealand), and the total factory cost of the product (all labor, materials,
factory overheads, and inner containers).
34