The recently negotiated Free Trade Agreement between the US and 4 Central American countries has been finished first on a very general basis, and then redefined with all details agreed between the negotiators. There is still more work to be done refining and creating facilitating mechanisms, and adjusting the processes. We also have to keep in mind that CAFTA has been negotiated, but not approved by the legislative branches of the US and CA governments, so there's a lobbying effort CA countries have to undertake. but the general framework has been agreed and has some very predictable consequences on any of the directly and indirectly affected economies.
The present document intends to brief you the overall achievements of the agreement referring to the textile and apparel industry, and to present you the insight into the opportunities this may mean for companies established, or planning to be established in Nicaragua.
1. Duty Free Access: the duty free access will be provided for all the goods that:
* Fulfil the rules of origin
* Are fully produced in the region
* Are eligible for any exception from the rule of origin
Duty free access is to be available immediately after CAFTA has been agreed, meaning on January 1st, 2004. Any benefits before CAFTA's formal approval by the US Congress and respective Assemblies of CA partners, will be retroactive
2. Rules of Origin: The rules of origin determine the terms on which the good is acceptable for the duty free access interchange between the FTA partners.
For apparel:
- Most of fabrics used as visible lining material in certain suits, suit-type jackets, skirts, overcoats, carcoats, anoraks, and similar articles must be both from yarn and finished in the territory of a Party.
- Rule of Origin applicable to an article must only apply to the component that determines the tariff classification of the good.
- Woven and knitted fabrics containing by weight 5% or more of elastomeric yarn or rubber thread must be wholly formed in the territory of the region.
- Sewing thread must be completely formed on the territory of the region.
The general Rule of Origin is "Yarn Forward" meaning, the country where yarn is produced will determine the origin of the fabric and of the good consequently. So, as soon as the yarn is produced inside the CA-US region, the good will qualify for duty free access. But regardless the general rule of origin, some fabrics and yarns have their specific rule.
4. Short Supply: click here to see the complete list.
3. De Minimis: The percentage of foreign content in apparel good is allowed to be up to 10% without affecting the fabrics origin. Meaning that any fabric may contain up to 10% of any foreign component and the fabric will still be considered "original".
4. Single Transformation: The single transformation rule is equivalent to the "cut forward" rule of origin, stating that in order to be considered an "original", the good must be assembled in the region (no matter where the fabric's from). The single transformation rule has been granted for the following goods:
a. Bras
b. Textile luggage and umbrella fabric
5. Boxers and Pijamas: all the fabrics used in this product can be sourced anywhere in the world (covered by Short Supply List).
6. Cumulation: Cumulation with NAFTA countries: Inputs from Canada or Mexico may be used without disqualifying any not knitted or crocheted garment, subject to the following limits and conditionality:
Annual "soft" cap of 100 million SMEs divided into:
a. 1 million SME for wool apparel
b. 20 million SME for denim skirts and pants
c. 45 million SME for cotton/MMF (excluding denim bottoms described above) trousers and skirts.
During second and subsequent years, soft cap may grow to "hard" cap of 200 million SME based on 1:1 growth linked to originating (US and Central American) goods
7. Special Regime: An alternate rule of origin permits reduced duty free entry (under Special Regime type rules that forbid use of foreign pocketing and linings) for apparel articles Ch. 61 through 63. U.S. fabric forward rule applies to all textile components in the garment. U.S. dyeing and finishing required. U.S. sewing thread required. U.S. or regional cutting permitted. Duty paid only on foreign value added.
8. TPLs: Nicaragua TPL on all fabrics (except wool) providing duty and quota free treatment at 100 million SMEs for each of the first five years, then phasing to zero over the following five years.
1. No sublimits.
2. Limit of 100 million SME for first five years.
3. Limit of 80 million SME for year 6
4. Limit of 60 million SME for year 7.
5. Limit of 40 million SME for year 8.
6. Limit of 20 million SME for year 9.
