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Out With the Old, in With the New: USMCA Replaces NAFTA

On July 1, the United States, Mexico, Canada Agreement (USMCA) became effective, replacing the North Atlantic Free Trade Agreement (NAFTA). Many of the changes will have little effect on many industries. However, one of the changes may be significant to the textile industry. To understand and comply with those provisions, businesses actively engaged in the textile industry that will be affected must seek the advice of an expert to interpret USMCA’s language. An example is found in Chapter 6 of USMCA entitled, “Textile and Apparel Goods” and Article 6.1, “Rules of Origin and Matters.”

The language begins: “Application of Chapters 4 (Rules of Origin) and 5 (Origin Procedures) apply to textile and apparel goods,” Followed by “De Minimis.” And then this rule quoted intact:

”A textile or apparel good classified in Chapters 50 through 60 or heading 96.19 of the Harmonized System that contains non-originating materials that do not satisfy the applicable change in tariff classification requirement specified in Annex 4-B (Product-Specific Rules of Origin) shall nonetheless be considered to be an originating good if the total weight of all those materials is not more than 10% of the total weight of the good, of which the total weight of elastomeric content may not exceed 7% of the total weight of the good, and the good meets all the other applicable requirements of this Chapter and Chapter 4 (Rules of Origin).”

If more is needed to understand the rule, one must refer to the International Trade Administration of the United States Department of Commerce comments on USMCA. Under the section entitled “Revised Rules Incentivize the Use of Regional Inputs,” we are advised that the new USMCA requirements to source sewing thread, narrow elastic fabrics, pocketing and coat fabrics from within North America will expand markets for U.S. producers of these inputs. There are many more rules and interpretations of the rules.

Now, if all of this is not completely clear to you, please do not feel overly concerned. You are not alone. Textile industry experts I have spoken to are also disillusioned and are seeking the advice of others in the industry who may have a greater understanding. However, being uninformed and proceeding with the procurement of fabric and manufacture of merchandise may present problems.

The International Trade Administration has advised that strong, new textile-specific enforcement procedures will help prevent circumvention and fraud. And I suppose that ignorance of the law will not be an excuse for non-compliance.

Suppose you are a retailer of women’s fashion merchandise and are purchasing fall collections from your favorite manufacturer. After traveling to New York to visit the showroom and several hours of reviewing the new merchandise, you place orders for your four retail stores. After all the orders are written up and you are given copies, you ask the showroom manager if all the merchandise you have ordered complies with the new USMCA rules enacted July 1. You receive a blank stare and tell him that you will need a written certification that all the merchandise and fabric from which it is made complies with the USMCA rules. Another blank stare. You then ask to speak to the president of the company who resides in Brooklyn. You speak with her by telephone. Although you cannot see her, you know she has no idea of what you are talking about when she asks you to send her a copy of the rules. What do you do? Confirm the orders and risk the chance of non-compliance? Or cancel the orders and start looking for new suppliers?

For many years, you purchased merchandise from this supplier and never asked if the goods conformed to the rules of NAFTA. Is anything different now? You decide to review the new rules again and discover this one:

“A textile or apparel good classified in Chapters 61 through 63 of the Harmonized System that contains non-originating fibers or yarns in the component of the good that determines the tariff classification of the good that do not satisfy the applicable change in tariff classification set out in Annex 4-B (Product-Specific Rules of Origin), shall nonetheless be considered to be an originating good if the total weight of all those fibers or yarns is not more than 10% of the total weight of that component, of which the total weight of elastomeric content may not exceed 7% of the total weight of the good, and the good meets all the other applicable requirements of this chapter and Chapter 4 (Rules of Origin).”

Now you are more confused than ever. You decide to take a chance and confirm the orders, go back to your hotel room, take two aspirin, and take a nap.

Benjamin S. Seigel, Esq. is of Counsel to the firm of G&B Law, LLP. He can be reached at bseigel@gblawllp.com.

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