U.S.-Korea Free Trade Agreement: Potential Economy-wide ... - USITC

FTA Chapter 4—Textiles and Apparel
Chapter 4 of the FTA sets out the rules of origin and other provisions specifically applicable
to textiles and apparel. 3 Tariff staging for textiles and apparel is included in FTA chapter 2,
which would eliminate tariffs on textiles and apparel that meet the FTA rules of origin
(“originating goods”) either immediately or within 10 years.
FTA chapter 4 includes authority to apply temporary bilateral textile safeguard measures,
under which either party may suspend further duty reductions or reinstate MFN tariffs if
imports from the other party that receives FTA benefits are being imported in such increased
quantities as to cause serious damage or actual threat of serious damage to the domestic
industry (Article 4.1). In addition, it sets out the general legal principles on origin, including
a consultation provision for the parties to consider whether to revise the rules of origin to
address availability of fibers, yarns, or fabrics; transitional procedures for goods containing
fibers, yarns, and fabrics not available in commercial quantities; a de minimis foreign content
rule; 4 and rules for the treatment of textile and apparel sets (Article 4.2).
FTA chapter 4 also includes detailed customs enforcement and cooperation provisions to
ensure accuracy of the claims of origin, to prevent circumvention of the agreement, and to
enforce measures affecting trade in textiles and apparel (Article 4.3). It would require that
Korea obtain and maintain detailed information on all entities engaged in the production of
textiles and apparel in Korea. The FTA authorizes U.S. and Korean customs authorities to
conduct unannounced site visits to producers in the FTA region where the importing party
has a reasonable suspicion that a person of the exporting party is engaging in unlawful
activity relating to trade in textiles or apparel. The FTA authorizes the parties to undertake
a variety of enforcement actions, up to and including denying preferential tariff treatment for
suspect goods.
Annex 4-A sets out the rules of origin for textiles and apparel similar to recent U.S. FTAs,
which are based on changes in tariff classification from third-country inputs to goods
processed or made in one or both FTA parties. The U.S.-Korea FTA applies a “yarnforward”
rule of origin to most textile and apparel articles, including most woven fabrics,
carpets, and home textiles, whereby imports of such goods from the FTA party must be made
from inputs produced in the FTA region from the yarn stage forward to qualify for tariff
preferences. For example, for a garment to qualify for FTA preferences under a yarn-forward
rule, the production of the yarn and fabric used in the garment, as well as cutting and sewing,
must occur in the FTA region.
The yarn-forward rule of origin generally applies only to the component that determines the
tariff classification of the garment (i.e., the component that gives the garment its “essential
character”), rather than to all fabric components of the garment. For example, a garment
subject to the yarn-forward rule is eligible for FTA preferences if the component that
3 FTA chapter 4 includes all textiles and apparel listed in the annex of the Agreement on Textiles and
Clothing, which is contained in Annex 1A to the WTO Agreement. The products include, but are not limited
to, textile and apparel articles in HS chapters 50–63 except raw cotton, wool, and certain other textile fibers;
textile travel goods (e.g., luggage) in HS heading 4202; glass fibers, yarns, and fabrics in HS heading 7019;
and comforters in HS subheading 9404.90.
4 Under the de minimis foreign-content rule for textiles and apparel, up to 7 percent of the total weight of
a good can consist of fibers or yarns that do not change tariff provisions in the prescribed way and are used
in the component that determines the tariff classification of the good.
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