Exporters of apparel to the United States find themselves
doing business in a world divided into countries which enjoy
duty preferences and those which do not. This division is
a result of duty preference programs granted by the United
States to countries or groups of countries, often under
a Free Trade Agreement. Take as an example the Free Trade
Agreement which was recently negotiated between the United
States and Singapore, and which is expected to be enacted
later this year ("Singapore FTA").
When it comes to the apparel-related provisions of the
Singapore FTA, "free trade" is a misnomer. An
accurate description would be "freer trade" because
the Singapore FTA only opens the door a bit wider insofar
as imports of Singapore-origin apparel into the United States
are concerned.
The most noteworthy provision under the Singapore FTA would
allow for Tariff Preference Levels (also known as Tariff
Quota Levels) for apparel produced in Singapore from non-originating
fabric or yarn and, i.e., fabric or yarn that is not the
origin of either the United States or Singapore.
Tariff Preference Levels ("TPLs") do not operate
like quotas do. The United States will grant a certain amount
of TPLs to the country or region concerned. This amount
is most often expressed in square meter equivalents (SMEs).
Qualifying imports that enter within the TPLs do so at a
preferential duty rate. Once the TPLs are exhausted, any
imports from the country concerned are not embargoed (as
would be the case where quotas are exhausted) but instead
enter at normal duty rates unless another a lower rate of
duty was available under another duty-preference provision.
In the case of the Singapore FTA, the United States has
granted Singapore a TPL of 25,000,000 SMEs for cotton and
man-made fiber apparel. However, the TPL expires after 8
years, and is reduced by some 3 million SMEs each year for
years 2-8. Further, zero duty is not available until year
5 for apparel covered by the TPL. The duty rate in year
1 is 80% of the normal NTR rate, reducing by 20% each year
until it reaches 0% in year 5. Thus, by the time the duty
rate hits 0%, the level of TPLs has already been reduced
by some 50% from the original level of 25,000,000 SMEs.
While any TPL is better than no TPL, the TPL under the
Singapore FTA is not as generous as what had been hoped
for. This underscores the need to examine the fine print
concerning TPLs in future Free Trade Agreements that the
United States plans to negotiate with the Caribbean Basin
(to replace CBTPA) and other jurisdictions. You should ask
the following questions:
Does the TPL allow for non-originating fabric or yarn or
is there a requirement that the fabric or yarn be the origin
of the United States or the preference country or countries?
Does the TPL cover all categories of apparel or only certain
categories of apparel?
What processing must be done in the preference country
or countries in order that apparel can qualify for the TPL,
for example, cutting, assembly and finishing in the case
of cut-and-sewn garments or something less?
Does the TPL have a limited life, and, if so. does the
TPL level reduce each year until it is zero or does the
level remain the same each year?
Does apparel shipped under the TPL enjoy zero duty from
the first year of the TPL or are the duty reductions phased
in over the life of the TPL?
