The AGOA, which was signed into law last year by President Clinton, provides tremendous opportunities for Hong Kong firms involved in the export of textiles and apparel to the United States. The AGOA grants duty-free treatment for apparel that is wholly assembled in some 35 Sub-Saharan countries (SSAs) from fabric formed in the SSA from SSA yarn. Further, the AGOA removed all quotas that were in place from any SSA.

The preferential treatment is available up to a cap of 1.5% of overall US imports of textiles and apparel, growing to 3.5% of such overall imports over an 8-year period. This cap, often referred to as a "tariff-rate quota", has no dollar ceiling but is expressed in square meter equivalents (SMEs) of fabric. The first year cap, applicable for the period beginning October 1, 2000 is 246,500,393 SMEs. This is nearly twice the volume of apparel imported into the US from the 34 SSAs in calendar year 1999.

If goods enter the US after the cap has been exhausted (note that the cap will apparently be applied on a first-come, first-serve basis so it therefore pays to ship as early in the year as possible), duty will need to be paid on the goods at the applicable NTR (MFN) rates but no quota will apply. However, the AGOA does allow the US to impose anti-surge mechanisms if increased imports from an SSA are causing or threatening serious damage to the US apparel industry. In that case, duty-free treatment would be suspended for the products in question.

Hong Kong firms should note that 28 of the SSAs, including Madagascar and Kenya but excluding Mauritius, enjoy a terrific advantage under the AGOA. The AGOA has designated these 28 SSAs as lesser beneficiary developed countries (LBDCs). An LBDC enjoys the preferential treatment described above (no duty , subject to the cap) through September 30, 2004 REGARDLESS of the origin of the fabric. Therefore, goods can be wholly assembled in an LBDC from fabric of, say, Korean origin, and enter the US duty-free (and quota-free) subject to the cap. Note that the goods have to be wholly assembled in the LBDC. This apparently precludes subassembly outside the LBDC but should not preclude an arrangement where, for example, fabric was formed and cut in China and then sent to an LBDC for assembly.

In order for any SSA to take advantage of the above benefits, the SSA needs to have a visa system in place that, among other things, prevents illegal transshipment and the use of counterfeit documentation. As of the date of this article, two SSAs -- Kenya and Mauritius -- have had their visas systems approved by the US and may now ship apparel quota-free and (subject to the cap) duty-free to the US.

Roy Ian Delbyck
Law Office of Roy Ian Delbyck

Disclaimer: The above article is not intended as legal advice. Please consult your lawyer should you seek advice on any of the matters discussed in this article.
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