Earlier this year, I wrote on the AGOA, a subject of great interest for Hong Kong firms. AGOA contains many avenues to duty-free treatment for apparel, however, they are extremely restrictive, generally requiring that the fabric and yarn be of US or sub-Saharan African origin. The restriction-free avenue of any consequence is the AGOA provision that accords duty-free treatment to apparel that is wholly assembled in a so-called lesser developed beneficiary sub-Saharan African country (LDBC), such as Madagascar. Such apparel may, through September 30, 2004 and subject to certain quantitative limits, enter duty-free REGARDLESS of the origin of the fabric.

This provision could be read to cover both cut-and-sewn and knit-to-shape garments. Although the origin-conferring process for knit-to-shape garments is panel knitting and not assembly, the definition of "wholly assembled" under US law would not necessarily preclude knit-to-shape garments. However, Customs (at least Headquarters) has taken the view that this provision only applies to cut-and-sewn garments.

Other agencies of the US government, however, want this provision read more liberally, so that it also covers knit-to-shape. This situation will not be clarified until Customs issues implementing regulations for AGOA, which is expected to be within the next few months.

Notwithstanding the uncertainty, I understand that several importers are entering knit-to-shape sweaters from Madagascar and other LDBCs on a duty-free basis, claiming the benefit of this provision. This is a bit dicey. Customs presumably is letting these sweaters enter duty-free until the regulations issue. If the regulations reflect Customs restrictive position, Customs should go back to the importers for the duty (I assume Customs can track which entries are knit-to-shape from the HTS numbers and textile declarations).

If the implementing regulations continue to reflect the current restrictive view of Customs, then AGOA would provide only the following duty-free avenues for sweaters knit-to-shape in a sub-Saharan African country, neither of which covers the types of sweaters that Hong Kong firms commonly deal in:

- for cashmere sweaters; and

- for sweaters that are 50% or more weight by wool with a diameter of 18.5 microns or finer.

Assuming that AGOA continues to be restrictively interpreted by Customs, the only avenue to duty-free treatment under AGOA would be to engineer the manufacture of the sweaters from the LDBC so that they are considered to be cut-and-sewn garments, not knit-to-shape garments. In that case, they could receive the duty-free treatment through September 30, 2004 mentioned above.

I will discuss this re-engineering in my next article.

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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